United States v. One 1965 Buick

• Citation: 392 F.2d 672
• Decision Date: 17 April 1968
• Docket Number: No. 17559.,17559.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. ONE 1965 BUICK, etc. et al., Defendants, Wilbur Dean and Delores Dean, Claimants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

392 F.2d 672 (1968)

UNITED STATES of America, Plaintiff-Appellee, v. ONE 1965 BUICK, etc. et al., Defendants, Wilbur Dean and Delores Dean, Claimants-Appellants.

No. 17559.

United States Court of Appeals Sixth Circuit.

April 17, 1968.

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James R. Willis, Cleveland, Ohio, for appellants; Louis Stokes, Elmer J. Whiting, Jr., Cleveland, Ohio, on brief.

James L. Oakar, Asst. U. S. Atty., Cleveland, Ohio, for appellee; Merle M. McCurdy, U. S. Atty., Cleveland, Ohio, on brief.

Before WEICK, Chief Judge, and EDWARDS and McCREE, Circuit Judges.

WEICK, Chief Judge.

This appeal involves questions arising out of the forfeiture of property used in the operation of a numbers business, in violation of the Internal Revenue laws.

The United States filed a libel of information in the District Court to condemn the property which consisted of $305,633.25 in cash, a package containing an unknown amount of currency, three Buick automobiles, and three adding machines.

The property had been seized by Special Agents of the Internal Revenue Service in a search of the residence of appellants, Wilbur and Delores Dean, pursuant to the authority of search warrants which authorized the search of the residence and four automobiles.

The libel alleged that the Deans and other persons engaged in and carried on the business of accepting wagers without having first paid the special occupational tax imposed on such business, and without registering the business as required by law¹; that while so engaged said property was used and was intended for use in violation of the Internal Revenue laws; and that by reason thereof, said property became and is the property of the United States under the provisions of Section 7302 of Title 26, U.S.C.

Appellants filed answers, denying the material allegations of the libel. They also filed a claim to the property. Wilbur Dean filed a motion to suppress, the ground of the motion to suppress being that the search and seizure were illegal, in violation of his Fourth and Fifth Amendment rights.

Pursuant to a stipulation of the parties, the motion to suppress and the trial of the libel were heard together. The trial lasted eight days, at the conclusion of which the District Judge delivered his opinion, which is contained in eleven pages of the printed record. He adopted findings of fact and conclusions of law. He found that the allegations contained in the libel were sustained by the evidence, and ordered the property condemned by decree of forfeiture and turned over to the United States. He denied the motion to suppress.

It is contended on appeal that the federal wagering tax statutes which formed the basis for issuance of the search warrants and seizure of the property sought to be forfeited, are unconstitutional.

An analysis of this claim must begin with the forfeiture statute itself. 26 U.S.C. § 7302 provides in part:

"It shall be unlawful to have or possess any property intended for use in violating the provisions of the internal revenue laws * * * and no property rights shall exist in any such property."

The primary purpose of the statute is the protection of the revenue through the effective enforcement of the revenue laws. Florida Dealers & Growers Bank v. United States, 279 F.2d 673, 676 (5th Cir. 1960); United States v. One 1950 Ford Half-Ton Pickup Auto Truck, etc., 195 F.2d 857, 859 (6th Cir. 1952); United States v. Windle, 158 F.2d 196, 199 (8th Cir. 1946). A reading of the language of the statute, in the light of the purpose for its existence, leads to the conclusion that it outlaws any property used or intended for use in violating the Internal Revenue laws and sanctions forfeiture thereof. However, if the wagering tax statutes are unconstitutional, as the appellants insist, then there would be no revenue law violation upon which to predicate the forfeiture.

When the case was tried in the District Court it was governed by two decisions of the Supreme Court, which upheld the constitutionality of the wagering statutes here involved. Lewis v. United States, 348 U.S. 419, 75 S.Ct. 415, 99 L.Ed. 475 (1955) and United States v. Kahriger, 345 U.S. 22, 73 S.Ct. 510, 97 L.Ed. 754 (1953). Shortly before the appeal was argued, the Supreme Court decided 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), in which convictions for violating the wagering statutes were set aside because they were in violation of the accused's Fifth Amendment privilege against self-incrimination.

