Quatloos! > Tax
Scams > Tax
Protestors > EXHIBIT:
Tax Protestor Dummies > Cases
("Damn, We Lost Again! And why is
it that people who sell
tax protestor materials file their tax returns anyway . . .")
778 F.2d 460
John A. NEWMAN, Appellant,
Irwin SCHIFF, Appellee.
John A. NEWMAN, Appellee,
Irwin SCHIFF, Appellant.
Nos. 84-1856, 84-1976.
United States Court of Appeals,
Submitted March 11, 1985.
Decided Nov. 27, 1985.
John A. Newman, St. Louis, Mo., for appellant.
Benson A. Snaider, New Haven, Conn., for appellee.
Before HEANEY, Circuit Judge, BRIGHT, Senior Circuit Judge, and
ARNOLD, Circuit Judge.
BRIGHT, Senior Circuit Judge.
John A. Newman, an attorney practicing law in St. Louis, Missouri, brought
this action against Irwin Schiff of Hamden, Connecticut, alleging breach
of contract. Newman claimed that Schiff had made a public offer of reward
to anyone who could cite any section of the Internal Revenue Code that
says an individual is required to file an income tax return. Newman asserted
he accepted Schiff's offer, and that Schiff breached the contract by failing
to pay him the reward. The district court [FN1] ruled in favor of Schiff
by finding that Newman's acceptance was not timely, and Newman appeals.
We affirm the judgment of the district court.
FN1. The Honorable John F. Nangle, United States District Judge for the Eastern
District of Missouri.
Irwin Schiff is a self-styled "tax rebel", who has made a career
and substantial profits out of his tax protest activities. [FN2] Schiff's basic
contention is that the federal income tax is a voluntary tax which no one is
required to pay. [FN3] Schiff has prepared various books and materials espousing
his point of view, including The Tax Rebel's Guide to the Constitution and
Declaration of Independence, The Freedom Kit ("For those wanting the original
work that ignited the tax rebellion * * * "), The Biggest Con: How the
Government is Fleecing You, and How Anyone Can Stop Paying Income Taxes ("The
amazing new best seller that exposes the fraud and deception by which the IRS
extracts income taxes from uninformed Americans ... and shows you how you can
PUT A STOP TO IT-NOW!"). He has promoted his books by appearing on over
five hundred radio and television programs, including Larry King's national
radio talk show, Tom Snyder's "Tomorrow" show, and "The David
Susskind Show," and by giving lectures in over sixty cities. Schiff claims
that his activities have caused over 100,000 people to no longer file or pay
FN2. Schiff refers to himself as an "economist and constitutionalist",
and as "America's leading untax expert." He recently served four
months in prison for failing to file federal income tax returns.
FN3. This position is meritless. See infra, p. 467.
On February 7, 1983, Irwin Schiff appeared live on CBS News Nightwatch (Nightwatch),
a nighttime television program with a viewer participation format. Schiff was
interviewed by host Karen Stone from approximately 3:00 a.m. to 4:00 a.m. Eastern
Time. The words "Nightwatch Phone-In" and the telephone number (212)
955-9555 were flashed on the screen periodically during Schiff's appearance.
In addition, Ms. Stone repeated the telephone number and encouraged viewers
to call and speak directly with Schiff on the air.
During the course of the Nightwatch program, Schiff repeated his long-standing
position that, "there is nothing in the Internal Revenue Code which I
have here, which says anybody is legally required to pay the tax." Following
a discussion of his rationale for that conclusion, Schiff stated: "If
anybody calls this show--I have the Code--and cites any section of this Code
that says an individual is required to file a tax return, I will pay them $100,000."
Newman did not see Schiff's live appearance on Nightwatch. He did, however,
see a two-minute taped segment of the original Nightwatch interview that was
rebroadcast several hours later on the CBS Morning News. The CBS Morning News
rebroadcast included Schiff's reward proposal. [FN4]
FN4. The following is a partial transcript of the CBS Morning News rebroadcast
of Schiff's Nightwatch appearance: DIANE SAWYER [Morning News commentator]:
Benjamin Franklin said nothing is certain in this world but death and taxes.
