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UNITED STATES v. RICCIO

April 12, 1968

UNITED STATES OF AMERICA, PLAINTIFF,
v.
ANGELO RICCIO, DAVID S. TEPPS, MICHAEL D. DONOFRIO, MARVIN MARKS AND JOSEPH P. ETERNO, DEFENDANTS.



The opinion of the court was delivered by: Napoli, District Judge.

MEMORANDUM OPINION

This is a civil action brought by the United States against five individual residents of Illinois, in which the government alleges that the defendants were, and on information and belief, still are, engaged in the business of accepting wagers, or receiving wagers for or on behalf of persons engaged in the business of accepting wagers. The government further alleges that each of the defendants has failed to pay the excise tax imposed on wagers under Section 4401 of Title 26, U.S.C.; that each defendant has failed to file monthly returns; that each defendant has failed to pay the special occupation tax imposed by 26 U.S.C. § 4411; that each defendant has failed to register under 26 U.S.C. § 4412; and that defendants have otherwise failed to comply with lawful conditions precedent to the carrying on of their business of accepting wagers, under the terms of 26 U.S.C. § 4901(a). Alleging that it has thus been deprived of substantial taxes to which it is entitled, and that it has no adequate remedy at law, the government asks that the defendants be enjoined from participation in the business of receiving or accepting wagers, until they have complied with the applicable statutory provisions.

Defendants responded with a motion to dismiss in which they asserted their privilege against self-incrimination. Since privilege is an affirmative defense which is not properly presented by a motion attacking the sufficiency of a pleading, the Court has treated the motion as a motion for summary judgment instead, pursuant to Rules 12(b) and 56 of the Federal Rules of Civil Procedure.

In light of the very recent holding of the United States Supreme Court in Marchetti v. United States, (390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889, 1968); and Grosso v. United States, (390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906, 1968), that the claim of privilege precludes a criminal conviction premised on failure to pay the tax, the Court has decided to rule on the adequacy of the privilege defense presented by defendant's motion, before any further proceedings are held.

In Marchetti and Grosso, the Supreme Court, while reversing the criminal conviction for failure to comply with the federal wagering tax laws, found that wagering is an area "permeated with criminal statutes", and that those engaged in wagering are a group "inherently suspect of criminal activities." The Court found that information obtained as a consequence of federal wagering tax laws is readily made available to state and federal officials to enforce various penalties. The court thus found that the obligation to register and pay the occupational tax created real and appreciable hazards of self-incrimination.

While the Supreme Court in Marchetti did not hold the wagering tax statutes unconstitutional on their face, they did hold the statutes unenforceable, at least criminally, in the face of a valid claim of the privilege against self-incrimination. The Supreme Court extended an invitation to Congress to cure the defect, by granting an immunity from prosecution arising from any of the information divulged, citing Counselman v. Hitchcock, 142 U.S. 547, 12 S.Ct. 195, 35 L.Ed. 1110. However, no amendments to either the wagering tax laws or to administrative regulations thereunder have been made since Marchetti. The government's theory here is that the Marchetti privilege may be asserted only in a criminal prosecution for failure to comply with the wagering tax provisions.

At this stage of the proceedings, and for purposes of the pending motion only, the well pleaded allegations of the complaint stand admitted. Since this is a civil action commenced by the United States for the enforcement of the internal revenue laws, this Court has jurisdiction of the subject matter under 26 U.S.C. § 7402(a) and 28 U.S.C. § 1345.

The government contends that Marchetti and Grosso are inapplicable here, first of all, because the Supreme Court specifically refused to rule that the wagering tax statutes as such are constitutionally impermissible; and secondly, because the holding in Marchetti and Grosso was said to be merely that the government cannot criminally punish a violation of the wagering tax laws in the face of a proper claim of privilege. The government thus contends that it may invoke the appropriate civil remedy even after Marchetti.

Defendants read Marchetti and Grosso as holding that the wagering tax statutes are unenforceable in their present state, in the face of a claim of the privilege against self-incrimination. Defendants emphasize those portions of the Supreme Court's opinion where it is suggested that Congress revise the wagering tax scheme, perhaps by adding an immunity provision in order to prevent the successful assertion of the privilege against self-incrimination.

Unquestionably, as the Supreme Court recognized in Marchetti and Grosso, the government may tax activities which are illegal. Furthermore, the government may enact whatever measures are reasonably necessary to aid in the assessment and collection of any tax. In considering the federal wagering tax statutes, the courts have always assumed with a straight face that the principal interest of the United States is the collection of revenue, and not the prosecution of gamblers. United States v. Calamaro, 354 U.S. 351, 77 S.Ct. 1138, 1 L.Ed.2d 1394. However, any government regulation is subject to the rights granted to individuals by the fifth amendment, including the privilege against self-incrimination. It is now clear, after Marchetti and Grosso, that the reporting requirements of the federal wagering tax statutes, seen in their context of multitudinous criminal statutes, and administrative regulations calling for the release of the information to prosecuting authorities, unduly infringe the right of the individual to be free from compulsory self-incrimination.

Wagering is an area even more permeated with criminal statutes in Illinois, than it is in Connecticut and Pennsylvania, where Marchetti and Grosso were convicted. Illinois Revised Statutes, Chapter 38, article 28, provided comprehensive prohibition of gambling, with criminal penalties. In addition, § 28-4 of Chapter 38 specificially requires the purchaser of a Federal Wagering Occupation Stamp to register in his county of residence, and in each county in which he conducts any business, with criminal penalties for violation. Furthermore, the county clerk is directed to send notice of the registration to various law enforcement officials throughout the state. Ill.Rev.Stat. Ch. 38 § 28-4(c) (1967).

It can scarcely be denied, in light of the multitude of state and federal criminal statutes penalizing the very behavior which the defendants would be admitting in registering for, and paying, the wagering tax; and in light of the administrative practice of the internal revenue service, of making registration information available to federal and local law enforcement officials, that the obligation to register and pay the occupational tax presented "real and appreciable" hazards of self-incrimination to defendants here. The defendants' assertion of the privilege is no more "extreme" nor "extravagant" than the assertion of the same privilege in Marchetti and Grosso.

Accordingly, the privilege asserted by defendants must be an absolute bar to the relief sought by the government here, unless it appears that the privilege has somehow been waived, or that defendants are otherwise outside the protection of the privilege.

There is nothing in the record which indicates defendants have waived the privilege. Certainly their failure to report to the internal revenue service at the time the tax was due did not constitute a waiver of the constitutional protection. As the Court in Marchetti observed, "(T)o have required him to present his claim to Treasury officers would have obliged him `to prove guilt to avoid admitting it.'" 390 U.S. at 50, 88 S.Ct. at 704. Nor can it be contended that the privilege was waived on the discredited theory of Lewis v. United States, 348 U.S. 419, 75 S.Ct. 415, 99 L. Ed. 475, that the registration and occupational tax requirements do not infringe the constitutional privilege because they do not compel self-incrimination, but merely impose upon the gambler the initial choice of whether he wishes, at the cost of his constitutional privilege, to commence wagering activities. Finding that such ...


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