12 USC 411 pertains to the redemption for lawful money without reference to 'demanding' lawful money. Your redemption should put the bill into Treasury right and proper as lawful money. If the statute pertains to redemption and you are speaking of a demand for lawful money (a draft or a claim). That is, perhaps you need to explain to State of Oregon that you redeemed those checks/drafts for lawful money and that principal isn't subject to tax?
If the IRS approved the deduction, then Oregon DoR needs to do the same.
Paragraph 5 of that letter is 'screaming' "administrative law" --that the Oregon revenue department is probably subject to the plenary powers of the Oregon legislature.
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