Irwin Schiff has gone a long way to try to disprove the second part of that
certainty, because Schiff says no one really has to pay taxes, and he talked
about that this morning with Karen Stone on the CBS News broadcast NIGHTWATCH.
[Thereafter, the following was replayed in part]:
KAREN STONE: Why do you object to the federal income tax?
IRWIN SCHIFF: Well, first of all, there's two reasons I object to it, on legal
grounds, and I object to it on economic grounds. But first of all -- legally,
the income tax is a voluntary tax. There's nothing in the Internal Revenue
Code, which I have here, which says anybody's legally required to pay the tax.
It's a voluntary tax, and if it were mandatory, it would be unconstitutional.
Now, the question is why--
* * *
STONE: But you went to jail for four months and paid a $10,000 fine. So in
essence, haven't you really paid your federal income taxes for those years
that you didn't file? SCHIFF: No. No. No, no. That was a fine, and I'm going
to be getting that back. We'll be suing the government--
* * *
STONE: Now--okay--Every year--you know, we all get our 1040s in the mail or
go pick them up, and you're saying that--that we are tricked into believing
SCHIFF: You're required to file.
STONE: That we're required to file.
SCHIFF: Absolutely. If anybody calls this show--I have the Code--and cites
any section of this Code that says an individual is required to file a tax
return, I'll pay them $100,000. The fact of the matter is that you're not required
to file. The income tax is voluntary, and it's not that I say it--(emphasis
Newman felt certain that Schiff's statements regarding the Internal Revenue
Code were incorrect. Upon arriving at work that day, he researched the issue
and located several sections of the Code that to his satisfaction demonstrated
the mandatory nature of the federal income tax system. The next day Newman
telephoned CBS Morning News and cited the following provisions of the Internal
Revenue Code as authority for his position that individuals are required to
pay federal income tax: 26 U.S.C. ss 1, 6012, 6151, 6153, 7201, 7202 and 7203.
Newman placed his call to (212) 975-4321, the number given him by the long
distance operator for CBS in New York. He then reduced this conversation to
writing and sent it to the CBS Morning News. [FN5] Newman's letter stated that
it represented "performance of the consideration requested by Mr. Schiff
in exchange for his promise to pay $100,000."
FN5. The text of Newman's letter to the CBS Morning News, dated February
8, 1983, reads as follows: This letter is in response to a statement made
Erwin [sic] Schiff, who was a guest on the CBS Morning News on Monday,
February 7, 1983. During the interview, Mr. Schiff, who regards himself as
a tax protestor,
stated that the Internal Revenue Code did not mandate the payment of tax.
Mr. Schiff presented a copy of the Code, declaring that if anyone could find
provision in the Code making the payment of tax mandatory, he would pay
that person $100,000. In response to Mr. Schiff's offer, I have located the
portions of the Internal Revenue Code mandating the payment of tax. Code
section 1 "imposes" tax on individuals according to their respective income
levels and filing status. Code section 6012 provides that individuals meeting
certain income threshholds [sic] "shall" file a return. Webster's
New Collegiate Dictionary states that "shall," when used in laws
or regulations, constitutes a directive "to express what is mandatory." Code
section 6151 provides that persons required to make returns "shall ...
pay such tax ... at the time and place for filing the return." Section
6653 imposes various civil penalties for "failure to pay tax," the
severity of which depends on the taxpayer's degree of culpability. Finally,
Code sections 7201, 7202 and 7203 impose criminal sanctions, including
fines and imprisonment, for failure to pay tax imposed by the Code. In
light of the
foregoing, it is clear that our system of taxation is indeed mandatory
and that we are required to pay tax. This letter is intended to constitute
of the consideration requested by Mr. Schiff in exchange for his promise
to pay $100,000. I am communicating directly with CBS in this matter because
offer was extended over the CBS network and your staff was unable to provide
Mr. Schiff's own address. I will, of course, look solely to Mr. Schiff
for performance of his promise. Meanwhile, could you please send me a copy
relevant portions of the program transcript, and Mr. Schiff's address if
it can be located?