Appellants rely on these decisions and contend that since they cannot be convicted on a criminal charge for violation of the wagering statutes if they assert their privilege against self-incrimination, their property ought not be be subject to forfeiture for the same violation. In our judgment this does not follow.

The mere fact that an exclusionary rule of evidence may prevent a conviction for the criminal offense of violating the Internal Revenue laws, does not expunge civil liability for payment of the tax.

There can be no question but that Congress has power to tax unlawful activities. The fact that a business is unlawful does not exempt it from payment of taxes. United States v. Sullivan, 274 U.S. 259, 47 S.Ct. 607, 71 L.Ed. 1037 (1927).

The Supreme Court in Marchetti did not hold that the wagering tax statutes as such were unconstitutional. The Court endeavored to make crystal clear that Congress had the constitutional power to enact such legislation. In Marchetti, the Court said:

"The Court has repeatedly indicated that the unlawfulness of an activity does not prevent its taxation, and nothing that follows is intended to limit or diminish the vitality of those cases."

In Marchetti the Court further said:

"We do not, as we have said, doubt Congress\' power to tax activities which are, wholly or in part, unlawful.

"* * * Accordingly, nothing we do today will prevent either the taxation or the regulation by Congress of activities otherwise made unlawful by state or federal statutes.

"* * * We emphasize that we do not hold that these wagering tax provisions are as such constitutionally impermissible; we hold only that those who properly assert the constitutional privilege as to these provisions may not be criminally punished for failure to comply with their requirements. If, in different circumstances, a taxpayer is not confronted by substantial hazards of self-incrimination, or if he is otherwise outside the privilege\'s protection, nothing we decide today would shield him from the various penalties prescribed by the wagering tax statutes."

Finally, appellants' contention is explicitly answered by the Supreme Court in Grosso, where the Court stated in footnote 7:

"Section 4411 provides that the occupational tax must be paid `by each person who is liable for tax under section 4401\' and by each person who receives wagers for one liable under § 4401. It might therefore be argued that since petitioner is entitled to claim the constitutional privilege in defense to a prosecution for willful failure to pay the excise tax, he is thereby freed from liability for the occupational tax. We cannot accept such an argument. We do not hold today either that the excise tax is as such constitutionally impermissible, or that a proper claim of privilege extinguishes liability for taxation; we hold only that such a claim of privilege precludes a criminal conviction premised on failure to pay the tax."

The second ground for reversal urged by appellants is that there was not probable cause for issuance of the search warrants. Appellants argue further that even if on their face the warrants were sufficient, still they should have been allowed to show that in fact what the Commissioner did was to accept the conclusions of affiants, rather than arrive at an independent judgment.

Probable cause was established by supporting affidavits of five persons, four of whom were agents with the Intelligence Division of Internal Revenue Service, and the fifth person was a special employee working in an undercover capacity with the Service. The investigation which led to the issuance of the warrants began in October, 1964, and continued into April, 1965.

It is unnecessary to enumerate all of the facts in the affidavits which comprise twenty-two pages in the printed appendix. In substance, the affidavits disclose the following: During the investigation, special employee James Wilson placed numerous bets at Dean's House of Jazz, a record shop owned by the appellants, located at 8508 Hough Avenue in Cleveland, Ohio. These bets were placed with employees of the establishment, as well as with Mrs. Dean. On these and other occasions Wilson saw Mrs. Dean taking bets from other customers. He also observed other persons come into the shop and deliver quantities of bet slips and money to Mrs. Dean. Wilson also witnessed Mrs. Dean total bet slips, count money, and leave the shop with large envelopes containing bet slips and money. Wilson was advised by employees of the record shop that if he won a bet he could collect from Mr. Dean in the evening at the record shop. On several occasions affiant saw Mr. Dean make payoffs to customers who had won bets. Wilson also placed bets at a residence across the street from the record shop, and on five occasions the wager was accepted by Mrs. Dean. On three occasions between October, 1964, and March, 1965, Wilson placed bets at a poolroom, one of which bets was accepted by a person whom the affiant had seen deliver bet slips and money to Mrs. Dean. On eleven occasions between January and March, 1965, Wilson placed bets at 1756 East 90th Street, and on several occasions he observed Mrs. Dean leave that location carrying large envelopes. On numerous occasions other agents saw men who were carrying brown paper bags and envelopes from the record shop, proceed to the Dean residence at 10915 Wade...