Lucia v. United States, 30342.

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Citation: 474 F.2d 565
• Docket Number: No. 30342.,30342.
• Parties: Joseph P. LUCIA, Plaintiff-Appellant, v. UNITED STATES of America et al., Defendants-Appellees.
• Decision Date: 02 February 1973

474 F.2d 565 (1973)

Joseph P. LUCIA, Plaintiff-Appellant,
v.
UNITED STATES of America et al., Defendants-Appellees.

No. 30342.

United States Court of Appeals, Fifth Circuit.

February 2, 1973.

474 F.2d 566

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474 F.2d 567

John G. Heard, Harry M. Reasoner, Thomas P. Marinis, Houston, Tex., Charles Alan Wright, W. Dean Hester, Austin, Tex., for plaintiff-appellant

Meyer Rothwacks, John M. Dowd, Joseph M. Howard, and John P. Burke, U. S. Attys., Lee A. Jackson, Atty., Tax Div., U. S. Dept. of Justice, Washington, D. C., William S. Sessions, U. S. Atty., Hugh P. Shovlin, Asst. U. S. Atty., San Antonio, Tex., for defendants-appellees.

Before JOHN R. BROWN, Chief Judge, and WISDOM, GEWIN, BELL, THORNBERRY, COLEMAN, GOLDBERG, AINSWORTH, GODBOLD, DYER, SIMPSON, MORGAN, CLARK and RONEY, Circuit Judges.^*

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RONEY, Circuit Judge:

Appellant Joseph P. Lucia seeks injunctive and declaratory relief against an assessment of $2,653,640, plus interest, for unpaid wagering taxes. The District Court dismissed the complaint for lack of subject matter jurisdiction. A panel of this Court, relying on the principles set forth 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), reversed the dismissal on the ground that, absent the Government's showing of taxpayer fraud, the statute of limitations would bar the assessment and appellant would be entitled, therefore, to injunctive relief.¹

On rehearing, the Court, sitting en banc, now decides that the assessment would not be barred by the statute of limitations. But we remand the case to the District Court for a factual determination of appellant's allegation that the assessment was arbitrary, capricious, and without factual foundation.

The ultimate question in this case is whether the facts alleged in the complaint come within a narrow exception to the Congressional mandate which denies federal courts the jurisdiction to grant injunctive relief against the assessment or collection of federal taxes.² Other than the statutory exceptions, which are not applicable here, the only basis for injunctive relief is that prescribed in Miller v. Standard Nut Margarine Co. of Florida, 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422 (1932), and Enochs v. Williams Packing & Navigation Co., Inc., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). Under the holdings of these two cases, a federal court may enjoin the collection of federal taxes if the taxpayer plaintiff can show (1) that "it is clear that under no circumstances could the Government ultimately prevail," and (2) "that equity jurisdiction otherwise exists." 370 U.S. at 7, 82 S. Ct. at 1129. Injunctive relief is permitted under this test only if the Government's claim cannot be established "under the most liberal view of the law and the facts."³

To bring himself within this exception, plaintiff alleges, on two independent grounds, that the Government could not under any circumstances prevail in the collection of the taxes assessed: first, he contends that the Government's assessment is barred by the statute of limitations; and second, he argues that the assessment is arbitrary, capricious, and without factual foundation.

I. Statute of Limitations Defense

Civil tax assessments, including the wagering excise tax,⁴ must be made

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within three years after the tax return is filed.⁵ If no return is filed, however, this three-year statute of limitations does not apply, and the assessment or collection proceedings may begin at any time.⁶ Taxpayer contends that, the latter provision notwithstanding, the three-year limitations period applies when the failure to file a return is constitutionally protected under Marchetti and Grosso. If the limitations statute is applicable here, then the assessment is barred because the assessment of $3,913,761.74 (including $1,260,121.74 interest) for wagering excise tax liability during the period March 1, 1959, through November 21, 1963, was not made until July 29, 1969, almost six years after the last transaction and more than ten years after the first transaction on which the assessment was made

The validity of the wagering excise tax is not here in question. The courts have traditionally refused to challenge the federal government's power to tax unlawful activities,⁷ so Congress undoubtedly has the power to assess and to collect taxes on unlawful gambling activities, including wagering.⁸ A tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed or because it affects activities which Congress might not otherwise regulate.⁹

Several basic principles guide our decision that the statute of limitations is not here applicable.

