Hamilton v. United States, No. 69 Civ. 2727.

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Citation309 F. Supp. 468
Docket NumberNo. 69 Civ. 2727.
PartiesDennis HAMILTON, Plaintiff, v. UNITED STATES of America, Edward J. Fitzgerald, Jr., District Director of Internal Revenue for the District of Manhattan, Randolph W. Thrower, Commissioner of Internal Revenue of the United States of America, Defendants.
Decision Date14 November 1969

309 F. Supp. 468

Dennis HAMILTON, Plaintiff,
v.
UNITED STATES of America, Edward J. Fitzgerald, Jr., District Director of Internal Revenue for the District of Manhattan, Randolph W. Thrower, Commissioner of Internal Revenue of the United States of America, Defendants.

No. 69 Civ. 2727.

United States District Court S. D. New York.

November 14, 1969.


309 F. Supp. 469

Godfrey H. Murrain, New York City, for plaintiff.

Robert M. Morgenthau, U. S. Atty., Southern District of New York, for defendant the United States by Brian J. Gallagher, Asst. U. S. Atty., New York City.

MANSFIELD, District Judge.

In this action to enjoin the Government from levying, collecting or assessing excise taxes in the sum of $385,491.71 upon wagers pursuant to 26 U.S.C. § 4401,1 and for a judgment declaring

309 F. Supp. 470
the assessments to be invalid, plaintiff seeks preliminary injunctive relief pursuant to Rule 65, F.R.C.P., restraining any attempt to collect the tax so assessed. For the reasons hereinafter stated, the motion is denied

Plaintiff was arrested on May 21, 1965, and charged criminally pursuant to 26 U.S.C. § 72622 with failure to pay the excise tax on wagers received in violation of the federal wagering tax laws (26 U.S.C. § 4401) and failure to pay a special $50 occupational tax imposed on wagering in violation of 26 U.S.C. § 4411.3 On April 5, 1968 the Government voluntarily dismissed the criminal complaint against Hamilton on the authority of the Supreme Court's decisions in Marchetti v. United States, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (1967), and Grosso v. United States, 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906 (1967).

On January 2, 1969, pursuant to 26 U.S.C. § 4401, the Government filed an assessment against plaintiff in the sum of $385,491.71 for unpaid excise taxes due on wagers allegedly handled during the period July 1, 1961 to May 21, 1965. The Government calculated the tax due on the basis of a projection. Plaintiff had not kept a daily record of the wagers as required by 26 U.S.C. § 4403.4 The only available figures were taken from wagering records in the form of "policy slips" for the period May 19-21, 1965, which had been seized pursuant to search warrants issued by the United States Commissioner on May 21, 1965. The average of these three days was computed.5 That average was multiplied by the number of days in which the Government calculated Hamilton wagered. This number of days was estimated by multiplying four (the number of years Hamilton "admitted" accepting wagers5a) by six (the number of days per week, Sundays and holidays excepted, that the Government assumed that Hamilton accepted wagers per week). This

309 F. Supp. 471
process resulted in a projected gross take of $2,883,955 from plaintiff's wagering activity, upon which there was assessed an excise tax of 10% pursuant to § 4401, resulting in $288,395.54, plus $97,095.71 interest, or a total assessment of $385,492.25. Pursuant to 26 U.S.C. § 6301,6 the Internal Revenue Service served a notice of a federal lien in the sum of $382.122.137 on plaintiff, and accompanied this with notice of levy8 in the amount of $385,491.71, and seizure of the contents of a safety deposit box held by Hamilton

Plaintiff's argument that the procedure used to enforce the wagering tax, 21 U.S.C. § 4401, is unconstitutional must be rejected on both substantive and procedural grounds. In Marchetti v. United States, 390 U.S. 39, 61, 88 S.Ct. 697, 19 L.Ed.2d 889 (1967), the Supreme Court upheld the constitutionality of the tax on wagers, 26 U.S.C. § 4401. The Supreme Court has also upheld the summary proceedings used in this case to determine the assessment. So long as an adequate opportunity to contest the assessment exists, assessment by summary administrative proceedings, without notice or hearing, does not violate the due process clause. Phillips v. Commissioner, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289 (1931); Pizzarello v. United States, 285 F.Supp. 147, 152, reversed on other grounds, 408 F.2d 579 (2d Cir. 1968). In any event the request for declaratory relief must be denied on the authority of 28 U.S.C. § 2201, for lack

