IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION ------------------------------------------------------- UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) VS. ) NO. 03-20111-Ml ) ) VERNICE KUGLIN, ) ) Defendant. ) ------------------------------------------------------- TRIAL PROCEEDINGS BEFORE THE HONORABLE JON PHIPPS MCCALLA, JUDGE AUGUST 6, 2003 VOLUME III BRENDA PARKER OFFICIAL REPORTER SUITE 942 FEDERAL BUILDING 167 NORTH MAIN STREET MEMPHIS, TENNESSEE 38103 482 A P P E A R A N C E S Appearing on behalf of the Plaintiff: TERRELL L. HARRIS, ESQ. UNITED STATES ATTORNEY SUITE 800 FEDERAL BUILDING 167 NORTH MAIN STREET MEMPHIS, TENNESSEE 38103 By: JOSEPH MURPHY, ESQ. Appearing on behalf of the Defendant: LOWELL H. BECRAFT, JR. 209 LINCOLN STREET HUNTSVILLE, ALABAMA 35801 ROBERT G. BERNHOFT, ESQ. 207 EAST BUFFALO STREET MILWAUKEE, WISCONSIN 53202 483 W I T N E S S I N D E X WITNESS PAGE LINE VERNICE KUGLIN DIRECT EXAMINATION (CONTINUED) BY MR. BECRAFT: ....................... 499 11 CROSS EXAMINATION BY MR. MURPHY: ........................ 568 19 REDIRECT EXAMINATION BY MR. BECRAFT: ....................... 627 13 484 E X H I B I T I N D E X EXHIBIT NUMBER PAGE LINE Exhibit Number 28 2-3-53 Document 506 16 Exhibit Number 29 1997 Annual Report 507 9 Exhibit Numbers 30 1040 Instructions 1992 507 24 Exhibit Number 31 1040 Instructions 1993 508 1 Exhibit Number 32 1997 26 CFR 5601.602 508 22 Exhibit Number 33 1998 26 CFR 5601.602 508 24 Exhibit Number 34 1999 26CFR 5601.602 509 1 Exhibit Number 35 Cole v. McFarland Case 509 23 Exhibit Number 36 1975 1040 Instructions 518 23 Exhibit Number 37 IRS Bulletin 538 11 Exhibit Number 38 1993 Form 2555 Instruction5 13 Exhibit Number 39 1993 Form 2555 538 15 Exhibit Number 40 1916 Treasury Decision 544 9 Exhibit Number 41 October 18, 1995 Letter 558 4 Exhibit Number 42 November 25, 1995 Letter 558 6 Exhibit Number 43 Flora Case 571 15 Exhibit Number 44 1992 Tax Return 574 9 Exhibit Number 45 1988 Form 1040 576 7 Exhibit Number 46 1990 W-4 Form 578 13 Exhibit Number 47 Blank Form 1040 580 12 Exhibit Number 48 October 31, 1995 Letter 583 24 Exhibit Number 49 June 16, 1997 Letter 584 21 485 Exhibit Number 50 June 16, 1997 Letter 585 12 Exhibit Number 51 June 22, 1999 Letter 585 20 Exhibit Number 52 June 28, 1999 Letter 586 25 Exhibit Number 53 July 6, 1999 Letter 587 13 Exhibit Number 54 October 30, 2000 588 11 Exhibit Number 55 Tax Returns 601 6 Exhibit Number 56 CFR Passages 605 5 Exhibit Number 57 1993 Instructions 621 1 Exhibit Number 58 1995 1040 Instructions 625 24 486 1 WEDNESDAY MORNING & AFTERNOON 2 AUGUST 6, 2003 3 The trial in this case resumed on this date, 4 Wednesday, August 6, 2003, at 9:00 o'clock a.m., when and 5 where evidence was introduced and proceedings were had as 6 follows: 7 8 ____________ 9 10 MR. MURPHY: Judge, Ms. White is not here, but 11 she has gone to get some exhibits. 12 THE COURT: Do you need to wait on her? 13 MR. MURPHY: No, we don't need to wait on her. 14 MR. BECRAFT: Your Honor, could we take up a 15 matter, an evidence question before we bring in the jury? 16 THE COURT: Sure. 17 MR. BECRAFT: I anticipate that Mr. Murphy has 18 got a lot of objections to some of the proposed exhibits 19 that we're going to offer. With reference to that 20 category of exhibits, I'm proceeding with this in mind, 21 and I would like the court to either approve or 22 disapprove. It may take some arguments, and I think it is 23 going to be more beneficial for us to argue the bulk of 24 these motions outside the presence of the jury maybe 25 before a break or after a break or sometime after the 487 1 defendant gets off the stand. 2 THE COURT: Have you shown the materials to Mr. 3 Murphy? 4 MR. BECRAFT: Your Honor, I gave the government 5 premarked exhibits. 6 MR. MURPHY: Yes. 7 THE COURT: I think the answer is yes. Do we 8 have objections. 9 MR. MURPHY: Judge, as I said yesterday, and 10 just generally, my objections generally fall into three 11 categories. There are Supreme Court cases and IRS 12 materials, and I would be of the opinion that those are 13 admissible. 14 THE COURT: Are admissible? 15 MR. MURPHY: Yes, sir. 16 THE COURT: All right. 17 MR. MURPHY: And then there are, for lack of a 18 better word, tax protester type materials that may or may 19 not have extensive legal citations. In fact, one of 20 those, it talks about jury nullification and urges people 21 to nullify verdicts. Clearly, some of the text of that 22 may come in, but the document itself wouldn't, and I think 23 the defendant would be allowed to read from it, but I 24 think we need to know in advance what portion she is going 25 to read. And the last group of materials that they seek 488 1 to offer are letters from a CPA and an attorney, I believe 2 it is, that represented Ms. Kuglin, and our position would 3 be that those are clear hearsay. They're not -- they 4 don't fit the state of mind exception. 5 THE COURT: Are they letters that she claims to 6 have relied on? 7 MR. BECRAFT: Yes. 8 MR. MURPHY: Well, Judge, here is the problem. 9 I don't think she can claim to rely on those letters, 10 because at the time they were in the midst of a 11 controversy over the tax matter, and if you look at -- if 12 you look at, I think it's 803, the state of mind 13 exception, it clearly says that you can't offer 14 something -- a statement of belief to prove that belief. 15 And I would submit that's what you're doing in this case. 16 It's 803(3), Your Honor. 17 THE COURT: Oh, I'm not looking for that. I'm 18 looking for the good faith -- bases for good faith. I 19 don't know whether or not a person can rely on -- are 20 these -- I just have to look at the two letters, whatever 21 they are, and see whether they're something on which a 22 person can rely, and I haven't seen those. 23 MR. BECRAFT: Would the court like to look at 24 them now? 25 THE COURT: Sure. 489 1 MR. BECRAFT: Either my copies or hers. Ms. 2 Kuglin, have you got 43, 44, 45, 46? 3 THE WITNESS: Yes, I do. 4 MR. BECRAFT: May I approach the witness, Your 5 Honor? 6 THE COURT: Why don't you hand them to me, I'm 7 the one that has to look at them? Oh, okay. You're 8 right, it doesn't matter. I don't think this letter from 9 Thomas Roberts states an opinion in which a person can 10 rely. This is the one dated November the 26th, 1997. 11 This one of -- I don't think this one of December the 8th, 12 1997 also states an opinion on which a person can rely or 13 even suggest that there's an opinion attempting to be 14 stated on which a person can rely. I don't think this one 15 of January the 20th, 1997 also states an opinion upon 16 which a person could rely from a professional. They just 17 talk about request for documents which are not opinions on 18 which a person can rely. Well, the letter from Mr. Pope 19 also does not state an opinion upon which a person can 20 rely, as far as I can tell. 21 MR. BECRAFT: Your Honor, can I explain the 22 letters? 23 THE COURT: Excuse me? 24 MR. BECRAFT: And the purpose? 25 THE COURT: Well, they have to fall into an 490 1 exception. These are hearsay. And -- and -- clearly, so 2 as a general proposition, they're not admissible. 3 Sometimes a person can obtain an opinion, for example, 4 from -- well, from a CPA, and the CPA can state that they 5 have determined that no tax is owed on a particular -- or 6 as to a particular individual, and that they state that 7 that as a CPA in a professional capacity and advise the 8 client that they need not pay any tax on this particular 9 point. 10 MR. BECRAFT: These are not offered as opinion 11 letters, Your Honor. 12 THE COURT: Well, that's what I understood, 13 they're not opinion letters. Had they been opinion 14 letters, they would be in a different category, that's 15 true. 16 MR. BECRAFT: May I offer additional 17 information to the court on this point? 18 THE COURT: Sure, sure. 19 MR. BECRAFT: I had lined up to deal with the 20 authenticity question. These letters come from Florida, 21 and I had a secretary in an office that was going to come 22 up and prove the mailing of the letters. I don't think 23 the government is making an objection, we have agreed, 24 although the court is hearing about this for the first 25 time, that the question doesn't relate to authenticity. 491 1 What we're offering them for is not for opinion or 2 anything else, but what -- the point that we're offering 3 them for is that at Ms. Kuglin's instructions, these 4 gentlemen -- they're tentatively marked 43, 44, 45, 46, 5 just the numbers that appear on the documents, they're 6 offered for the purpose of showing that Ms. Kuglin said or 7 asked questions through her lawyers to the Internal 8 Revenue Service to answer, and she also makes statements, 9 there is letters -- there's statements in here we're 10 willing to pay, the only thing we want to do is we want to 11 have answers to our questions. For example, you know, 12 just to demonstrate to the court, the one that is labeled 13 43 that is dated November the 26th of '97 by Tom Roberts, 14 it says specifically kind of at the bottom of the page -- 15 THE COURT: I have read it already, sure. Our 16 client is not refusing to pay and, in fact, will pay any 17 lawful tax owed once the Internal Revenue Service complies 18 with our request as outlines in this document and, of 19 course, it begins earlier, since our client has never been 20 given documents by the IRS, which clearly state specific 21 taxes the IRS claims -- see, that's not how it works, 22 unfortunately, or however you want to look at it. In our 23 system, the IRS doesn't send them a bill, you send them in 24 materials which are reported. 25 I need to go take a phone call in the back, 492 1 apparently, and we will come back and look at this, but I 2 think probably -- well, we will come back and talk about 3 it for a second. 4 (Recess taken at 9:15 until 9:20 a.m.) 5 THE COURT: All right. Anything else from the 6 United States on these letters? 7 MR. MURPHY: No, sir, Your Honor. 8 THE COURT: Anything else from the defense? 9 MR. BECRAFT: Yes, Your Honor. These four 10 letters, there is a series of documents that I consider to 11 be the core of the defense. First is the documents that 12 have already been admitted in evidence, it's the exempt 13 Form W-4 dated December, 1995, that is authored by Ms. 14 Kuglin. Thereafter, in order of importance about exhibits 15 that we're going to cover this morning are two documents 16 that she submitted herself in October and November of 17 1995. Subsequent to that time, we had this series of 18 letters Ms. Kuglin was asked or asked these people, Tom 19 Roberts and Mr. Pope to write letters on her behalf to the 20 Internal Revenue Service asking her fundamental questions 21 and, likewise, at the same time offering to pay. 22 Now, under -- that being the case, it is our 23 position that it goes to her state of mind, which is the 24 most important factor that I think the jury has got to 25 decide in this case. She read these letters. She said 493 1 that she would make an offer -- she would pay the IRS, she 2 had no objections to paying the tax, she just wanted her 3 questions answered. That, Your Honor, goes to reliance, 4 state of mind as well as intent, and these -- these 5 letters are real important for the intent question, what 6 was her frame of mind. She wanted her questions answered, 7 she was willing to pay, and to me, that -- those are real 8 important facts that demonstrate a lack of intent to 9 commit tax evasion. 