First, there is no substantive or fundamental right to the shelter of a

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period of limitations.¹⁰ As a matter of constitutional law, statutes of limitations go to matters of remedy and do not involve the destruction of fundamental rights.¹¹ Thus, the extent to which a tax assessment is barred by time is within exclusive Congressional control, unlimited by the Constitution. This principle is manifest in the cases recognizing Congress' power to create a right with no time limitation on its exercise,¹² and by those decisions holding that, in the enforcement of Government tax claims, the United States is not barred by a laches defense.¹³

Second, limitations statutes barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the Government.¹⁴ In effect, a period of limitations runs against the collection of taxes only because the Government, through Congressional action, has consented to such a defense. Absent Government consent, no limitations defense exists.

Third, Congress has clearly provided that time will not bar the collection of taxes for which no returns have been filed:

"In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time."¹⁵

The legislative intent to condition a limitations defense on the filing of a return is reflected in the provision that time begins to run not when the return could or should have been filed, but only when the return is actually filed.¹⁶

The objective of this Congressional pattern — to ensure that passage of time will not prevent collection of the tax unless the Government has been informed by the taxpayer that there is, or might be, tax liability — is essential to our national tax system, which "is premised largely on the theory of self-assessment."¹⁷

Since Congress did not contemplate the frustration of the self-assessment system occasioned by Marchetti, Grosso, and United States Coin and Currency,¹⁸ there could have been no legislative intent as to the effect of these decisions on the limitations defense. Congress, in addressing specific situations involving a failure of the self-assessment pattern, however, consistently provided that time would not bar the collection of the tax. False or fraudulent returns, filed with an intent to evade tax,¹⁹ willful attempt to evade tax in any manner,²⁰ and failures

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or delays in filing a return for any reason, justifiable or not,²¹ are specific instances where the self-assessment system is thwarted; and in each case, Congress has provided that time will not bar assessment or collection proceedings until the return is filed. We cannot assume that Congress intended to accord any different treatment to the failure to file a return for Fifth Amendment reasons

The constitutional dimensions of the federal wagering excise tax scheme, nevertheless, were dramatically affected by the United States Supreme Court's holdings in Marchetti, Grosso, and United States Coin and Currency. In both Marchetti and Grosso, the Court reasoned that the tax statutes required gamblers to file forms containing possibly incriminating information and that the Fifth Amendment privilege against self-incrimination could be raised as a defense to a criminal prosecution charging failure to file the required forms.

In Marchetti, the Court held that a defendant's proper assertion of his constitutional privilege against self-incrimination provided a complete defense to a criminal prosecution for willful failure to register²² and for willful failure to pay the occupational tax before engaging in the business of accepting wagers, and for conspiracy to evade payment of such tax.²³

In Grosso, the Court additionally held that the Fifth Amendment privilege against self-incrimination likewise prevented a prosecution for failure to pay the excise tax on wagering imposed by 26 U.S.C.A. § 4401, the statute under which the assessment in the case at bar has been made.

United States Coin and Currency was a forfeiture proceeding in which the respondent monies were declared forfeited pursuant to the provision that "no property rights shall exist in . . . property" used "in violating the provision of the internal revenue laws."²⁴ Violations of the same statutes controlling in Marchetti supported the forfeiture.²⁵ The Seventh Circuit concluded that the only apparent purpose of the forfeiture statutes under the circumstances was "to punish violators of these statutes by taking away money used in committing the violations."²⁶ The Court reasoned that, since Marchetti prohibits direct punishment of such violations, indirect punishment through forfeiture should similarly not be permitted. The Supreme Court, affirming, held that the Fifth Amendment privilege could be properly invoked in the case since the forfeiture statutes, when viewed in their entirety, are intended to impose a penalty only upon those taxpayers who are significantly involved in a criminal enterprise.

Delimiting the scope of these holdings, Mr. Justice Harlan's language in United States Coin and Currency articulates...