CBS responded to Newman's letter on March 3, 1983, informing him that a copy
of it had been forwarded to Schiff at Freedom Press. On April 13, 1983, after
not hearing from Schiff for over a month, Newman wrote to him at Freedom Press.
Newman repeated the portion of his previous letter which discussed Internal
Revenue Code provisions that stand for the mandatory nature of the federal
tax system. He then reiterated his claim for the $100,000 reward.
On April 20, 1983, Schiff wrote to Newman and stated that:
[y]our letter to Mr. O'Regan at CBS Morning News was forwarded to me. I did
make an offer on the February 7, 1983 news (which was actually part of an interview
conducted earlier in the week)." Schiff said, however, that Newman had
not properly accepted his offer for both substantive and procedural reasons.
FN6. The text of Schiff's letter to Newman, dated April 20, 1983, reads as
Your letter to Mr. O'Regan at CBS Morning News was forwarded to me. I did make
an offer on the February 7, 1983 news (which was actually part of an interview
conducted earlier in the week). That offer was to pay $100,000 to the first
person who could produce a section of the code that states anyone is required
to file. You did not produce a section that states an individual is required
to file a return. Section 6012 does not state anyone is required to file as
explained in my book (see attachment). In addition, my offer was extended beginning
last October and I had received numerous letters claiming that same section
of the code as proof prior to the February 8 date of your letter (which obviously
had to be mailed after February 8). Since that letter was dated after receipt
of others naming the same code you did, you would not, in any case, be eligible
even if that section proved that individuals were required to file.
Newman then sued Schiff in federal district court for breach of contract.
The district court decided that: (1) Schiff intended for his offer to remain
open only until the conclusion of the live Nightwatch broadcast; (2) the rebroadcast
on CBS Morning News did not renew or extend Schiff's offer; and therefore (3)
Newman's acceptance of the offer was untimely. The district court went on to
state that Schiff's argument that there is no requirement for individuals to
file a tax return is "blatant nonsense."
Newman moved for additional findings of fact and an amendment of judgment.
The district court did not alter its judgment, but did make additional conclusions.
The district court decided that Schiff ratified the CBS Morning News rebroadcast
of his original Nightwatch offer by failing to object after learning of the
rebroadcast, by accepting the benefits of the added publicity, and expressly
by his letter dated April 20, 1983. The district court said that the ratification
constituted a renewal of Schiff's original offer. Nevertheless, it decided
that Newman's failure to respond on the morning of the rebroadcast meant that
his acceptance was still untimely. This appeal followed.
Newman contends that the district court applied the wrong standard in judging
the timeliness of his response to the rebroadcast. We do not reach the issue
of timeliness, however, because we conclude that thedistrict court erred by
ruling that Schiff renewed his Nightwatch offer through ratifying the CBS Morning
News rebroadcast. Consequently, we affirm the judgment of the district court
on grounds that Newman did not accept Schiff's initial and only offer that
had been made on the Nightwatch program.
A. The Requirement of Mutual Assent.
It is a basic legal principle that mutual assent is necessary for the formation
of a contract. A significant doctrinal struggle in the development of contract
law revolved around whether it was a party's actual or apparent assent
that was necessary. This was a struggle between subjective and objective theorists.
The subjectivists looked to actual assent. [FN7] Both parties had to actually
assent to an agreement for there to be a contract. External acts were merely
necessary evidence to prove or disprove the requisite state of mind. The
familiar cliche was that a contract required a "meeting of the minds" [FN8]
of the parties. 1 S. Williston, Williston on Contracts s 22, at 48 (3d ed.
1957). The objectivists, on the other hand, looked to apparent assent. The
expression of mutual assent, and not the assent itself, was the essential
element in the formation of a contract. As the court in Woburn National Bank
v. Woods, 77 N.H. 172, 89 A. 491 (1914), said:
FN7. For a history of the subjective theory of assent, and its eventual displacement,
see M. Horowitz, The Transformation of American Law 1780- 1860, 180-88 (1977);
Williston, Mutual Assent in the Formation of Contracts, 14 Ill.L.Rev. 85 (1919);
Ricketts v. Pennsylvania R.R., 153 F.2d 757, 760 (2d Cir.1946) (Frank, J.,
FN8. We agree with Professor Farnsworth that this abused metaphor should
be abandoned. He traces its origins to a "faulty etymology", under which
it was wrongly assumed that the word "agreement" was derived from
aggregatio mentium, a meeting of the minds. See Farnsworth, "Meaning" in
the Law of Contracts, 76 Yale L.J. 939, 943-44 (1967).