10 MR. MURPHY: Judge, if you look again at 11 803(3), this is being offered as a statement of belief to 12 prove the belief, and it's not admissible. We're -- where 13 these letters emanated from was an IRS proceeding to levy 14 on the defendant's property, and what that -- what that 15 would tend to do, I would submit to the court, is create a 16 situation where there was a motive to lie, and the 17 reliability factor that you typically have in a hearsay 18 statement, because it's on the spot type of thing just 19 wouldn't apply, and, therefore, we would submit that they 20 ought not to come in. They're just hearsay, there's no 21 way around it. 22 THE COURT: Well, the exception that's asserted 23 by the defense is 803(3), as I understand, and the 24 government simply argues that it doesn't apply. That rule 25 as to hearsay exception says the following are not 494 1 excluded by the hearsay rule even though the declarant is 2 available as a witness; three, then existing mental, 3 emotional or physical condition. A statement of the 4 declarant's then existing state of mind, emotion, 5 sensation or physical condition such as intent, plan, 6 motive, design, mental feeling, pain and bodily health, 7 but not including a statement of memory or belief to prove 8 a fact remembered or believed unless it relates to the 9 execution, revocation, identification or terms of 10 declarant's will. So this particular exception to the 11 hearsay rule does not apply to the letters submitted from 12 Mr. Roberts and from Mr. Pope. Objection by the United 13 States is sustained. 14 All right. Anything else? 15 MR. MURPHY: Yes, sir, Your Honor, you wanted 16 me to advise the court what our position would be as to a 17 lesser included offense. 18 THE COURT: Yes, I did. 19 MR. MURPHY: And our position is going to be 20 that the jury should not be charged with the lesser 21 included offense given the nature of the charge in this 22 case. 23 THE COURT: Anything from the defense on that? 24 MR. BECRAFT: Well, I offered one, I offered a 25 lesser included instruction. 495 1 THE COURT: Right, but -- 2 MR. BECRAFT: I think under the facts of this 3 case, the indictment alleges, if part of the offense is 4 committed by a willful failure to file. My position is 5 that terminology -- just by the plain terms of the 6 indictment itself includes the lesser included offense and 7 willful failure to file, 7203. 8 MR. MURPHY: But, Judge, if you look at the 9 defense they're offering, as I understand it, what the 10 witness has testified to, she had no duty to file a tax 11 return, and that's just not consistent with the defense 12 that's offered. 13 THE COURT: Well, there is discussion about the 14 inclusion of lesser included offense in pattern jury 15 instruction 8.07 of the Sixth Circuit pattern jury 16 instructions, and this does not appear to be a case where 17 the court should include the lesser included offense 18 instruction, so I'll sustain the position by the United 19 States. 20 There's some discussion of this in the notes 21 contained with -- or the comments contained with 8.07, and 22 I do agree with the United States that this is not -- 23 certainly not required and it's not appropriate in my 24 determination in this case. That takes care of that 25 point. 496 1 MR. BECRAFT: One other matter, Your Honor, 2 before the -- we dealt with the letters. The only other 3 point is that should we, on a piece-meal basis, handle the 4 rest of the exhibits or should we take them up outside the 5 presence of the jury was my offer? 6 THE COURT: Well, you know, the -- I haven't 7 looked at each of the -- Supreme Court cases and materials 8 from the Internal Revenue Service can be used. I mean 9 they're published materials, they're available for 10 everybody, and the law allows an individual to rely on 11 Supreme Court decisions, it allows individuals to rely 12 upon IRS materials, and so those can be used. 13 As to materials by other people or entities, 14 they fall in the same problem as any other type of 15 hearsay, and unless it is a learned treatise on tax law, 16 certainly read from and not necessarily have been 17 admitted, but refer to that sort of material, but it has 18 to meet some test to show that it is -- that it falls in 19 the an exception of the hearsay rule. Otherwise, we would 20 get up and read from the Marvel Comics or the Wall Street 21 Journal either one, and it would not be -- although parts 22 of the Journal -- part of the Journal are judicial notice 23 materials like the interest rate portions, but articles in 24 the newspaper would not be admissible themselves. So I 25 think that -- we know that they will not be admissible. 497 1 Now, that's our situation. If -- how much material do we 2 have like that? 3 MR. BECRAFT: Well, Your Honor, I slipped to 4 the court a proposed exhibit list. I have committed a 5 grave error by numbering mine in advance. Bad habits stop 6 slowly, Your Honor. But you can take a look at the 7 exhibit list, and what I will do -- I think it's something 8 we can probably take care of in short order outside the 9 presence of the jury is all I'm saying. I could lay the 10 foundation for some of these documents. I'm not going to 11 offer a lot of these. I will take into consideration what 12 the court has already said and move some of that in, but 13 there's some that I think probably require a separate 14 consideration, separate arguments that I anticipate coming 15 from Mr. Murphy. 16 THE COURT: Well, you have a lot of things, 17 these various opinions, interesting question about using 18 the ones that are very old, but I think you can clarify 19 them. CFR, there's no question about that, is there, Mr. 20 Murphy? 21 MR. MURPHY: No, sir, Your Honor, I believe 22 that's admissible. 23 MR. BECRAFT: And we have some forms, but then 24 there's a lot of other material that is not IRS and 25 everything else. 498 1 THE COURT: We have covered the things that you 2 listed as 43, 44, 45, 46. Ms. Kuglin's own correspondence 3 to the agency typically not admissible as a general 4 proposition because everybody can write their own material 5 and then would be able to introduce into evidence, but 6 sometimes it's received because there's no opposition, as 7 an admission, for example. So I don't know what the 8 government will say about those things. 9 MR. BECRAFT: I'll do whatever the court wants. 10 I will move them into evidence as we take them up. 11 THE COURT: Why don't we deal with them as they 12 come up? I did get the list though, thanks. 13 Are we ready? 14 MR. BECRAFT: We are, Your Honor. 15 COURT SECURITY OFFICER: Yes, Your Honor. 16 (Jury in at 9:40 a.m.) 17 THE COURT: Everybody can be seated. I'm sorry 18 we're starting a little late. The -- we did take up some 19 documents that -- as to which objections could be dealt 20 with in advance and ruled on those rather than our doing 21 those at side bars. There are going to be some other 22 documents that as they come up, we will probably try to 23 deal with at side bar. If we can't do it quickly, we will 24 take another break and deal with them. That way, we're 25 not causing you to have to sit out here while we're trying 499 1 to sort through the objections under the Rules of 2 Evidence. 3 The Rules of Evidence do dictate which type 4 documents can be received and the reasons that they can be 5 received, and it does take a little bit of time to go 6 through each document to make sure they can come in or 7 not. I think we're ready to proceed. 8 MR. BECRAFT: May it please the court. 9 THE COURT: Go right ahead. 10 DIRECT EXAMINATION (CONTINUED) 11 BY MR. BECRAFT: 12 Q. Ms. Kuglin, yesterday we had finished a particular 13 topic, and I would like to move on to a different aspect of 14 your testimony. 15 Between 1992 and early 1995 or maybe late 1995, can you 16 describe for us what you were doing in reference to generally 17 studying the income tax laws? 18 A. Well, after I had reviewed the cases and the 19 constitutional restrictions on taxation and the other study 20 materials I had, I had come to the conclusion that there was 21 definitely a question about whether or not I was liable for 22 the income tax. So I decided it was time that I really delve 23 into the tax code itself and the 1040 form, which is a 24 document that the IRS has asked Americans to complete. 25 Q. Let me stop you right there. Do you have in front of DIRECT - VERNICE KUGLIN 500 1 you a document that's called file folder one? 2 A. Yes. 3 Q. Okay. Now, is this something that during that time 4 frame that I just mentioned, is this something that you read 5 and relied upon? 6 A. Yes, it is. As I was going to the different 7 conventions and listening to different speakers, I picked up 8 fliers, information, newspaper articles and such like that 9 which substantiate or which discuss -- did not substantiate, 10 but discussed and raised questions which became kind of a road 11 map for the rest of my study. 12 Q. Is there something that you read in this -- identify 13 for me, please, this number one. 14 A. The first exhibit or this first document is entitled 15 Who Is Required To File A Tax Return. It's written by a lady 16 by the name of Claire Kelly, and she was a columnist who had 17 done a lot of research in the arena of taxation. 18 Q. And what was the general theme that you gathered from 19 this and how did it relate to your beliefs? 20 A. The general theme was much of what I had discussed 21 yesterday in regard to direct taxes, indirect taxes. She 22 quoted Supreme Court cases such as the Brushaber case, the 23 McFarland case and just a little bit more explanation as to 24 the fact that the source of income was very, very important in 25 deciding whether or not that income fell in the category of DIRECT - VERNICE KUGLIN 501 1 direct taxes which the federal government could only levy a 2 portion -- excuse me, through apportionment and send the bill 3 to the state, and that -- which was considered the source 4 which fell under excise taxes or indirect taxes which had to 5 be uniform throughout the state. 6 Q. Now -- 7 A. Or the country. 8 Q. Could I get you to identify the next document that has 9 a two on it? 10 A. This document is entitled Who Is a Taxpayer? And this, 11 again, is an article written by Claire Kelly. You want me to 12 continue? 13 Q. Yes, tell us what you gathered from reading that 14 document. 15 A. One of the first things -- it starts out by saying the 16 revenue laws are a code or a system of regulation, a tax 17 assessment and collection. They relate to taxpayers and not 18 to nontaxpayers and what this placed in my mind was the idea 19 that not every one is a taxpayer, and the article goes on to 20 say that the income is allaying of an excise tax upon a 21 taxable event, that the income tax law or -- that was 22 initially debated in 1909 and then passed in 1913 was actually 23 originally named the corporation tax of 1909. And it goes -- 24 the article goals on and quotes some of the court cases that I 25 talked about yesterday, Redfield versus Fisher, and explained DIRECT - VERNICE KUGLIN 502 1 that there are taxpayers and there are tax payers. Taxpayers 2 are those which are entities of the government, corporations, 3 trusts and things like that, and then there are individuals 4 who are tax payers. They pay the indirect taxes, the gas 5 taxes, the wheel taxes and such like that. So it gave me a 6 much clearer understanding that not everybody is considered a 7 taxpayer. 