The Courts and the Federal Reserve System

by Edward Flaherty

The Courts and the Federal Reserve System

by Edward Flaherty

January 25, 1997

Are the Federal Reserve System and the currency it issues constitutional? Some factions have asserted that only gold and silver coins, gold and silver certificates, or currency issued directly by the U.S. Treasury are legal tender, aka, "lawful money." In many of the cases below, the courts cited article 1, sections 8 and 10 of the Constitution as legal justification for the Federal Reserve system, and titles 12 and 31 of the U.S. Code which contain sections designating Federal Reserve notes as legal tender.

Below is some of what the federal courts have had to say on the matters of Fed and Federal Reserve Note constitutionality. Note that many of these cases were really just tax-dodging schemes. My favorites are #3 and #9.

1. U.S. v. Wangrund, 533 F.2d 495; C.A.Cal. 1976

The statute establishing Federal Reserve Notes as legal tender for all debts, public and private, including taxes, is within the constitutional authority of Congress; thus the defendant could not overturn his conviction on two counts of wilful failure to make an income tax return on the theory that he did not receive money since checks he received as compensation for his services could be cashed only for Federal Reserve Notes which were not redeemable in specie. 26 USCA (IRC 1954) 61, 7203; USCA Const. art. 1, 8; Coinage Act of 1965, 102; 31 USCA 392.

2. U.S. v. Rickman, 638 F.2d 182, C.A.Kan. 1980.

Federal Reserve Notes in which the defendant, charged with failure to file federal income tax returns, was paid were lawful money within the meaning of the United States Constitution. 26 USCA 7203; USCA Const. Art. 1, 8, cl. 5.

3. Foret v. Wilson, 725 F.2d 400. C.A.La. 1984.

Gold and silver coin do not constitute the only legal tender by the United States; thus, the appellant, who bid $2.80 in silver dimes on a foreclosed property requiring a minimum bid of $80,000 under Louisiana law, was not entitled to the deed to the property.

4. U.S. v. Rifen, 577 F.2d 1111. C.A.Mo. 1978.

The United States Constitution prohibits states from declaring legal tender anything other than gold or silver but does not limit Congress' power to declare what shall be legal tender for all debts ... Federal Reserve Notes are taxable dollars. Coinage Act of 1965, 102, 31 USCA 392; USCA Const. Art. 1, 10.

5. U.S. v. Hori, 470 F.Supp. 1209. D.C.Cal. 1979.

Income tax liability was not precluded on the theory that there has been no constitutional money in circulation since March 18, 1968.

6. Nixon v. Phillipoff, 615 F.Supp. 890, affirmed 787 F.2d 596. D.C.Ind. 1985.

The provision of the Constitution [USCA Const Art. 1, 8, cl. 5] which gives Congress the right to coin money, and regulate the value thereof, gives Congress exclusive ability to determine what will be legal tender throughout the country ... The provision of the Constitution [USCA Const. Art. 1, 10, cl. 1] which mandates that no state shall make anything but gold or silver coin tender in payment of debts acts only to remove from states inherent soverign power to declare currency, thus leaving Congress as the sole declarant of what constitutes legal tender; the provision does not require states to accept only gold and silver as tender ... Federal Reserve Notes are legal tender for any debt or public charge ... Using or accepting Federal Reserve Notes as payment for state court filing fees was completely proper under the Constitution. USCA Const. Art. 1, 8, cl. 5; 31 USCA, 5103.

7. Nixon v. Individual Head of St. Joseph Mortgage Company, 615 F.Supp. 890, affirmed 787 F.2d 596. D.C.Ind. 1985.

Federal Reserve notes are legal tender.

8. Harwood v. U.S., 440 F.Supp. 1019. D.C.Mass. 1977.

Taxpayers were not entitled to a refund on 1972 tax return on the ground that the return was based on 'pseudo-dollars' while it should have been based on 'statutory dollars' since Congress in 1972 reduced dollar weight to 1/38th of a fine troy ounce of gold.

9. Ginter v. Southern, 611 F.2d 1226, certiorari denied 100 S.Ct 2946, 446 US 967, 64 L.E.d.2d 827. C.A.Ark. 1979.

Tax protestor's claims concerning the constitutionality of the Federal Reserve System, Internal Revenue Code and establishment of tax court were so frivolous as not to require discussion and detail. USCA Const. Amends. 5, 13; 28 USCA 1346(a)(1); 26 USCA (IRC 1954) 6532(a), 7422(a).

10. U.S. v. Schmitz, 542 F.2d 782 certiorari denied 97 S.Ct. 1134, 429 US 1105, 51 L.Ed.2d 556. C.A.Cal. 1976.

Federal Reserve Notes constitute legal tender and are taxable dollars. USCA Const. Art. 1, 10.

11. Milam v. U.S., 524 F.2d 629. C.A.Cal. 1974.

The statute which delegates to the Federal Reserve System the power to issue circulating notes for money borrowed and the power to define the quality and force of those notes as currency is valid ... Although golden eagles, double eagles, and silver dollars were lovely to look at and delightful to hold, the holder of a $50 Federal Reserve Bank Note, although entitled to redeem his note, was not entitled to do so in precious metal. Federal Reserve Act, 16, 12 USCA 411; Coinage Act of 1965, 102, 31 USCA 392

12. U.S. v. Whitesel, 543 F.2d 1176, certiorari denied 97 S.Ct. 2924, 431 US 967, 53 L.Ed.2d 1062, rehearing denied 98 S.Ct. 245, 434 US 881, 54 L.Ed.2d 165. C.A.Ohio 1976.

Both the Sixteenth Amendment and the Internal Revenue Code deal with taxation of 'income,' not with 'legal tender,' and thus where taxpayer had received income during years in which he had not paid any income tax taxpayer was not exempt from taxation, notwithstanding his contention that income he received was not immediately backed by gold or silver and did not constitute 'legal dollars.' USCA Const. Amend. 16; 26 USCA (IRC 1954) 7203,7205.

13. U.S. v. Gardiner, 531 F.2d 953, certiorari denied 97 S.Ct. 145, 429 US 853, 50 L.Ed.2d 128. C.A.Or. 1976.

Conviction of the defendant for failure to file federal income tax returns was not improper on the theory that the defendant had not been subject to jurisdiction of the IRS because the Federal Reserve Notes he received were not lawful 'money.' 26 USCA (IRC 1954) 7203.

14. U.S. v. Benson, 592 F.2d 257. C.A.Tex. 1979.

Federal Reserve Notes are legal tender for taxes, and constituted income for income tax purposes.

15. U.S. v. Anderson, 584 F.2d 369. C.A.Wyo. 1978.

Since Congress has exercised its power to coin money by means of delegation to the Federal Reserve System, and since Federal Reserve Notes have been defined as legal tender, there can be no challenge to the legality of Federal Reserve Notes. USCA Const. Art. 1, 8, cl. 5; Federal Reserve Act, 16, 12 USCA 411; Coinage Act of 1965, 102; 31 USCA 392.