A contract involves what is called a meeting of the minds of the parties.
But this does not mean that they must have arrived at a common mental state
touching the matter in hand. The standard by which their conduct is judged
and their rights are limited is not internal, but external. * * * [T]he question
is: What did the party say and do? "The making of a contract does not
depend upon the state of the parties' minds; it depends on their overt acts." Id.
at 175, 89 A. at 492. The Missouri Court of Appeals [FN9] issued a classic
decision that illustrates the objective theory of assent. [FN10] Embry v. Hargadine-McKittrick
Dry Goods Co., 127 Mo.App. 383, 105 S.W. 777 (1907). The case concerned an
alleged oral employment contract. Embry was an employee of the Hargadine-McKittrick
Dry Goods Company under a written contract to expire December 15, 1903. Embry
contended that on December 23, 1903 he spoke with Mr. McKittrick, the company's
president, and was re-employed for one year. Approximately two months later
Embry was discharged. He sued for breach of contract. The dispute centered
on the meaning of the December 23rd conversation between Embry and McKittrick.
The trial court required the jury, in order to decide there was a contract, "not
only to find the conversation occurred as [Embry] swore, but that both parties
intended by such conversation to contract with each other * * *." Id.
at 387, 105 S.W. at 778. Embry challenged this instruction and the court of
appeals reversed. It said that insofar as "intention is an influential
element, it is only such intention as the words or acts of the parties indicate
* * *." Id. at 388, 105 S.W. at 778. Therefore, the court of appeals ruled
that the trial "court erred in making the formation of a contract depend
on a finding that both parties intended to make one." Id. at 392, 105
S.W. at 780. It held that "though McKittrick may not have intended to
employ Embry * * * if what McKittrick said would have been taken by a reasonable
man to be an employment, and Embry so understood it, it constituted a valid
contract of employment for the ensuing year." Id. at 390, 105 S.W. at
FN9. We, of course, observe that in the case before us jurisdiction is based
upon diversity of citizenship and Missouri law applies.
FN10. Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954) provides another example
of the objective approach. The Lucys brought suit for the specific performance
of an alleged contract for the sale of a farm. The Zehmers responded that their
offer had been made in jest. The Virginia Supreme Court of Appeals held that
it is the outward expression of assent, rather than actual mental assent, that
is necessary for the formation of a contract. Id. at 502, 84 S.E.2d at 521.
The court noted that there were many factors which made it reasonable for the
Lucys to assume that they had entered into a binding contract, and therefore
it ruled in their favor. Id. at 501, 84 S.E.2d at 521.
By the end of the nineteenth century the objective approach to the mutual
assent requirement had become predominant, and courts continue to use it today.
E. Allan Farnsworth, Contracts s 3.6, at 114 (1982). Professor Corbin states
the rule in the following manner: The great majority of contracts are bargaining
contracts, the purpose of which is to effect an exchange of promises or of
other performances. To attain this purpose, there must be mutual expressions
of assent to the exchange. These expressions must be in agreement * * *. 1
A. Corbin, Corbin on Contracts s 107, at 478 (1963) (emphasis added). This
does not mean, however, that courts should completely ignore the actual and
proven assent of either of the parties. [FN11] 1 A. Corbin, supra s 106, at
477 (1963). See also Eisenberg, The Responsive Model of Contract Law, 36 Stan.L.Rev.