8 Q. Let me direct your attention to the next document that 9 has a three on it. 10 A. This document is entitled -- excuse me -- this document 11 is entitled Deceptive IRS Code Words, and it was published by 12 an organization entitled the Free State Constitutionists. And 13 this talks about the words income, the word person, the word 14 taxpayer, shall and must. And it discusses the fact that the 15 common everyday usage of certain words is not necessarily the 16 legal usage of that word. And I would say an example that I 17 found in my personal life that if somebody in my generation, 18 somebody walked up to me and said, Ms. Kuglin, you are bad. 19 Well, I didn't have a very good feeling because I considered 20 that to be a derogatory statement towards me. The younger 21 generation, someone comes up to me and says, Ms. Kuglin, you 22 are bad, then I understand that they're not being derogatory 23 to me, they actually are paying me a compliment, and so we 24 have to understand what the semantics of words mean, and 25 that's what this document really laid out for me. The idea DIRECT - VERNICE KUGLIN 503 1 that income is determined by where the source is, that the 2 named person can mean an individual, it can be a corporation, 3 it can be a trust, a savings and loan association, a 4 homeowners association. The person can either be a live being 5 or it can be an artificial entity, and -- so you have to 6 understand the context in which the code or the regulations 7 use the term person. Taxpayer, again, as Claire Kelly defined 8 taxpayer could either mean a taxpayer, corporation, entity or 9 person, or it could be a tax payer, somebody who voluntarily 10 pays their -- you know, pays the indirect tax, sales taxes and 11 such. Then they come to the word shall and must. Now, 12 typically, we think that the word shall is mandatory. But 13 there are court cases, and it covers -- let me read through 14 here just quickly. Well, I'm not placing my eyes right now on 15 the court cases that talk about this, but it said that the 16 words must and shall are applied in relationship to a 17 liability or a requirement. In other words, if you have a 18 liability, then you must. But then if there is no liability 19 or requirement for specific tax, but a person voluntarily 20 decides that they want to go ahead and pay it, then it is used 21 in the term may. Yes, you may be -- you may do whatever you 22 want to. If you feel that you want to pay a tax that you have 23 no liability for, there's nothing that stops you. 24 Q. Let me move on the next exhibit, number -- it has a 25 number on it, 5 or 4A. DIRECT - VERNICE KUGLIN 504 1 A. 4A. This is a newspaper -- 2 Q. You acquired this during your early days in which you 3 began your study? 4 A. Yes, yes, I did. 5 Q. And you read it? 6 A. Yes, I did. 7 Q. Did you acquire certain information by reading the 8 document? 9 A. Yes, I did. This was really an advertisement for 10 another document. I did not order the document, but what 11 struck me was that this was in USA Today, a fairly prominent 12 paper, it was an advertisement that an attorney at law took 13 out, a man by the name of James Knowles, and it says that 14 James Knowles spends his year penetrating the owners Internal 15 Revenue Service Code to find that most likely you don't have a 16 liability to pay a set of taxes. He's a member of the 17 California bar and has practiced law for 34 years, since his 18 graduation from prestigious Hastings School of Law. 19 The importance of -- or what I found in this 20 information was that it wasn't -- I was not the only person 21 asking or beginning to question my liability status, that 22 there were attorneys, there were people who were publishing 23 this information and asking the questions in national 24 newspapers and such like that. 25 Q. Let me direct your attention to a document that is DIRECT - VERNICE KUGLIN 505 1 labeled 4A. 2 A. This document is entitled Must You Pay the Income Tax. 3 And this -- I'm not quite sure how I attained it, but it was 4 from the Mutual Assistance Plan, which is an organization out 5 in Pima, Arizona at that time, and this was during the same 6 time period as I was trying -- gathering information trying to 7 find clues to the answer of the liability of income tax. And 8 it states: Liability is established by voluntary assessment. 9 Now, some of the cases that were mentioned in this -- and this 10 article actually directed me to the -- to finding the 11 Brushaber case, the Flint versus Stone Tracy case and some of 12 the others. And it says that before World War II, payments or 13 profit received by individuals in even exchange for their 14 labor were not connoisseured to be subject to income taxes. 15 And, of course, we know in Brushaber, it says -- Brushaber 16 defined the word income because Congress had not defined it. 17 As a matter of fact, in the debates, congressional debates on 18 the 16th Amendment, which are very fascinating, I would 19 encourage everybody to read, Congress -- the legislature could 20 never come up with a definite definition of the word income as 21 applicable taxes, and it was understood that they were 22 considered to be excise taxes and, therefore, fell under the 23 uniformity clause. 24 Q. Let me direct your attention to -- let's go back to 25 something we covered yesterday, the document that has a 5 on DIRECT - VERNICE KUGLIN 506 1 the front. 2 A. Yes. 3 Q. I believe you talked about that yesterday. 4 A. Yes. 5 Q. Is this something you read and relied upon? 6 A. Yes, it is. It was one of the first documents I got. 7 MR. BECRAFT: Your Honor, at this time, I would 8 move for the admission of the document she has in her hand 9 that I have a big 5 on in the lower right -- left corner. 10 MR. MURPHY: No objection, Your Honor. 11 THE COURT: It is received as the next numbered 12 exhibit. 13 MR. BECRAFT: Your Honor, can I approach and 14 give it to the clerk? 15 THE COURT: Yes, it will be 28. 16 (Exhibit Number 28 was marked. Description: 17 2-3-53 Document.) 18 THE WITNESS: Your Honor, is it all right if I 19 put these papers right here? 20 THE COURT: Sure, that's no problem at all. 21 Q. Yesterday, you talked about the document that I have a 22 big 6 on. 23 A. Yes. 24 Q. Is this something you read and relied upon? 25 A. Yes, it is. DIRECT - VERNICE KUGLIN 507 1 Q. Does it appear to you to be an official document? 2 A. It does. Actually, this is a copy of the official 3 government document. 4 MR. MURPHY: I have no objection, Your Honor. 5 THE COURT: All right. We will make that 29, I 6 think. 7 MR. BECRAFT: Thank you, Your Honor. 8 THE COURT: 29. 9 (Exhibit Number 29 was marked. Description: 10 1997 Annual Report.) 11 Q. Do you have in your hand the ones that have 6, 7 and 12 8 -- 7, 8 and 9, I'm sorry. No, 7 and 8. 13 A. 7 and 8, I was getting a little confused here. 14 Q. Correct me if I'm wrong, these are parts of the '92 and 15 '93 instruction book for Form 1040? 16 A. Yes, they are. 17 Q. You relied upon them and you covered the substance of 18 them yesterday? 19 A. Yes, on the fact that it was a voluntary tax system. 20 MR. BECRAFT: Your Honor, I move for the 21 admission of these two. 22 MR. MURPHY: I have no objection, Your Honor. 23 THE COURT: It's 30 and 31. 24 (Exhibit Numbers 30 was marked. Description: 25 1040 Instructions 1992.) DIRECT - VERNICE KUGLIN 508 1 (Exhibit Number 31 was marked. Description: 2 1040 Instructions 1993.) 3 MR. BECRAFT: May I approach the witness, Your 4 Honor? 5 THE COURT: You may. 6 Q. Can I get you to take a look at the document that had 7 the -- the series of documents that have 13, 14 and 15 on 8 them? 9 A. I have them. 10 Q. Those are official government documents, is that 11 correct? 12 A. Yes, they are copies of the 26 CFR, Chapter 1. 13 Q. And we discussed those yesterday? 14 A. Yes, we did. 15 Q. And you relied upon them? 16 A. Yes, I did. 17 MR. BECRAFT: Your Honor, I move for the 18 admissions of the documents that has 13, 14, and 15 on 19 them. 20 MR. MURPHY: No objection, Your Honor. 21 THE COURT: Certainly. They will 32, 33, 34. 22 (Exhibit Number 32 was marked. Description: 23 1997 26 CFR 5601.602.) 24 (Exhibit Number 33 was marked. Description: 25 1998 26 CFR 5601.602.) DIRECT - VERNICE KUGLIN 509 1 (Exhibit Number 34 was marked. Description: 2 1999 26CFR 5601.602.) 3 Q. Ms. Kuglin, yesterday, we talked about a document, 4 number 19, it's a court case. 5 A. Excuse me. 6 MR. BECRAFT: Your Honor, I have it up here. 7 May I approach? 8 THE COURT: You may. 9 MR. BECRAFT: I stuck it in my stack. 10 Q. Let me hand you a document that has a big 19 at the 11 bottom of it. 12 A. Yes. 13 Q. Is that one of the documents or court cases we 14 discussed yesterday afternoon? 15 A. Yes, it is. 16 Q. You read and replied upon it? 17 A. Yes, I did. 18 MR. BECRAFT: Your Honor, I move for the 19 admission of that case. 20 MR. MURPHY: No objection, Your Honor. 21 THE COURT: It will be the next numbered 22 document, which is 35. 23 (Exhibit Number 35 was marked. Description: 24 Cole v. McFarland Case.) 25 Q. Now, Ms. Kuglin, let's move on to a little something DIRECT - VERNICE KUGLIN 510 1 else. Either yesterday afternoon or this morning, you 2 mentioned something about the Internal Revenue Code, and can 3 you describe for us -- I'm looking at something on your -- 4 within reach of your left hand, that's kind of either a blue 5 or purple cover, is that something that you bought? 6 A. Yes, it is. 7 Q. And what was it? 8 A. This is entitled -- this is the July, 1994 edition of 9 the complete Internal Revenue Code. 10 Q. And when did you -- would you have acquired that at 11 least in the latter half of '94? 12 A. Yes, sir. 13 Q. Were there certain studies in which you engaged that 14 related to the Internal Revenue Code? 15 A. There were, and on the documents that I had commented 16 on earlier, two of the sections of the code which were 17 specifically specified in those documents as sort of being a 18 road map to the understanding of this issue on liability were 19 two of the sections, 6001 and 6011 of the code. So I wanted 20 to buy a code so I could actually look into it and begin to 21 try to find out for myself whether there was validity to the 22 arguments that I had been hearing. 23 Q. Well, tell us what you did. 24 A. Well, the 1040 form has -- let me get my 1040. I had a 25 1040 form as everybody else does or generally every one else. DIRECT - VERNICE KUGLIN 511 1 Q. Let me stop there. It sounds like you're reaching for 2 a document, would that have a big 23 on it? Is that what 3 you're doing? Oh, okay. Go ahead. 4 A. This is just my prop here. And so in trying to find 5 out or answer my own questions, there's an instruction page on 6 the 1040 form. 7 Q. Can you identify that document that you have in your 8 hand a little bit more completely? 9 A. Yes, I will. This is the 1995 Form 1040. 10 Q. Instruction booklet? 11 A. Instruction booklet, that's correct. 12 Q. What in there was of importance to you? 13 A. The instruction page entitled the Privacy and Paperwork 14 Reduction Act Notice. 