Washington v. United States

• Citation: 402 F.2d 3
• Decision Date: 17 September 1968
• Docket Number: No. 10766.,10766.
• Parties: Othello WASHINGTON and Ellen P. Washington, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

402 F.2d 3 (1968)

Othello WASHINGTON and Ellen P. Washington, Appellants, v. UNITED STATES of America, Appellee.

No. 10766.

United States Court of Appeals Fourth Circuit.

Argued June 17, 1968.

Decided September 17, 1968.

Werner Strupp, Washington, D. C. (Whitford W. Cheston, Fairfax, Va., on the brief), for appellants.

John M. Brant, Atty., Dept. of Justice (Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Joseph M. Howard, Attys. Dept. of Justice, Claude V. Spratley, U. S. Atty., and John D. Schmidtlein, Asst. U. S. Atty., on the brief), for appellee.

Before BOREMAN, BRYAN and WINTER, Circuit Judges.

BOREMAN, Circuit Judge:

This is an appeal from a judgment of the district court ordering the public sale of certain real estate owned by taxpayer, Othello Washington, in satisfaction of the government's lien for excise tax deficiencies plus delinquency penalties and interest under federal wagering tax statutes.¹ The government's lien arises from a wagering tax assessment against Othello Washington imposed pursuant to Internal Revenue Code of 1954, 26 U.S.C. § 4401 (1964 ed.), plus a fifty percent fraud penalty assessed pursuant to 26 U.S.C. § 6653(b) (1964 ed.).

The complaint alleged that excise taxes and fraud penalties had been duly assessed pursuant to §§ 4401 and 6653(b) of the Internal Revenue Code; that there was an outstanding delinquency of $227,645.58 plus interest; that demand for payment had been made; that taxpayer was the owner of a farm consisting of 393 acres within the jurisdiction of the court; and that the Metropolitan Life Insurance Company and taxpayer's wife, Ellen, might claim an interest in the property. The complaint prayed that the government's lien be declared valid; that the interests of all parties be determined; and that the farm be sold and the proceeds be distributed. Taxpayer filed an answer alleging that the amount of the government's assessment was excessive. His wife, Ellen, answered alleging that she had a dower interest in the land.

In pretrial proceedings taxpayer admitted that he was liable for wagering excise taxes but stated that, while he had no records, the amount claimed was excessive and should be only about $97,000.00. At the trial there was testimony that Internal Revenue agents, after observing evidence indicating a gambling operation at the farm, obtained a search warrant, raided the premises on May 2, 1961, and discovered taxpayer in the act of conducting a gambling operation. Taxpayer conceded that the search warrant was properly issued and executed. His only defense, based solely on his own recollection, was that the amount of the assessment was excessive.

The district court rejected taxpayer's testimony and upheld the section 4401 excise tax assessments against him (with a slight reduction to correct an error in the method of calculation) disallowing, however, the assessment of the fifty percent fraud penalty because of the lack of evidence to support it. From this disallowance the Government has not appealed. In view of the taxpayer's failures to file returns the court directed imposition of a twenty-five percent delinquency penalty but in its brief and at the bar of the court the Government concedes that the judgment should be reversed insofar as it awarded delinquency penalties for the reason that the Government had not sought the imposition of such penalties and the same had not been included in the assessment.

It was stipulated in the court below that the claim of the Metropolitan Life Insurance Company and the dower interest of taxpayer's wife were superior to the government's lien. The court directed that the farm of 393 acres owned by Othello Washington be sold at public sale free and clear of all liens and interests (including the wife's dower), the same to attach to the proceeds of sale.

During the pendency of this appeal and following the filing of appellants' brief, upon joint motion of the parties, this court entered an order directing that further proceedings be held in abeyance pending the decision of the United States Supreme Court in Grosso v. United States. On January 29, 1968, the Supreme Court handed down its decision in Grosso v. United States, 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906, and also in Marchetti v. United States, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889, both cases dealing with various constitutional aspects of the wagering tax laws. Following these decisions, at the direction of this court, the appellants submitted a supplemental memorandum addressed to the questions decided by the Supreme Court in the two cases above noted.

Two questions are presented for our determination: (1) Whether the judgment against Othello Washington, based on the ten percent wagering excise tax, should be set aside because of the decisions of the Supreme Court in the Grosso and Marchetti cases; and (2) whether, in this action by the United States to enforce a federal tax lien (with respect to real estate), the trial court erred in ordering the sale of the real estate belonging to taxpayer free of the inchoate dower interest of taxpayer's wife.

Appellants seek an outright reversal of the judgment establishing the tax deficiency, solely on the basis of what they conceive and assert to be the necessary implications of the Grosso and Marchetti decisions. They contend that the wagering excise tax statute has now been declared to be wholly unconstitutional; and that, in any event, the government's computation of the tax assessed is based solely upon evidence which should be excluded because obtained under an invalid search warrant. We conclude that the appellants' reliance upon the Grosso and Marchetti cases to support their contention that the imposition of the excise tax was constitutionally impermissible is misplaced.

The language of the Supreme Court in both decisions above cited indicates no holding that the excise tax is constitutionally impermissible or even that a properly asserted claim of the privilege against self-incrimination would extinguish the liability for the payment of taxes. In Grosso the Court held only that a proper claim of privilege against self-incrimination precludes a criminal conviction based on the failure to pay the tax, while in Marchetti it was held that a proper claim of privilege against self-incrimination precludes a criminal conviction for willful failure to pay the $50 annual occupational tax, 26 U.S.C. § 4411, or to fulfill the registration requirements. The Court emphasized the nature of its holding in Marchetti as follows:

"* * *. 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." 390 U.S. at 61, 88 S.Ct. at 709.

Furthermore, in Grosso, where the petitioner had been convicted on charges of willful failure to pay the excise tax imposed on wagering by 26 U.S.C. § 4401, on charges of willful failure to pay the special occupational tax imposed by 26 U.S.C. § 4411, and on a charge of conspiracy to defraud the United States by evading payment of both taxes, the Court explicitly stated in footnote 7 (390 U.S. 62, at 69-70, 88 S.Ct. at 714):

"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 of 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." (Emphasis supplied.)

Appellants contend that the Court in Grosso nullified the excise tax and the entire self-assessment scheme for its collection and, having done so, the Court was merely suggesting in the footnote 7 quoted above that future legislation might devise a valid tax enforceable by different methods not involving self-incrimination. We conclude, however, that the Court in Grosso carefully avoided holding that the tax itself was void. The court expressly stated:

"We do not hold today * * * 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."

In view of the Supreme Court's express...