1107 (1984); Farnsworth, "Meaning" in the Law of Contracts, 76 Yale
FN11. The extreme position that the actual intentions of the parties are irrelevant
is exemplified by Judge Learned Hand's frequently quoted dictum: A contract
has, strictly speaking, nothing to do with the personal, or individual, intent
of the parties. A contract is an obligation attached by the mere force of law
to certain acts of the parties, usually words, which ordinarily accompany and
represent a known intent. If, however, it were proved by twenty bishops that
either party, when he used the words, intended something else than the usual
meaning which the law imposes on them, he would still be held, unless there
were mutual mistake, or something else of the sort. Hotchkiss v. National City
Bank, 200 F. 287, 293 (S.D.N.Y.1911), aff'd, 201 F. 664 (2d Cir.1912), aff'd,
231 U.S. 50, 34 S.Ct. 20, 58 L.Ed. 115 (1913).
B. The Mechanics of Mutual Assent: Offer and Acceptance.
Courts determine whether the parties expressed their assent to a contract
by analyzing their agreement process in terms of offer and acceptance. An offer
is the "manifestation of willingness to enter into a bargain, so made
as to justify another person in understanding that his assent to that bargain
is invited and will conclude it." Restatement (Second) of Contracts
s 24 (1981). Coffman Industries, Inc. v. Gorman-Taber Co., 521 S.W.2d 763,
The present case concerns a special type of offer: an offer for a reward.
At least since the time of Lilli Carlill's unfortunate experience with the
Carbolic Smoke Ball, courts have enforced public offers to pay rewards. Carlill
v. Carbolic Smoke Ball Co., (1892) 2 Q.B. 484, aff'd, (1893) 1 Q.B. 256 (C.A.1892).
In that case, frequently excerpted and discussed in student lawbooks, the Carbolic
Smoke Ball Company advertised that it would pay a "1001 reward" to
anyone who contracted "the increasing epidemic influenza, colds, or any
disease caused by taking cold, after having used the Carbolic Smoke Ball three
times daily for two weeks according to the printed directions supplied with
each ball." Id. Ms. Carlill, relying upon this promise, purchased and
used a Carbolic Smoke Ball. It did not, however, prevent her from catching
the flu. The court held that the advertised reward constituted a valid offer
which Ms. Carlill had accepted, thereby entitling her to recovery.
The Missouri courts enforced a public reward offer in a case concerning the
notorious desperado Jesse James. Rudy Turilli, operator of the "Jesse
James Museum," appeared before a nationwide televised audience and offered
$10,000 to anyone who could disprove his contention that Jesse James was not
murdered in 1882, but in fact lived for many years thereafter under the alias
J. Frank Dalton and last resided with Turilli at his museum into the 1950's.
Stella James, a relative of Jesse James, accepted the challenge and produced
affidavits of persons who had identified Jesse James' body after the shooting
in 1882. Turilli denied that the evidence satisfied the requisite degree of
proof and refused to pay the $10,000. The trial court ruled that Ms. James
was entitled to the reward, and the Missouri Court of Appeals upheld this judgment.
James v. Turilli, 473 S.W.2d 757, 763 (Mo.Ct.App.1971).
1. The Nightwatch Offer.
In the present case, Schiff's statement on Nightwatch that he would pay $100,000
to anyone who called the show and cited any section of the Internal Revenue
Code "that says an individual is required to file a tax return" constituted
a valid offer for a reward. In our view, if anyone had called the show and
cited the code sections that Newman produced, a contract would have been
formed and Schiff would have been obligated to pay the $100,000 reward, for
his bluff would have been properly called.
2. The CBS Morning News Rebroadcast.
Newman, however, never saw the live CBS Nightwatch program upon which Schiff
appeared and this lawsuit is not predicated on Schiff's Nightwatch offer.
Newman saw the CBS Morning News rebroadcast of Schiff's Nightwatch appearance.
This rebroadcast served not to renew or extend Schiff's offer, but rather
only to inform viewers that Schiff had made an offer on Nightwatch. The
rebroadcast constituted a newsreport and not a renewal of the original offer.
is the master of his offer and it is clear that Schiff by his words, "If
anybody calls this show * * * ", limited his offer in time to remain
open only until the conclusion of the live Nightwatch broadcast. A reasonable
person listening to the news rebroadcast could not conclude that the above
language--"calls this show"--constituted a new offer; rather than
what it actually was, a newsreport of the offer previously made, which had
already expired. The district court further concluded, however, that Schiff's
conduct subsequent to the rebroadcast and his letter of April 20, 1983 were
a ratification of the CBS Morning News rebroadcast and constituted a renewal
of the Nightwatch offer. We disagree.