15 Q. Tell us about that. 16 A. Well, it says the Privacy Act of 1974 and the Paperwork 17 Reduction Act of 1980 say that we -- say that when we ask you 18 for information, we must first tell you our legal right to ask 19 for the information and why we are asking for it and how it 20 shall be used. We must also tell what could happen if we do 21 not receive it and whether or not your response is voluntary. 22 Now, I -- as I was interested in all the other issues, 23 I wanted to find out what this Privacy Act was all about, how 24 it came about and -- 25 Q. Let me stop you right there, did you do some study in DIRECT - VERNICE KUGLIN 512 1 that area to find out what the Privacy Act was? 2 A. Yes, I did. 3 Q. Can you tell us what you did? 4 A. Yes. I got the -- went to the law library and read -- 5 excuse me, read the case on the Privacy Act. I found out that 6 the whole purpose of the Privacy Act was because the 7 government or the agencies were sending out a lot of forms. I 8 think they dream up forms in their sleeps, and people were 9 beginning to get confused as to whether or not the forms that 10 were being sent out were required to be returned, whether they 11 were necessary and believed that one OSHA regulation had 12 almost 400 forms, and so people were going to their 13 Congressmen and saying, look, we need some kind of idea or get 14 a handle on this river of paperwork that's coming out. So in 15 1974, the -- Congress passed legislation that basically said 16 any agency of the government which was asking for information 17 or producing information gathering documents must comply with 18 the requirements which I just read, what the authority is to 19 require the document, what the purpose is, what could be done 20 with it and whether or not it was voluntary or mandatory and 21 any repercussions that could happen if the document was 22 mandatory. 23 Q. After you studied this matter that you thought was the 24 Privacy Act itself, what did you do in reference to the income 25 tax? DIRECT - VERNICE KUGLIN 513 1 A. Well, it says further down in the instructions, the IRS 2 complies with the requirement of telling the authority. It 3 says our legal right to ask for the information is the 4 Internal Revenue Code's Section 6001, 6011, and then later on, 5 they added the 6012. So I thought, well, these are the 6 regulations that require me to file the 1040 form. I think I 7 probably ought to read what those sections say. 8 Q. Is that one of the reasons why you obtained the 9 Internal Revenue Code? 10 A. Yes, it is. 11 Q. Well, tell us what you did after that. 12 A. Well, after I got my Internal Revenue Code, I started 13 to get acquainted with it. I found out that there were -- 14 there was not just an income tax in the Internal Revenue Code, 15 that this book itself covered over 85 different taxes, that 16 the code is divided out into different sections. You have the 17 income tax, you have estate tax, gift tax, employment taxes, 18 excise taxes, alcohol, tobacco and firearms and procedures. 19 And I found out, turning to the initial section, that the 20 section under income tax has about almost 1600 sections in 21 that part of the code. Now, there's almost, I believe, if I 22 go to the end here, there's over 9000 sections of this code. 23 Only about 1600 actually apply to what the IRS defines as the 24 individual income tax. 25 Q. Now, bearing in mind what you read a minute ago, the DIRECT - VERNICE KUGLIN 514 1 Privacy Act notice appearing in the 1040 instruction booklet, 2 and once you obtained the Internal Revenue Code, can you lead 3 us through what you did when? 4 A. Yes. I went to 6001, because it said that that was the 5 regulation which gave the IRS the authority to ask me to fill 6 out the 1040 form, and what that section, in essence, says is 7 that every person liable for any tax under this title shall 8 keep such records, render such statements, make such returns 9 and comply with such rules and regulations as the secretary 10 from time to time may prescribe. It then goes on to say that 11 whenever the secretary feels it necessary, he may upon -- he 12 may require any person by notice upon such person to make such 13 returns, render such statements and keep such records as the 14 secretary deems sufficient to determine whether or not such 15 person is liable for any tax. 16 Now, when I went to the section, I was expecting it to 17 probably say something like every American who earns wages is 18 liable for the income tax or the individual income tax and, 19 therefore, must fill out the 1040 form. But that, as you can 20 tell, is not what it said. It said every person, and as we 21 discussed before, the term person could mean an individual or 22 corporation or trust, so it didn't give me really any idea as 23 to whether or not I was one of the persons that this section 24 talked about. Again, it says any person liable for any tax 25 under this title. Well, this entire book is called the title. DIRECT - VERNICE KUGLIN 515 1 There are sections and subsections, but this is the title. So 2 what that 6001 said, any person liable for any one of the 85 3 taxes under here would be required to fill out the form. 4 MR. MURPHY: Your Honor, could we approach? 5 THE COURT: You may. 6 (The following proceedings had at side-bar 7 bench.) 8 MR. MURPHY: Judge, I'm going to interpose an 9 objection. She is just rambling on and on and on. 10 MR. BECRAFT: I will ask questions. 11 MR. MURPHY: It is supposed to be questions and 12 answers. 13 THE COURT: Objection sustained. The process 14 needs to proceed in accordance with 611. 15 (The following proceedings were had in open 16 court.) 17 Q. Ms. Kuglin? 18 A. Yes. 19 Q. Let me ask a question and give us an answer, okay? 20 A. All right. 21 Q. Now -- you read the Internal Revenue Code, Section 22 6001? 23 A. Yes. 24 Q. And had directed your attention to that section, 25 correct? DIRECT - VERNICE KUGLIN 516 1 A. Yes. 2 Q. Can you identify what it was that directed your 3 attention to Section 6001? 4 A. Yes, it was the 1040 form, the Privacy Act information 5 in the 1040 form. 6 Q. The privacy notice itself? 7 A. Right, the statement in the instructions 1040 booklet. 8 Q. Okay. 9 A. Yes. 10 Q. Can I direct your attention to a document that you 11 should have up there that has a big 23 on it? I would like to 12 identify it as being a 1975 document relating to your -- 13 A. Right in front of me, yes. 14 Q. Can you identify number 23 for us, please? 15 A. Oh, yes, this was after I had read the Privacy Act, I 16 had -- actually, I had looked back at some other forms. I had 17 found that I had a 1975 1040 form. The Privacy Act was passed 18 in 1974. I had been audited in 1975 and I had kept the 19 documentation for that. Inside of that form was also a 20 Privacy Act notification, and this was the time that I had 21 initially read it when I was completing my 1040 form. At that 22 time in 1975, it really did not make sense to me, and it just 23 began making sense or becoming important in my thought process 24 after I had read some of the articles and the questions of the 25 6001 and the 6011 had come up. DIRECT - VERNICE KUGLIN 517 1 Q. That document that you have in front of you, it's your 2 excerpts of official government documents? 3 A. Yes. 4 Q. What you kept in reference to the 1975 1040 instruction 5 booklet? 6 A. That's correct. 7 Q. And that's something you kept for your own personal 8 business affairs, is that correct? 9 A. That's correct. 10 MR. BECRAFT: Your Honor, I would move for the 11 admission of the document that has a big 23 on it. 12 THE COURT: Without objection, it will be 13 received as 36. 14 MR. MURPHY: Judge, if we could approach. 15 THE COURT: All right. Let me take a look at 16 the document. 17 (The following proceedings had at side-bar 18 bench.) 19 MR. MURPHY: Judge, the only thing I object to, 20 the government language is fine, but her filling out the 21 tax return, I don't think that comes in. 22 MR. BECRAFT: I don't have any problem with 23 extracting it, Judge. 24 MR. MURPHY: You need to turn your mic off. 25 MR. BECRAFT: I thought I had it off, I'm DIRECT - VERNICE KUGLIN 518 1 sorry. 2 THE COURT: Let me get the -- 3 MR. MURPHY: Your Honor, if they want to put a 4 photocopy in of the front and the back -- 5 MR. BECRAFT: Excise -- 6 THE COURT: This is a 1975 return. How is this 7 relevant? 8 MR. BECRAFT: What's relevant, Your Honor, is 9 this right here, this is a government document. I think 10 the government's objection is -- I didn't want to in 11 advance tear out those pages. I think those pages are 12 something that you can excise with ease. 13 MR. MURPHY: Yeah, just make a photocopy. 14 MR. BECRAFT: I have got photocopies. 15 THE COURT: You want me to take this page out? 16 I'm not sure -- it just comes out. 17 MR. BECRAFT: I'm satisfied. 18 THE COURT: Okay. 19 (The following proceedings were had in open 20 court.) 21 THE COURT: The government portion of the form 22 is received as Exhibit 36. 23 (Exhibit Number 36 was marked. Description: 24 1975 1040 Instructions.) 25 Q. Ms. Kuglin, do you need that document? Do you need -- DIRECT - VERNICE KUGLIN 519 1 A. No, I don't. 2 Q. All right. So after you compared the Privacy Act 3 notice that appeared in the 1975 1040 instruction booklet, 4 what was your next step? 5 A. Well, the next step after I had read through the 6 section on 6001, I still did not have a clear definition of 7 whether or not I was a person that fit under this liability 8 requirement for the tax imposed. The next section that was 9 referred to in the Privacy Act notice was Section 6011. So I 10 turned to 6011, and it says general requirement of return 11 statements or less. It goes on to say when required by 12 regulation prescribed by the secretary, any person made liable 13 for any tax imposed by this title with respect -- or with 14 respect to the collection thereof shall make a return or 15 statement according to the rules and regulations -- excuse me, 16 according to the forms and regulations provided -- prescribed 17 by the secretary. 18 Well, now, this -- the first section has said that any 19 person liable, but it really didn't identify me as a person 20 liable. The second section 6011 said any person made liable, 21 but again we have got the words person, and for any tax under 22 this title, but it didn't identify how I was made liable for 23 the tax. 24 Q. What was so important in your mind about being liable 25 for a tax? DIRECT - VERNICE KUGLIN 520 1 A. Well, in the Privacy Act notice it had -- it said -- 2 had mentioned the word liable for the tax and that these were 3 the -- 6001, 6011 were the regulations in which I could 4 determine this. 5 Q. Okay. Was it your understanding that being liable for 6 a tax had some relationship to being required to file a 7 return? 8 A. Absolutely. 9 Q. Okay. What did you believe about someone who was not 10 liable for a tax? 11 A. Well, if a person was not liable for the tax, then the 12 rules and regulations did not apply to them. 13 Q. A person that would not be liable for a tax, would he 14 be in your view required to file a return? 15 A. No, he would not be. 16 Q. Did you make any effort to determine other sections of 17 the Internal Revenue Code and their relationship to the word 18 liable? 