309 F. Supp. 472
of jurisdiction. Accord: cf. Koin v. Coyle, 402 F.2d 468, 470 (7th Cir. 1968)

Turning to plaintiff's application for injunctive relief, we are faced with the strong policy against such relief expressed by Congress in 26 U.S.C. § 7421, which prohibits injunctive relief except in certain situations not applicable here, and in the Supreme Court's decision in a leading case on the subject, Enochs v. Williams Packing Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), holding that such relief is generally denied pursuant to § 7421 but may be granted in the rare case where a plaintiff is able to show (1) that "under no circumstances could the Government ultimately prevail," and (2) that "equity jurisdiction otherwise exists." As Chief Justice Warren noted, the purpose of these two requirements is to insure against interference with the Government's collection of taxes:

"The manifest purpose of § 7421(a) is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund. In this manner the United States is assured of prompt collection of its lawful revenue. Nevertheless, if it is clear that under no circumstances could the Government ultimately prevail, the central purpose of the Act is inapplicable and, under the Nut Margarine, Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422 case, the attempted collection may be enjoined if equity jurisdiction otherwise exists. In such a situation the exaction is merely in `the guise of a tax.' Id., 284 U.S. at 509, 52 S.Ct. at 263.
"We believe that the question of whether the Government has a chance of ultimately prevailing is to be determined on the basis of the information available to it at the time of suit. Only if it is then apparent that, under the most liberal view of the law and the facts, the United States cannot establish its claim, may the suit for an injunction be maintained. Otherwise, the District Court is without jurisdiction, and the complaint must be dismissed. To require more than good faith on the part of the Government would unduly interfere with a collateral objective of the Act — protection of the collector from litigation pending a suit for refund." (370 U.S. at 7-8, 82 S.Ct. at 1129)

Relying upon the recent decision of the Second Circuit Court of Appeals in Pizzarello v. United States, 408 F.2d 579 (2d Cir. 1969), which was also a wagering tax case, plaintiff urges that the Government cannot "ultimately prevail" here because its "manner of calculation is grossly excessive and illegal on its face as a matter of law" and would have the effect of violating his Fifth Amendment right against self-incrimination by coercing him into waiving that right and disclosing his gambling activities in order to avoid imposition of a tax in excess of what he is obligated to pay. In addition, although plaintiff does not urge it as a ground in his moving papers or brief, his complaint (¶ 2) alleges on information and belief that the three days' "policy slips" used as the basis for the computation under attack were unlawfully seized in contravention of the Fourth Amendment.

The method used by the Government here to compute the assessment is substantially the same as that criticized by the Court of Appeals in Pizzarello, where the Government used a three-day average of policy wagers as the basis for calculating a gambler's gross wagering business over a five-year period. In the present case a three-day average was used to calculate gambling revenue for four years. Although we agree that the relatively small sample would not appear to the uninitiated to be necessarily representative of plaintiff's business over such a long period, we cannot conclude as a matter of law that such a projection is irrational, arbitrary, and incapable of being supported. For instance, experts in the business of gambling, given the period of time during

309 F. Supp. 473
which plaintiff admittedly was engaged in accepting policy wagers, the area in which he operated, and gambling data independently collected by objective bodies, might testify to the reasonableness of the projection. Similar computations have been accepted by various courts. See United States v. Washington, 251 F.Supp....