Schiff's conduct and letter should not be analyzed under the rubric of ratification.
Instead they are pertinent to the initial question of whether the CBS Morning
News rebroadcast was an offer. As we discussed above, this question is to be
decided using an objective approach without completely disregarding the actual
and proven assent of either of the parties. Here, in Schiff's letter, we have
a statement indicating that the rebroadcast may have been an offer. If Schiff
believed that the rebroadcast was an offer, then that belief would tend to
make it appear more reasonable for Newman to have reached the same conclusion.
We note, however, that both Schiff's conduct and his letter are indefinite.
He still denied the obligation. Schiff's conduct and correspondence do not
change the facts that the rebroadcast was merely a newsreport and that it was
not reasonable for the hearer to construe the newsreport as a new offer.
Even if we were to analyze Schiff's letter and conduct using ratification
principles, we would reach a different conclusion than the district court.
Under Missouri law ratification is an express or implied adoption or confirmation
by one person, with knowledge of all material matters, of an act performed
on his behalf by another who lacked the authority to do so. Hyken v. Travelers
Insurance Co., 678 S.W.2d 454, 459 (Mo.Ct.App.1984); Wilks v. Stone, 339 S.W.2d
590, 595 (Mo.Ct.App.1960); Restatement (Second) of Agency s 82 (1958). Ratification
relates back and is the equivalent of authority at the commencement of the
act. In a typical situation an agent, without authority, enters into a contract
on the principal's behalf and the principal later ratifies the contract thereby
agreeing to be bound by the agent's action. Ratification may occur either expressly
or indirectly through conduct of the party. Wilks v. Stone, supra, 339 S.W.2d
at 595. See also Weber v. Towner County, 565 F.2d 1001, 1008-09 (8th Cir.1977).
Ratification serves to authorize that which was unauthorized. Ratification
cannot, however, give legal significance to an act which was a nullity from
the start. If, for example, an agent enters into a contract lacking in consideration,
subsequent ratification by the principal cannot, by itself, create a valid
contract. See W. Seavey, Handbook of the Law of Agency s 33, at 61 (1964).
Applying these principles to the present case, we conclude that Schiff did
not renew his Nightwatch offer by ratifying the CBS Morning News rebroadcast.
Schiff may have ratified (i.e. authorized) CBS's act of rebroadcasting an excerpt
of his Nightwatch interview, yet this did not give the rebroadcast legal effect
as a renewed offer. The rebroadcast itself was not an offer, only a newsreport.
Schiff's subsequent conduct and letter do not convert it into an offer.
D. Mandatory Nature of the Federal Income Tax System.
Schiff's claim that there is nothing in the Internal Revenue Code that requires
an individual to file a federal income tax return demands comment. The kindest
thing that can be said about Schiff's promotion of this idea is that he is
grossly mistaken or a mere pretender to knowledge in income taxation. We
have nothing but praise for Mr. Newman's efforts which have helped bring
this to light.
Section 6012 of the Internal Revenue Code is entitled "Persons required
to make returns of income," and provides that individuals having a gross
income in excess of a certain amount "shall" file tax returns for
the taxable year. 26 U.S.C. s 6012. Thus, section 6012 requires certain individuals
to file tax returns. United States v. Drefke, 707 F.2d 978, 981 (8th Cir.),
cert. denied, 464 U.S. 942, 104 S.Ct. 359, 78 L.Ed.2d 321 (1983).
The district court stated that Schiff's argument is "blatant nonsense." Schiff
did not challenge this ruling in his cross-appeal.
We affirm the judgment of the district court for the reasons discussed above.
Although Newman has not "won" his lawsuit in the traditional sense
of recovering a reward that he sought, he has accomplished an important goal
in the public interest of unmasking the "blatant nonsense" dispensed
by Schiff. For that he deserves great commendation from the public. Perhaps
now CBS and other communication media who have given Schiff's mistaken views
widespread publicity, see supra, pp. 461-62, will give John Newman equal time
in the public interest.
Affirmed but without any costs against John Newman.
to Tax Protestor Exhibit