19 A. I did. Since 6001 and 6011 were the sections that 20 supposedly made me liable and that I could not find that it 21 had, I had, in going through my code, as most reference 22 documents are, there is an index in the beginning of the book, 23 and so I thought, well, if I look under the terms income or 24 tax or liability, which was what I was looking for, that I 25 would find perhaps some indicators where I could see how -- DIRECT - VERNICE KUGLIN 521 1 examples of this liability. So I found under this section 2 of -- let me get it, liability, I found liability for tax. 3 And the first entry -- 4 Q. Let me stop you right there. When you say you found 5 something, a liability for tax, can you put it into context, 6 what are you reading from? 7 A. I'm reading from the index to the code. 8 Q. Okay. 9 A. I'm trying to find if there's a section in the code 10 that explains how a person is liable, how they're made liable, 11 since I didn't find it in the 6001, 6011 section. 12 Q. When you turned to that index, what was your purpose? 13 A. My purpose was to find some words or some reference 14 to -- in regard to liability, maybe I could find how a person 15 was made liable and who was made liable. 16 Q. What did you do? 17 A. Well, after I found this liability for tax, the first 18 entry was alcohol taxes, and it said Section 5005 and 5041, so 19 I turned to Section 5005, and Section 5005 entitled Persons 20 Liable for Tax. Well, this, you know, seemed like I was in 21 the right place, I was trying to find out if I was a person 22 liable for the tax. And it says in general, the distiller or 23 importer of distilled spirits shall be liable for the taxes 24 imposed thereon by Section 5001. Well, this was very clear to 25 me, I thought, they know how to tell a person who is liable. DIRECT - VERNICE KUGLIN 522 1 This was not confusing like the 6001 and 6011, it says the 2 distiller or importer shall be liable. Since it referred me 3 back to 5001, I went to Section 5001, it says imposition, rate 4 and attachment of tax, rate of tax, in general. There is 5 hereby imposed on all distilled spirits produced in or 6 imported into the United States a tax at the rate of $13.50 on 7 each proof gallon and a proportionate tax at the like rate and 8 on all fractional parts of a gallon. Now, that again was very 9 clear to me, I knew exactly what they were talking about, who 10 they were talking about and what tax they were talking about. 11 I also found it interesting that this Section 5001 is 12 in subtitle E of the tax code which is entitled Alcohol, 13 Tobacco and Certain Excise Taxes, and as I went through the 14 section a little bit more, it talks about tobacco taxes and 15 other types, and it's basically the same format. The 16 manufacturer, the wholesaler is made liable and -- for the tax 17 imposed. 18 Q. What conclusions -- by engaging in this study of some 19 other tax, what conclusions did you draw? 20 A. Well, I drew the conclusion that when -- in the 21 arena -- and I found this in the arena of the excise tax, that 22 it was very easy for the IRS to specify exactly who's liable, 23 what tax they're liable for, what the amount of tax is and 24 there was no fussiness about it. 25 Q. Did you study anything beyond what you just mentioned, DIRECT - VERNICE KUGLIN 523 1 the alcohol tax? 2 A. I did, because the alcohol tax is not in subtitle A 3 and, of course, the tax that the IRS says that the 1040 form 4 is applicable to is -- excuse me -- is the individual income 5 tax, which is in Section 1 of subtitle A. So I decided to 6 look through the index of the code, starting first with 7 liability for tax, to see if there was any section that fell 8 under the first, say, 1600 sections of the code, which are 9 applicable to individual income tax, and as I'm going down 10 through the list, I see aviation, fuel tax, banking, 11 employment taxes, highway motor occupational taxes, tobacco, 12 all these other taxes, and I get all the way down here right 13 underneath wines, it has an entry, withholding tax, and I 14 thought, well, I know that my employer is withholding money 15 out of my check, and right next to it I see Section 1461. 16 1461 falls into the criteria of the sections of subtitle A -- 17 MR. MURPHY: Judge, can we approach? 18 THE COURT: You may. 19 (The following proceedings had at side-bar 20 bench.) 21 MR. MURPHY: Judge, I'm going to object to the 22 rambling, narrative nature of this testimony, it's 23 improper. 24 THE COURT: It's really -- we do have to follow 25 question and answer format. DIRECT - VERNICE KUGLIN 524 1 MR. BECRAFT: I'll do it, Your Honor. 2 THE COURT: I didn't say anything earlier to 3 the witness or the jury, but it's time that I told them 4 that we are required to follow question and answer format. 5 MR. BECRAFT: I will do it, Your Honor. 6 THE COURT: Okay. 7 (The following proceedings were had in open 8 court.) 9 THE COURT: Ladies and gentlemen, we are 10 required to follow a question and answer format, and 11 typically narrative testimony is not allowed. That 12 doesn't mean that the person can't answer a question with 13 a full sentence or maybe a paragraph, but it does have to 14 follow a fairly short answer -- question and answer 15 format. The reason for that is that under Rule 611 of the 16 Rules of Evidence, it's contemplated that we will use that 17 format so that the opposing party can have an opportunity 18 to raise objections to improper questions or questions 19 that are not allowed by the rules and, frankly, so that 20 all of us can more readily follow the testimony. It's 21 been found, typically, that the better format is a 22 question and answer format, so we have been discussing 23 that, and I thought by saying that and explaining a little 24 bit to the witness, because you wouldn't necessarily know 25 that, that it would be helpful to all of us. So we have DIRECT - VERNICE KUGLIN 525 1 to have a question followed by an answer that is 2 responsive to the question, and then the next question. 3 We're going to try to do that. 4 MR. BECRAFT: Thank you, Your Honor. 5 THE COURT: Thank you. 6 THE WITNESS: I have been accused of the gift 7 of gab. 8 THE COURT: Well, we're going to hopefully 9 solve the question or problem by making it a little 10 briefer. 11 THE WITNESS: Okay. 12 THE COURT: A little briefer. 13 Q. Now, you were going through that index to the Internal 14 Revenue Code looking for some other section that referenced 15 liability, a section that might fall within the range of the 16 income tax sections of the code, is that correct? 17 A. That's correct. 18 Q. Were you able to find such? 19 A. Yes, I did. 20 Q. Okay. After you found -- tell us what you found. 21 A. I found 14 -- Section 1461, it says liability for tax 22 withheld. 23 Q. Now, you found that in the index? 24 A. Yes, I did. 25 Q. Did you do something in response? DIRECT - VERNICE KUGLIN 526 1 A. I looked -- well, I checked to make sure that it was in 2 the first 1600 sections of the subtitle A, individual income 3 tax. 4 Q. By chance, did you happen to turn to that section? 5 A. Yes, I did. 6 Q. After you turned to that section in the Internal 7 Revenue Code, can you explain what you did? 8 A. I read the section. 9 Q. And did you learn something from it? 10 A. Yes, I did. The section says every person required to 11 deduct and withhold any tax under this chapter is hereby made 12 liable for such tax. 13 Q. Now, did you do any -- once you read that code section, 14 did you kind of look -- read anything else that related to it? 15 A. I -- I drew a conclusion that the person that was 16 liable for the tax was a person -- was somebody who was 17 required to hold and -- deduct and withhold for that tax 18 and -- 19 Q. And did you make any effort to determine who that was? 20 A. Yes, I went on, and further on in the section, it talks 21 about the -- excuse me. 22 Q. Let me -- did you study 1461, the code section that you 23 just mentioned to determine who that party was that was 24 liable? 25 A. Yes, I did. DIRECT - VERNICE KUGLIN 527 1 Q. Okay. And can you tell us what you learned? 2 A. Yes, I learned that this 1461 is in the code section, 3 which is entitled withholding on foreign taxpayers, and the 4 beginning of the section, I turned to the beginning of the 5 section, which is chapter 3, because -- and it says the 6 withholding tax on nonresident aliens and foreign 7 corporations, so this led me to understand that Section 1461 8 was applicable to the withholding agents of nonresident aliens 9 and foreign corporations. 10 Q. Now, this was one section that you had located inside 11 the Internal Revenue Code that related to the income tax, 12 correct? 13 A. That's correct. 14 Q. And it used the words in the statute itself liable, 15 correct? 16 A. That's correct. 17 Q. What, if any, effort did you make to determine whether 18 or not there were any other similar sections inside the 19 Internal Revenue Code in reference to the income tax? 20 A. I -- 21 Q. Were there any others that you found? 22 A. Yes, there were others that I found. There were -- as 23 far as a person made liable and liable for the tax, this 24 Section 1461 was the only section under subtitle A. 25 Q. Okay. So you found others in reference to other types DIRECT - VERNICE KUGLIN 528 1 of taxes? 2 A. That's correct, in alcohol, tobacco, excises and the 3 other sections of the code, yes, but in this particular code, 4 in the first 1600 sections of the code, which is individual, 5 subtitle A, I found nothing else. 6 Q. So what conclusions did you draw as a result? 7 A. Well, the conclusion that seemed logical to me was, as 8 the tax code was saying, that the only person liable for the 9 individual income tax under subtitle A was the withholding 10 agent for foreign -- I'm sorry, for nonresident aliens and 11 foreign corporations, and my income as a pilot did not fall 12 under that category. 13 Q. Did you consider yourself a nonresident alien? 14 A. No, I didn't, I'm an American citizen. 15 Q. Did you consider yourself a foreign corporation? 16 A. No, I didn't. 17 Q. Were you making payments of income to nonresident 18 aliens or foreign corporations? 19 A. No, I was not. 20 Q. All right. With that in mind, did you believe or have 21 any belief as to whether you were required to file a federal 22 income tax return? 23 A. Well, this indicated to me based on the Privacy Act 24 saying that 6001 and 6011 were the regulations that required 25 me to complete the form, that I was not a person required to DIRECT - VERNICE KUGLIN 529 1 file that form based on 1461. 2 Q. Now, let me direct your attention to -- there should be 3 a document in front of you that has a big 24 on it. 4 A. Yes. 5 Q. Do you have it in front of you? 6 A. I do. 7 Q. Okay. Is that a document that you obtained somewhere 8 in this time frame between '93 and maybe late '95? 9 A. Yes, it is. 10 Q. Is that something that you read? 11 A. I did. 12 Q. Okay. Tell us what you gathered by reading that 13 particular document? 14 A. Well, by reading the document, it starts out with 26 15 CFR 1.1-1, tax on individuals, and the discussion in the form 16 is about something known as an OMB number and a cross 17 reference. 18 Q. Okay. Did you engage in or make any effort -- you 19 mentioned this term OMB, what that might mean? 20 A. Yes, I did. I did some research and found out that the 21 OMB numbers were numbers required on the forms and that the 22 Congressional Act, the Paperwork Reduction Act was the 23 legislation which required these numbers to be put on forms. 