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The U.S. vs. Robert Kahre: A Horrible Miscarriage of Justice

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The Ninth Circuit Court of Appeals has upheld the criminal conviction of Robert Kahre, the man who incurred the wrath of the IRS by paying his employees in gold coin. Since the face value of the gold coins was significantly below the legal threshold that triggers withholding taxes, the Court held that Kahre didn’t do his duty to serve as tax collector for the U.S. welfare-warfare state by withholding income taxes from the monies paid to his employees. He’s now serving a 15-year sentence—yes, 15 years in a federal penitentiary!

What’s another possible reason for that IRS wrath and the Ninth Circuit’s ruling?

By his actions, Kahre has (1) exposed the fraud of the U.S. government’s labeling of gold coins as legal tender and (2) exposed the U.S. government’s decades-long fraudulent debasement of its paper money.

Keep in mind that our American ancestors fully and completely rejected the paper-money system under which Americans now live. That’s why gold and silver coins were America’s official money for the first 150 years of our country’s history. During that time, Americans didn’t use irredeemable paper money for their economic transactions, as today’s Americans do. They used gold coins and silver coins.

Periodically, the U.S. government would borrow money. To do so, it issued bonds, notes, and bills. Sometimes the notes and bills would circulate but everyone understood that they were actually promises to pay money (i.e., gold and silver coins), not money itself.

With the welfare-state revolution brought on by the Franklin Roosevelt administration, America’s monetary system came to a screeching halt, and without even the semblance of a constitutional amendment. FDR and his statist cronies simply decreed that gold and silver coins would no longer be the official money of the United States. Instead, the government’s paper bills and notes would be. Americans were ordered, on pain of fine and imprisonment, to turn their gold over to the government. It was one of the most remarkable events in the history of the United States, the type that totalitarian regimes would do to their citizens.

What did those bills and notes that were now circulating as money promise to pay? Nothing. While they were still called bills and notes (e.g., a dollar bill and a Federal Reserve Note), they promised to pay nothing. The beauty of the scheme, from the standpoint of U.S. officials, is that they could now spend whatever they wanted on their welfare-warfare state schemes. The sky on federal spending was now the limit. All they had to do was just keep printing the money to finance their schemes.

In the 1970s, once several generations of Americans had lost sight of the fact that gold and silver coins had once been the official money of the United States, Congress made it once again legal to own gold and silver coins. Ever since then, the U.S. government has issued gold coins that under the law continue to be legal tender, just as they were in the first 150 years of our country’s history.

What does that mean? It means that under U.S. law, gold and silver coins continue to be official money of the United States, along with its irredeemable paper money.

So, why don’t people use such coins in everyday transactions, like our ancestors did? Because owing to the debasement of the currency, decade after decade since the FDR administration, it pays to use the government’s debased fiat money rather than its gold coins.

Consider, for example, an official U.S. gold coin with a face value of $50. Suppose you want to purchase something that costs $50. You could pay the seller with that $50 gold coin and he would be required, under the law, to accept it.

Why wouldn’t you do that? Because you could first go out and sell the coin for, say, $1,250 in paper money, use $50 to pay for the item, and pocket $1,200 in paper money.

But let’s assume, for argument’s sake, that the buyer does, in fact, pay for the item with the $50 gold coin and later sues the seller for $1,200 in change? Could he recover? No, because the gold coin is legal tender at its face value. Once the buyer pays for the item with the gold coin, that’s the end of the transaction.

Suppose an employer and an employee enter into an employment contract in which the employee agrees to work at a monthly salary of $100. At the end of the month, the employer pays the employee two gold coins, each with a face value of $50. His income is $100 a month.

In essence, that’s what Kahre did. Since $100 isn’t enough to trigger IRS withholding requirements, Kahre didn’t withhold income taxes from his employees.

The IRS and the Ninth Circuit say: Oh no, you don’t. Even though those gold coins are legal tender under the law, you have to use their “fair market value” in terms of paper money in determining the employee’s actual compensation.

How does the federal judiciary justify this, given that the gold coins are legal tender at their face value? The Ninth Circuit says that IRS regulations require compensation paid in property rather than cash be valued at “fair market value” in terms of paper money. Since gold coins are property, the Court says, they must be valued at their “fair market value” in terms of paper money.

But wait a minute. Gold coins are cash. They’re just as much cash as the government’s paper money (which, like gold coins, is also property).  If Congress doesn’t want U.S. gold coins to serve as money, then why does it just make one-ounce coins without a monetary denomination stamped on them? Why does it make the gold coins legal tender?

And pray tell: Since when does an IRS regulation overrule a law enacted by Congress?

What Kahre did is expose the fraud behind all this, which is what has made welfare-warfare state officials go ballistic. Either U.S. gold coins are legal tender or not. Either they are cash or not. If they’re not cash or legal tender, then it’s wrong for the U.S. government to be representing that they are cash and legal tender. That’s fraud.

Let’s assume that someone owes the IRS $1000 and uses gold coins with a total face value of $1,000 to pay his tax bill. Would the Ninth Circuit order the IRS to pay the taxpayer the difference between the face value of the coins and the fair market value of the coins? Of course not. They would say that the taxpayer is out of luck given the legal-tender quality of the gold coins he used to pay his taxes.

Kahre has also exposed the fraudulent means by which the welfare-warfare state has plundered the American people through the fiat money scheme that FDR foisted on the American people during the New Deal. Today, it takes $1,200 in paper money, not $50 in paper money, to purchase one $50 gold coin. That difference reflects the horrific damage that U.S. officials have done to our money over the decades.

That’s why they needed to punish Kahre so severely—15 years in jail for using gold coins! He exposed the fraud of the statists’ beloved welfare-warfare state and the means—income taxation and inflation–by which the statists fund it. What a horrible miscarriage of justice.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.