What law or statute authorizes the 12-411 tax exemption?

The authority for the 12-411 process is found in Title 12 of the U.S. Code, not Title 26, which governs the Internal Revenue Code (IRC). This distinction is key: Title 12 is the Banking Code, and the 12-411 process is fundamentally a banking redemption mechanism, not a traditional tax loophole or deduction.

This law allows individuals to redeem Federal Reserve Notes for lawful money, which carries no tax liability, because lawful money is not considered income under IRS definitions. Since the Federal Reserve created this process and is the parent entity of the IRS, this exemption exists upstream of typical IRS jurisdiction.