24 Q. You mentioned congressional legislation, the Paperwork 25 Reduction Act. What, if any, effort did you make to determine DIRECT - VERNICE KUGLIN 530 1 what that was and what it required? 2 A. Again, went down to find the law, and read it and 3 got -- made myself familiar with what the requirements of the 4 Paper Reduction Act was. 5 Q. Tell us what you learned as a consequence. 6 A. I learned that similar to the Privacy Act, Congress and 7 agencies had been producing a lot of paperwork, a lot of forms 8 and people were getting confused as to which forms that were 9 required. So by 1980 -- I believe it was 1980, the -- 10 Congress passed the Paperwork Reduction Act. What this act 11 said was that every agency -- I need to back up about the law 12 a little bit, if I might. 13 Q. Okay. What is it about the law that was important to 14 you? 15 A. The way the laws are promulgated, the -- Congress 16 passes a law, the law is then given to the agency which is 17 responsible for developing the regulations to fit that law, 18 and those regulations have to be published in what is called 19 the Federal Registry, which is the citizens newspaper advising 20 us of what the government is anticipating to do with us, and 21 once those -- the public has the ability to comment -- 22 MR. MURPHY: Judge, could we approach? 23 THE COURT: You may. 24 (The following proceedings had at side-bar 25 bench.) DIRECT - VERNICE KUGLIN 531 1 MR. MURPHY: Judge, I'm getting a little 2 concerned that we're going beyond talking about her 3 beliefs into what the law is, and I don't believe that's a 4 correct statement of the law. 5 MR. BECRAFT: I anticipated that in advance, 6 and I told the jury yesterday, correct me if I'm wrong, 7 but I think I brought that issue up when we were going 8 through voir dire, but I know that I did it in my opening 9 statement, and I know that I -- 10 THE COURT: I think Mr. Murphy is right, we're 11 sort of trying to tell what the law is. I will just 12 remind the jury that at the end of the case, I will give 13 the instructions as to the law, and whatever the witness 14 or the lawyers say about the law is not the controlling 15 law in the case, that the law is what the court gives them 16 as the law, and that may help us. 17 She can -- you can ask her what she believed 18 the law to be and why did she believe it, and the jury is 19 going to have to decide the ultimate question, but Mr. 20 Murphy is correct on this. 21 MR. BECRAFT: Thank you, Your Honor. 22 (The following proceedings were had in open 23 court.) 24 THE COURT: Ladies and gentlemen, it's a point 25 that we need to always keep in mind that if a witness or a DIRECT - VERNICE KUGLIN 532 1 lawyer attempts to tell you what the law is, you should 2 not accept the law from them. It's my job to give you the 3 accurate statement of the law, and you should not be in 4 any way confused about a statement that a lawyer or a 5 witness might make about the law. 6 THE WITNESS: Right. 7 THE COURT: I know in this case we're going 8 into an inquiry as to what Ms. Kuglin's beliefs were, and 9 you're going to have to make some decisions about whether 10 or not they are good faith and there will be various 11 criteria that you can use in making that determination. 12 So a defendant is allowed to state what she believes the 13 law was, obviously, and why she believed that, but her 14 statement about what the law is not to be considered by 15 you as in any way reflecting what the law, in fact, is. I 16 will give you those statements. We may need to remind you 17 of that a couple of times during the trial. 18 THE WITNESS: I apologize. 19 THE COURT: Actually, we're going to take a 20 short break and discuss what we talked about a little bit, 21 it might make us a little more efficient in the 22 presentation, and it's not inappropriate to make sure that 23 we know exactly how we're going to proceed. We're going 24 to take a 15-minute morning break. We didn't get a break 25 earlier. We actually started pretty early in here, and DIRECT - VERNICE KUGLIN 533 1 I'm going to see some lawyers who have been waiting to see 2 me on a matter that was just brought to my attention just 3 about 30 minutes ago, and they have been waiting that 4 whole period of time, so we will take our morning break a 5 little early. Remember, today is a day where we take a 6 lunch break from about 12:30 to 2:00, and I think we're 7 going to finish all the proof probably today, it's hard to 8 be sure, but I think we will. Don't discuss the case 9 among yourselves. Don't let anybody talk with you. We 10 will see you in 15 minutes. 11 (Jury out at 10:25 a.m.) 12 THE COURT: We will let y'all take your break 13 so everybody gets a restroom break. 14 (The court took up another matter.) 15 (Recess taken at 10:30 until 10:45 a.m.) 16 THE COURT: Bring the jury in. 17 (Jury in at 10:46 a.m.) 18 THE COURT: You can be seated. I think you can 19 all tell, I'm still trying to deal with insurance agents 20 during the break. It doesn't go any better for me than 21 you guys. I'm sorry it has taken a little bit more time, 22 but I'm trying to deal with some problems that I need to 23 get taken care of too. Sorry. I found out also if I 24 tried to deal with them after 5:00 o'clock or before 8:30, 25 it doesn't work either. DIRECT - VERNICE KUGLIN 534 1 Gentlemen, ladies, you may proceed. 2 MR. BECRAFT: May it please the court. 3 Q. Ms. Kuglin, let me give you a direction here, can you 4 pull out the documents that have a big 26 and big 27 and big 5 28 and big 29 on them? Do you have those in front of you? 6 A. I have them in front of me. 7 Q. The one that has the numbers -- well, how about also 8 25, do you have that in front of you? 9 A. I do now. 10 Q. Okay. Now, can you describe the one that has the 11 number 25 on it for me, please? 12 A. Yes, this is entitled the Internal Revenue Cumulative 13 Bulletin 1985-1 January through June. 14 Q. Do you have a recollection or judgment as to whether or 15 not that is a document that you read and relied upon at some 16 stage before, say, April the 15th of 1996? 17 A. Yes, it is. 18 Q. Okay. How was your attention directed to that 19 document? 20 A. My attention was directed to this document through the 21 Paper Reduction Act. 22 Q. Did you have an understanding -- give us a brief 23 description as to your understanding and belief about what the 24 Paperwork Reduction Act was? 25 A. My brief understanding about the Paperwork Reduction DIRECT - VERNICE KUGLIN 535 1 Act was that it was a legislative action by Congress in order 2 to get a handle on the number and amount of information 3 gathering forms that the agencies and the government were 4 promulgating. 5 Q. Okay. And did you have any understanding as to whether 6 or not there was some type of a requirement imposed on 7 government agencies in reference to this paperwork and OMB 8 numbers? 9 A. My understanding is that when -- before a regulation 10 could be enforced, before an information gathering document 11 could be authorized, both the regulation and the document had 12 to be submitted to the office of management and budget for 13 approval. 14 Q. And what was your understanding about how something was 15 approved by office management and budget? 16 A. My understanding about how these documents were 17 approved was that the office of management and budget, 18 otherwise known as the OMB for short would read the 19 regulation, determine that it was a valid regulation, they 20 would then review the information gathering form which was 21 attached to that regulation or form, and once they had 22 determined that both the regulation and the form were 23 appropriate that they would affix an OMB number to that form, 24 and that the OMB number on that form could only -- that form 25 could not be cross referenced to another regulation. DIRECT - VERNICE KUGLIN 536 1 Q. Now, do you have -- I think I noticed earlier in the 2 day that you had a '95 1040 instruction booklet there with 3 you? 4 A. Yes, I do. 5 Q. Can I ask this simple question? Did you make an 6 inquiry back when you were studying this Paperwork Reduction 7 Act as to what OMB control number appeared on the Form 1040? 8 A. Yes, I did. 9 Q. Okay. Do you have that in front of you? 10 A. Yes, I do. 11 Q. Do you have a Form 1040 in front of you? 12 A. Yes, I do. 13 Q. Did you make such an examination back whenever you were 14 doing this in '93, '94, '95 as to what OMB control number 15 appeared on the Form 1040? 16 A. Yes, I did. 17 Q. What did you learn? 18 A. I learned that the OMB number on the Form 1040 is OMB 19 number 1545-0074. 20 Q. Now, let me direct your attention to the exhibit that 21 has a big 25 on it. 22 A. I have got that. 23 Q. Okay. Tell us what you did once you obtained that 24 document, Exhibit Number 24 or big 25? 25 A. I knew through the Paperwork Reduction Act that every DIRECT - VERNICE KUGLIN 537 1 agency was required to publish a cross reference or an index, 2 cross referencing the regulations with the approved 3 information gathering forms. 4 Q. Now, briefly identify 26 and 27 for us, please. 5 A. 26 and 27 is entitled 1993 instructions for form 2555. 6 Q. And 27 is? 7 A. 27 is form 2555. 8 Q. All right. Are these documents that you read and 9 relied upon, say, sometime prior to April 15th of '96? 10 A. Yes, they are. 11 MR. BECRAFT: Your Honor, could I move for the 12 admission of those next three? 13 MR. MURPHY: No objection. 14 THE COURT: Yes. They're received as 37, 38 15 and 39. 16 THE COURT: Can I ask you a simple question? 17 Wait just one second. We keep a running list, ladies and 18 gentlemen, and if the deputy is not here, I maintain a 19 duplicate list, that's why we have to do that, and 20 sometimes folks don't know that I have to do that. 21 MR. BECRAFT: Your Honor, I wrote down a note, 22 the one that says 25, put 37 on it. 23 THE COURT: Oh, okay. Let me see 25. 24 THE WITNESS: Did I not pass them to you? 25 THE COURT: No, ma'am, that's why I do that. DIRECT - VERNICE KUGLIN 538 1 Make sure I have got them all. I don't think so. I have 2 got 26 and I have got 27. 3 THE WITNESS: Oh, I'm sorry, 25 is the one I 4 have. 5 THE COURT: Yes, ma'am, that's what we're 6 looking for. All right. There we go. 7 MR. BECRAFT: 26 will have 38, Your Honor. 8 THE COURT: I have got it now. Thanks so much. 9 And I will hand it back in just a second, let me make a 10 notation. 11 (Exhibit Number 37 was marked. Description: 12 IRS Bulletin.) 13 (Exhibit Number 38 was marked. Description: 14 1993 Form 2555 Instructions.) 15 (Exhibit Number 39 was marked. Description: 16 1993 Form 2555.) 17 18 THE COURT: You may proceed. 19 MR. BECRAFT: Thank you, Your Honor. 20 THE COURT: Thank you. 21 Q. Now, Ms. Kuglin, you have in front of you Exhibits 37, 22 38 and 39, correct? 23 THE COURT: I have still got 38 and 39. 24 Q. Can we proceed without that? 25 A. Yes, we can. DIRECT - VERNICE KUGLIN 539 1 MR. BECRAFT: If the court doesn't mind. 2 THE COURT: No, that's fine. 3 Q. These three documents you acquired before April the 4 15th of 1996, and you looked at them and studied them, what 5 was it that you concluded by your examination of them? 6 A. I looked at the cross reference, the cumulative 7 bulletin, and it lists the 26 CFR part of the section and then 8 the current OMB number for the form applicable to that, and 9 the first entry on that index is 1.1-1, which I was familiar 10 with, was the individual income tax, and I looked to the 11 right, and the form -- the number -- the OMB control number 12 for the form applicable to that is 1545-0067. 