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22 practice notes
  • Hartman v. Switzer, Civ. A. No. 73-788.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • May 21, 1974
    ...Packing & Navigation Co., Inc., supra; Enterprises Unlimited, Inc. v. Davis, 340 F.2d 472 (9 Cir. 1965); Hamilton v. United States, 309 F.Supp. 468 (S.D.N.Y.1969) aff'd, 429 F.2d 427 (2 Cir. 1970). It is beyond question that where an adequate remedy at law exists equitable relief will not b......
  • Application of JW Schonfeld, Ltd., Civ. A. No. 78-184-N.
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
    • August 18, 1978
    ...1975); Brittingham v. United States Commissioner of Internal Revenue, 451 F.2d 315, 316-17 (5th Cir. 1971); Hamilton v. United States, 309 F.Supp. 468 (S.D.N.Y.1969), aff'd per curiam, 429 F.2d 427 (2d Cir. 1970), cert. denied, 401 U.S. 913, 91 S.Ct. 881, 27 L.Ed.2d 812 (1971). And a taxpay......
  • Schildcrout v. McKeever, Nos. 76-2625
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • August 22, 1978
    ...Judge, now Mr. Justice, Stevens). Cf. Hamilton v. United States, 429 F.2d 427 (2d Cir. 1970) (per curiam), Affirming on decision below, 309 F.Supp. 468, 474 (S.D.N.Y.1969) (alternate ground) (determination of admissibility of evidence not proper in a suit to enjoin taxes), Cert. denied, 401......
  • Simkins v. Commissioner, Docket No. 3216-74.
    • United States
    • United States Tax Court
    • August 28, 1978
    ...O'Neill v. United States 61-2 USTC ¶ 15,371, 198 F. Supp. 367 (E.D.N.Y. 1961). Compare Hamilton v. United States 69-2 USTC ¶ 15,924, 309 F. Supp. 468 (S.D.N.Y. 1969) affd. 70-2 USTC ¶ 15,957 429 F. 2d 427 (2d Cir. 1970), cert. denied 401 U.S. 913 (1971), with Pizzarello v. United States 69-......
  • Request a trial to view additional results
22 cases
  • Hartman v. Switzer, Civ. A. No. 73-788.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • May 21, 1974
    ...Packing & Navigation Co., Inc., supra; Enterprises Unlimited, Inc. v. Davis, 340 F.2d 472 (9 Cir. 1965); Hamilton v. United States, 309 F.Supp. 468 (S.D.N.Y.1969) aff'd, 429 F.2d 427 (2 Cir. 1970). It is beyond question that where an adequate remedy at law exists equitable relief will not b......
  • Application of JW Schonfeld, Ltd., Civ. A. No. 78-184-N.
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
    • August 18, 1978
    ...1975); Brittingham v. United States Commissioner of Internal Revenue, 451 F.2d 315, 316-17 (5th Cir. 1971); Hamilton v. United States, 309 F.Supp. 468 (S.D.N.Y.1969), aff'd per curiam, 429 F.2d 427 (2d Cir. 1970), cert. denied, 401 U.S. 913, 91 S.Ct. 881, 27 L.Ed.2d 812 (1971). And a taxpay......
  • Schildcrout v. McKeever, Nos. 76-2625
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • August 22, 1978
    ...Judge, now Mr. Justice, Stevens). Cf. Hamilton v. United States, 429 F.2d 427 (2d Cir. 1970) (per curiam), Affirming on decision below, 309 F.Supp. 468, 474 (S.D.N.Y.1969) (alternate ground) (determination of admissibility of evidence not proper in a suit to enjoin taxes), Cert. denied, 401......
  • Simkins v. Commissioner, Docket No. 3216-74.
    • United States
    • United States Tax Court
    • August 28, 1978
    ...O'Neill v. United States 61-2 USTC ¶ 15,371, 198 F. Supp. 367 (E.D.N.Y. 1961). Compare Hamilton v. United States 69-2 USTC ¶ 15,924, 309 F. Supp. 468 (S.D.N.Y. 1969) affd. 70-2 USTC ¶ 15,957 429 F. 2d 427 (2d Cir. 1970), cert. denied 401 U.S. 913 (1971), with Pizzarello v. United States 69-......
  • Request a trial to view additional results

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