13 Q. Now, did you have some mental operation at the time as 14 to whether or not that was the form that related to the Form 15 1040? 16 A. Well, the Form 1040 has an OMB number of 1545-0074. 17 Q. And this one had a different number? 18 A. Yes, it does. The last four numbers are 0067. 19 Q. Okay. Did you make any effort to determine what form 20 it was that that related to? 21 A. Yes, I did. I went down to the IRS, and I asked them 22 whether or not or how I could find out what form that was. I 23 may have called the IRS, as far as how to find out the form 24 number, and then they told me that it was Form 2555, and I 25 went down to the IRS office and picked one up. DIRECT - VERNICE KUGLIN 540 1 Q. So you picked up both the form itself as well as the 2 instructions? 3 A. Right. It may have been the Post Office. 4 Q. Okay. 5 A. But I acquired the Form 2555. 6 Q. So tell us what that meant to you in reference to some 7 obligation on your part to Form 1040? 8 A. Well, since this was a document that was required by 9 the Paperwork Reduction Act for the agencies to give us an 10 idea of what forms are approved for specific regulations, that 11 listed here the only form that is listed for 1.1-1, individual 12 income tax, is the 0067 form, that that was the form that I 13 would be responsible for completing. 14 Q. Let me -- can you pull out from the exhibits the 15 document that has a big 28 on it? 16 A. I have that document. 17 Q. All right. Somewhere around the time frame in which 18 you were examining or studying the prior three exhibits, did 19 you obtain that document? 20 A. Yes, I did. 21 Q. Okay. Can you tell us what it is? 22 A. It's entitled TD, which is my understanding treasury 23 decision. Treasury decision under Internal Revenue laws of 24 the United States, volume 18, January to December, 1916. 25 Q. And is the document that you have in front of you DIRECT - VERNICE KUGLIN 541 1 Treasury Decision 2313? 2 A. Yes, it is. 3 Q. Let me kind of back up, and I want to ask a broad 4 question about what you have done to locate documents and 5 cases. Before you made these studies of the tax laws, had you 6 ever even gone to a law library before? 7 A. Not before I started my study, no, I had never walked 8 into one. 9 Q. Had you ever even really studied any law whatsoever 10 before '92? 11 A. No, I had not. 12 Q. Since then, between 1992, the time that you heard Andre 13 Maru (spelled phonetically) on TV and, say, like all the way 14 up through April 15th of 1996, you started studying the law, 15 what you perceived and understood to be the law -- 16 THE COURT: We have an equipment failure, wait 17 just a second. 18 THE REPORTER: Could you repeat the last 19 question? 20 Q. Had you gone to a law library before '92? 21 A. No, I had not. 22 Q. Did you go to the law library after '92? 23 A. Yes, I did. 24 Q. How frequently? 25 A. I went each time I needed to find a copy of a case, and DIRECT - VERNICE KUGLIN 542 1 I would sometimes go just to read through and get familiar 2 with some of the older tax laws and such like that. 3 Q. All right. What law library did you visit? 4 A. The University of Memphis has a very good law library. 5 Q. There on Central? 6 A. Yes, sir. 7 Q. Have you also attended meetings where you have gathered 8 some of these same type of documents that was available? 9 A. Yes, I did. 10 Q. And did you obtain documents from the Internal Revenue 11 Service itself? 12 A. I obtained like a 2555 from either the Internal Revenue 13 Service or the Post Office, somebody who had the forms 14 available. 15 Q. Now, by the time that you're looking at this Form 2555, 16 you had done what you just described, visited the library, 17 read a whole lot of material, obtained it from various 18 sources, including the government and the IRS and the law 19 library, correct? 20 A. That's correct. 21 Q. You had certain beliefs at that stage as to whether or 22 not you were required to file an income tax return, is that 23 correct? 24 A. That was correct. I was beginning to really question 25 whether or not the 1040 was the appropriate form. DIRECT - VERNICE KUGLIN 543 1 Q. All right. And once you made this comparison, you had 2 Exhibit Number 37 in your hand which listed some OMB control 3 numbers and you had Exhibit Number 26 and 27 in your hand, 4 what conclusions did you draw? 5 A. Well, I drawed -- I drew the conclusion, after seeing 6 Form 2555 which had the OMB control number 0067, which the 7 cross reference said was the appropriate information gathering 8 form for the individual income tax, 2555, and the heading of 9 that form is -- excuse me -- the title on that form is foreign 10 earned income. 11 Q. Now, looking at the one that has Exhibit Number 28 on 12 it. 13 A. You'll have to tell me which form, since they have 14 changed the -- 15 Q. No, this one -- 16 A. -- the numbers. 17 Q. This one should only have 28 on it. 18 A. I have got that. Treasury Decision 2313. 19 Q. Right. Now, were you obtaining documents like that 20 from a wide variety of sources? 21 A. Yes. 22 Q. Did you obtain that before -- sometime before April 23 15th of 1996? 24 A. Yes, I did. 25 Q. Okay. Is that something you read and relied upon? DIRECT - VERNICE KUGLIN 544 1 A. Yes, I did. 2 Q. And it related to your formation of your beliefs about 3 whether or not you were required to file an income tax return? 4 A. That's correct. 5 MR. BECRAFT: Your Honor, I move for the 6 admission of the document that has the big 28 on it. 7 MR. MURPHY: No objection, Your Honor. 8 THE COURT: Exhibit 40. 9 (Exhibit Number 40 was marked. Description: 10 1916 Treasury Decision.) 11 Q. Tell what it was you learned by reading that? 12 A. Well, this was in regard to the taxation of nonresident 13 aliens and foreign corporations. 14 Q. Do you need the document back? 15 A. That would probably be helpful. 16 Q. Look at that document and give us the refined essence 17 of what you learned from it? 18 A. Well, initially, it talks about the Brushaber case in 19 which it says that they hereby held that the income accruing 20 to nonresident aliens in the form of interest and from bonds 21 and dividends of the stock of domestic corporations is subject 22 to the income tax imposed by the Act of October 13, 1913. In 23 other words, the 16th Amendment. 24 Q. Is there anything in there that relates to the filing 25 of Form 1040? DIRECT - VERNICE KUGLIN 545 1 A. Let me read on. There is one mention of a form, and it 2 says that -- it's at the end of quite a long paragraph, so I 3 will just summarize the paragraph, it talks about nonresident 4 aliens and such, and it says that sum will be sufficient to 5 pay the normal tax of one percent imposed by law and shall be 6 made on an annual return of 1042. There is another form, form 7 1008 for deductions applicable to nonresident aliens and other 8 agents and representatives. 9 Q. Did you reach any conclusion as to whether or not what 10 they were talking about in that treasury decision had any 11 application to you? 12 A. I did not. There's another mention of a form on the 13 third page. 14 Q. Let me direct your attention -- 15 A. Yes. 16 Q. There's a page that has 53 at the top. 17 A. Yes. 18 Q. Okay. And then using that page at the very bottom 19 going over to page 54. 20 A. Yes. 21 Q. Is that a section that you read and relied upon? 22 A. Yes. The responsible heads, agents or representatives 23 of nonresident aliens who are in charge of the property owned 24 or business carried on within the United States shall make 25 full and complete return of the income tax form on the Form DIRECT - VERNICE KUGLIN 546 1 1040, and I missed that as I was reading it. 2 Q. Okay. 3 A. My other form was highlighted. 4 Q. Let me ask you this question: What was going through 5 your mind at this stage about whether or not you were required 6 to file a Form 1040? 7 A. Well, the documents that I had in front of me, which 8 were government documents and the cross reference, which is 9 required by every agency to be completed, indicated to me that 10 the only form that had been approved by the office of 11 management and budget for the individual income tax was the 12 form 1545-0067, entitled foreign earned income. It confirmed 13 for me what I had found in the tax code under 1461. The only 14 section under subtitle A, individual income tax, which makes 15 any person liable for the tax on subtitle A, which is 16 nonresident alien -- I'm sorry, the withholding agent for 17 nonresident aliens and foreign corporations, and I realized 18 that I did not fit in either one of those categories and, 19 therefore, that Form 2555 was not applicable to me. 20 Q. Now, let me -- you did some other studies, and let me 21 direct your attention to Exhibit Number 41, if I may. Big 22 thick one. 23 A. Yes. 24 Q. Is that something that you read, studied and relied 25 upon? DIRECT - VERNICE KUGLIN 547 1 A. Absolutely. That was a long read. 2 Q. Okay. Just tell us what you learned by reading that 3 document. 4 A. This document is entitled Jurisdiction Over Federal 5 Areas Within the United States, a report of the 6 interdepartmental committee for the study of jurisdiction over 7 federal areas within the states. This was submitted to the 8 attorney general and transmitted to the president on June of 9 1957. President Eisenhower was interested in finding out what 10 the jurisdictional limitations of the federal government was, 11 and he asked the state's attorney general to compile a 12 document. 13 Q. Can you give us the refined essence of what it was that 14 you learned by reading that document? 15 A. Yes, I found out that federal jurisdiction extended 16 into the state territories in one of three ways they could 17 have acquired that. One of the ways was that land within the 18 states could be sold to the federal government and, therefore, 19 they would acquire jurisdiction over that, that land could be 20 ceded by the legislature under certain prescribed methods to 21 the federal government for its military grounds, other 22 facilities, and that federal jurisdiction applied to those 23 areas. And that the third way that the government could 24 receive federal jurisdiction within the states was when a 25 territory became a state, the government could retain DIRECT - VERNICE KUGLIN 548 1 jurisdiction over some of that land. 2 Q. Now, was this -- is this an official government 3 document to your understanding? 4 A. To my understanding, it is. 5 Q. Did what you read -- what you read in that work, did it 6 have an impact on your beliefs regarding your requirement to 7 file Form 1040? 8 A. Yes, it did because -- yes, it did. 9 Q. Okay. What was it? 10 A. Well, it said to me that because the federal government 11 had not acquired jurisdiction over where I lived, the area 12 that I lived or over the place that I worked, employment, that 13 this was not subject -- that I was not subject -- a person 14 subject to that jurisdiction in regards to the income tax, and 15 with all of the other -- substantiated the other court cases 16 and things that I had read. Also, I looked in the index to 17 find out what the jurisdiction of the federal government in 18 the realm of income tax was, and the only thing I could find 19 in the index was in reference to the state's ability to tax 20 people that were on federal land. There was no reference 21 whatsoever of the ability of the federal government to 22 directly tax property that I owned. 23 Q. Now -- 24 MR. MURPHY: Judge, could we approach? 25 THE COURT: You may. DIRECT - VERNICE KUGLIN 549 1 (The following proceedings had at side-bar 2 bench.) 3 MR. MURPHY: Judge, I'm going to object. We're 4 getting back into the long narrative. 5 MR. BECRAFT: If I can tell the court, I'm 6 through offering exhibits. I am at the stage now where 7 we're getting ready to go into the long stretch, what she 8 did with the IRS, letters you wrote, those Don Roberts' 9 letter and we're wrapping up. 10 MR. MURPHY: I'm going to object to any mention 11 of the Roberts' letters at all. 12 THE COURT: There's no indication that there 13 were no opinions which she relied, so they're just 14 hearsay. 15 MR. BECRAFT: Okay. Just to tell the court 16 where I'm headed, we have concluded all her beliefs. 17 THE COURT: Are we going to finish before 18 lunch? 19 MR. BECRAFT: I'm hoping maybe 15 minutes for 20 me and then it depends on Mr. Murphy. 21 THE COURT: All right. 22 (The following proceedings were had in open 23 court.) 24 MR. BECRAFT: Before I proceed, can I get an 25 exhibit? DIRECT - VERNICE KUGLIN 550 1 THE COURT: We have to let Mrs. Parker have a 2 chance to replug her equipment in. 3 MR. BECRAFT: May I approach the witness with a 4 couple of exhibits, Your Honor? 5 THE COURT: You may. 6 Q. Ms. Kuglin, there has been offered into evidence, I 7 don't know the exhibit number for it, but the '92 return, is 8 that correct? 9 A. That is correct. 10 Q. And that was prepared by an accountant, is that 11 correct? 12 A. That's correct. 13 Q. Mr. Napp? 14 A. Yes, sir. 15 Q. Did you file a '93 return? 16 A. No, I did not. 17 Q. And at the time that you -- where were you living then, 18 in '93? 19 A. I was living where I am now, 200 Wagner Place. 20 Q. Shelby County, Tennessee? 21 A. Yes, sir. 22 Q. Downtown Memphis? 23 A. Yes. 24 Q. And where did you work? 25 A. I worked at Federal Express. DIRECT - VERNICE KUGLIN 551 1 Q. Out at the airport? 2 A. That's correct. 3 Q. Also in Shelby County? 4 A. Yes. 5 Q. And I think we got evidence here that -- you were 6 either sent checks from or there was an account that you had 7 at the Credit Union where FedEx just deposited your paycheck 8 into the account? 9 A. Yes. 10 Q. Did that happen from '92, '93, forward? 11 A. I believe that that is the case. I'm not quite sure 12 when I set up automatic deductions. I was flying 13 international at that time, and it was convenient. 14 Q. Now, there's a '90 Form W-4 that's submitted into 15 evidence, and do you recall that it says, you know, you're 16 taking your normal exemptions? 17 A. Correct. 18 Q. Now, we don't have anything here for '93, '94, but were 19 you subjected to withholding in '93 and '94? 20 A. Yes. 21 Q. And do you have a judgment or recollection as to 22 approximately what the rate of withholding was for you during 23 '93 and '94? 24 A. I'm not sure of the total amounts, I believe it was 25 specified yesterday it was about in the 30 or $40,000 ranges. DIRECT - VERNICE KUGLIN 552 1 Q. You don't have any contentions, whatever those 2 figures -- 3 A. Yeah. 4 Q. -- they're correct? 5 A. That's correct. 6 Q. Did you file a '94 return? 7 A. No, I did not. 8 Q. Did you file a '95 return? 9 A. No, I did not. 10 Q. Were you subjected to withholding in '95? 11 A. Yes, I was. 12 Q. So what did you do ultimately regarding this problem of 13 withholding from your pay? 14 A. Ultimately, by December 30th of 1995, I come to the 15 conclusion that there was -- I had found significant enough 16 information to really question the fact that I was required to 17 file the Form 1040, the question that whether or not it was an 18 appropriate document and a required document. 19 Q. Okay. Now, let me direct your attention to -- can you 20 take a look at those exhibits in front of you and pull out 47, 21 the one that has 47 on it and the one that has 48? 22 A. Can you tell me the name of -- in this pile? 23 Q. I believe so. 24 A. The ones that you just gave me? 25 Q. No, not the ones that I just gave to you. In the stack DIRECT - VERNICE KUGLIN 553 1 that you had when you began your testimony this morning. 2 A. All right. 3 Q. I believe they're your letters bearing your signature 4 in October of '95 and November of '95. Do you have them? 5 A. I have these letters. 6 Q. Before we get into the substance of that, did you have 7 any conversations with anybody at the IRS sometime in 1995 8 that related to your investigations of the tax laws? 9 A. Yes, I did. I had an acquaintance -- 10 MR. MURPHY: Judge, can we approach? 11 THE COURT: You may. 12 (The following proceedings had at side-bar 13 bench.) 14 MR. MURPHY: Judge, I don't know that her 15 conversations with the IRS are relevant. It's hearsay. 16 MR. BECRAFT: I was merely pinpointing a time. 17 I'm not going to -- I'm going to expressly disinvite her 18 to relating what they said, Your Honor, and mention that 19 she had a meeting in July, that she reached certain 20 conclusions. They have an effect upon the other reasons 21 why she wrote those letters in October and November. 22 Although we do have a date of the meeting with the IRS, 23 not that I'm going to offer it, Your Honor. I just 24 mention that in passing. 25 THE COURT: Okay. DIRECT - VERNICE KUGLIN 554 1 (The following proceedings were had in open 2 court.) 3 Q. Just to make a point -- just to make a point, did you 4 have some type of actual sit down face-to-face meeting, not in 5 reference to yourself, but in reference to someone else, in 6 reference -- with some IRS agents in the summer of '95? 7 A. That's correct, yes, I did. 8 Q. Let's not get into the substance of that, okay. Now, 9 what was your -- what was going through your mind at that 10 stage after that meeting? 11 A. I had -- the thing that was going through my mind based 12 on the meeting was that contrary to the information on the 13 documents which said that I could go to the IRS and ask the 14 questions that I had in regard to my liability under the 15 individual income tax -- 16 MR. MURPHY: Judge, could we approach? 17 THE COURT: All right. 18 (The following proceedings were had in open 19 court.) 20 MR. MURPHY: Judge, I'm going to object to 21 relevance. What does this have to do with her belief? 22 MR. BECRAFT: Her intent and belief led her -- 23 I'm getting ready to offer those two letters, October and 24 November of '95 that she wrote to the Internal Revenue 25 Service, Your Honor. DIRECT - VERNICE KUGLIN 555 1 THE COURT: Do you have any objection? 2 MR. MURPHY: I don't have any objection to the 3 letters, Judge. 4 MR. BECRAFT: I will speed it up, I'll move to 5 the -- 6 THE COURT: Move to the letters. Good. 7 MR. BECRAFT: Thank you. 8 (The following proceedings were had in open 9 court.) 10 Q. Ms. Kuglin, let me direct your attention, let's just go 11 to the heart of the matter, to the letter that, I believe you 12 wrote in October of '95. It has a big 47 on it. 13 A. I have got that letter. 14 Q. Okay. Now, does it have a date on it? 15 A. Yes, it does. It is October the 18th, 1995. 16 Q. All right. And take a look at the next one. 17 A. That one is dated November 25th of 1995. 18 Q. All right. Are those letters that you composed? 19 A. Yes, they are. 20 Q. All right. Do they relate to your tax liens or tax 21 positions? 22 A. They relate to the questions that I wanted to ask, yes. 23 Q. Okay. And to whom are they addressed? 24 A. They were addressed -- the October the 18th letter was 25 addressed to the Internal Revenue Service, Memphis, Tennessee. DIRECT - VERNICE KUGLIN 556 1 Q. What with the other one? 2 A. The other one was addressed to the Internal Revenue 3 Service in Memphis, attention of James Gaither, chief 4 collection branch. 5 Q. All right. Did you sign those letters and mail them to 6 the IRS? 7 A. Yes, I did, and I have certified copies of the receipt. 8 Q. So you sent them certified to the IRS? 9 A. Yes, I did. 10 MR. BECRAFT: Your Honor, I move for the 11 admission of the documents that have 47 and 48 on it. 12 MR. MURPHY: Judge, there's some attachments 13 on, I believe it's 48 that I'm taking the position that 14 aren't admissible. 15 THE COURT: Let me take a look at them and we 16 will go over them at side bar. 17 (The following proceedings had at side-bar 18 bench.) 19 MR. MURPHY: Judge, I believe it's 48, there's 20 an attachment, I don't know if it is from the IRS, it says 21 someone is not liable to file a tax return. The names are 22 blacked out. Judge, I don't think that ought to come in. 23 There's two of them. 24 THE COURT: Let's make sure we're -- 25 MR. BECRAFT: Of course -- yeah, those are it. DIRECT - VERNICE KUGLIN 557 1 THE COURT: These are letters which are from -- 2 of an individual in Delano, California, that the name is 3 blacked out, the taxpayer's name is blacked out, and the 4 taxpayer in Ogden, Utah, and the name is also blacked out 5 on that, so these are hearsay documents, and they're 6 not -- 7 MR. BECRAFT: I would redact them, Your Honor. 8 THE COURT: Subject to any -- 9 MR. MURPHY: Judge, I don't have a problem with 10 the exhibit. 11 MR. BECRAFT: Can I tear them? 12 THE COURT: Let's see if we can't find a staple 13 remover. 14 MR. BECRAFT: I will pull those apart without 15 those pages. 16 THE COURT: Sure. 17 MR. BECRAFT: And I see a stapler right there. 18 I will pull out those two appending documents, and now we 19 can staple it back. 20 THE COURT: Okay. All right, gentlemen. 21 (The following proceedings were had in open 22 court.) 23 THE COURT: We will mark Exhibit 41 and Exhibit 24 42. 41 is an October 18, 1995 letter to the Internal 25 Revenue Service from Ms. Kuglin, and Exhibit 42 is a DIRECT - VERNICE KUGLIN 558 1 November 25th, 1995 letter with certain attachments, and 2 it's addressed to Internal Revenue Service to Mr. Gaither 3 from Ms. Kuglin. 4 (Exhibit Number 41 was marked. Description: 5 October 18, 1995 Letter.) 6 (Exhibit Number 42 was marked. Description: 7 November 25, 1995 Letter.) 8 Q. Ms. Kuglin, what was going through your mind at that 9 time, what did you believe about the necessity on your part to 10 file Forms 1040? 11 A. At that time, based on my research, based on the 12 government documents that I relied upon, the 1040 was not the 13 form that I had -- excuse me, let me start this again. I come 14 to the conclusion or the belief that there was no regulation 15 in the Internal Revenue Code that made me liable for the 16 individual income tax and that the 1040 form, there was no law 17 that required me to file that form for that particular tax. 18 Q. Looking at Exhibit Number 41, did you pose certain 19 questions in the letter? 20 A. This is the new 41 we're talking about? 21 Q. Yes. It will have a yellow sticker on it that says 41 22 now. 23 A. And would you repeat your question? 24 Q. Did you pose by means of that letter certain questions? 25 A. Yes, I did. DIRECT - VERNICE KUGLIN 559 1 Q. What were the questions that you posed to the Internal 2 Revenue Service? 3 A. The initial question was in regard to the OMB cross 4 reference number and the fact that the 1040 form had the 5 1545-0074 number on it, and the cumulative bulletin index 6 showed that the only form that had been approved for the 7 individual income tax was the 2555 form, foreign earned 8 inco