Marchetti v. United States

390 U.S. 39

Case Year: 1968

Case Ruling: 7-1, Reversed

Opinion Justice: Harlan

FACTS

Title 26 of the United States Code imposed certain regulations on individuals engaged in the occupation of gambling. Section 4401 of that title obligated gamblers to pay an excise tax of 10 percent of the gross amount of all wagers accepted. Section 4411 required gamblers to pay a $50 annual occupation tax. In addition, gamblers were required under Section 4412 to register with the Internal Revenue Service and provide detailed information concerning their gambling business. When such individuals complied with these regulations they were issued tax stamps that they were required to post at their place of business or keep on their persons. The law stipulated that gamblers keep detailed records of their daily transactions, and these books were open to government inspection. Compliance with the statute did not exempt a gambler from state or federal prosecution for any violations of federal or state law. In fact, federal authorities could share registration information with state prosecutors.

In 1964 federal authorities in Connecticut charged James “Totto” Marchetti with conspiracy to violate the gambling tax laws as well as a failure to pay the occupational tax and a failure to register. He challenged his conviction on the ground that the requirement that he register and pay the tax violated his Fifth Amendment privilege against compulsory self-incrimination. The court of appeals rejected Marchetti’s argument, relying largely on United States v. Kahriger (1953) and Lewis v. United States (1955). Both of these precedents held that the right against self-incrimination was not applicable to such taxation statutes. Marchetti’s appeal was heard by the Supreme Court along with Grosso v. United States (1968), which presented a similar issue.

 

MR. JUSTICE HARLAN DELIVERED THE OPINION OF THE COURT.

The issue before us is not whether the United States may tax activities which a State or Congress has declared unlawful. 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. See, e.g., License Tax Cases. The issue is instead whether the methods employed by Congress in the federal wagering tax statutes are, in this situation, consistent with the limitations created by the privilege against self-incrimination guaranteed by the Fifth Amendment. We must for this purpose first examine the implications of these statutory provisions.

Wagering and its ancillary activities are very widely prohibited under both federal and state law. Federal statutes impose criminal penalties upon the interstate transmission of wagering information; upon interstate and foreign travel or transportation in aid of racketeering enterprises, defined to include gambling; upon lotteries conducted through use of the mails or broadcasting; and upon the interstate transportation of wagering paraphernalia.

State and local enactments are more comprehensive. The laws of every State, except Nevada, include broad prohibitions against gambling, wagering, and associated activities....

Connecticut, in which petitioner allegedly conducted his activities, has adopted a variety of measures for the punishment of gambling and wagering....

Information obtained as a consequence of the federal wagering tax laws is readily available to assist the efforts of state and federal authorities to enforce these penalties....

In these circumstances, it can scarcely be denied that the obligations to register and to pay the occupational tax created for petitioner “real and appreciable,” and not merely “imaginary and unsubstantial,” hazards of self-incrimination. Petitioner was confronted by a comprehensive system of federal and state prohibitions against wagering activities; he was required, on pain of criminal prosecution, to provide information which he might reasonably suppose would be available to prosecuting authorities, and which would surely prove a significant “link in a chain” of evidence tending to establish his guilt.... [E]very portion of these requirements had the direct and unmistakable consequence of incriminating petitioner; the application of the constitutional privilege to the entire registration procedure was in this instance neither “extreme” nor “extravagant.” It would appear to follow that petitioner’s assertion of the privilege as a defense to this prosecution was entirely proper, and accordingly should have sufficed to prevent his conviction.

Nonetheless, this Court has twice concluded that the privilege against self-incrimination may not appropriately be asserted by those in petitioner’s circumstances. United States v. Kahriger; Lewis v. United States. We must therefore consider whether those cases have continuing force in light of our more recent decisions....

The Court’s opinion in Kahriger suggested that a defendant under indictment for willful failure to register under section 4412 cannot properly challenge the constitutionality under the Fifth Amendment of the registration requirement. For this point, the Court relied entirely upon Mr. Justice Holmes’ opinion for the Court in United States v. Sullivan [1927]. The taxpayer in Sullivan was convicted of willful failure to file an income tax return, despite his contention that the return would have obliged him to admit violations of the National Prohibition Act. The Court affirmed the conviction, and rejected the taxpayer’s claim of the privilege. It concluded that most of the return’s questions would not have compelled the taxpayer to make incriminating disclosures, and that it would have been “an extreme if not an extravagant application” of the privilege to permit him to draw within it the entire return.

The Court in Sullivan was evidently concerned, first, that the claim before it was an unwarranted extension of the scope of the privilege, and, second, that to accept a claim of privilege not asserted at the time the return was due would “make the taxpayer rather than a tribunal the final arbiter of the merits of the claim.” Neither reason suffices to prevent this petitioner’s assertion of the privilege. The first is, as we have indicated, inapplicable, and we find the second unpersuasive in this situation. Every element of these requirements would have served to incriminate petitioner; to have required him to present his claim to Treasury officers would have obliged him “to prove guilt to avoid admitting it.” In these circumstances, we cannot conclude that his failure to assert the privilege to Treasury officials at the moment the tax payments were due irretrievably abandoned his constitutional protection. Petitioner is under sentence for violation of statutory requirements which he consistently asserted at and after trial to be unconstitutional; no more can here be required.

The Court held in Lewis that the registration and occupational tax requirements do not infringe the constitutional privilege because they do not compel self-incrimination, but merely impose on the gambler the initial choice of whether he wishes, at the cost of his constitutional privilege, to commence wagering activities. The Court reasoned that even if the required disclosures might prove incriminating, the gambler need not register or pay the occupational tax if only he elects to cease, or never to begin, gambling. There is, the Court said, “no constitutional right to gamble.”

We find this reasoning no longer persuasive. The question is not whether petitioner holds a “right” to violate state law, but whether, having done so, he may be compelled to give evidence against himself. The constitutional privilege was intended to shield the guilty and imprudent as well as the innocent and foresighted; if such an inference of antecedent choice were alone enough to abrogate the privilege’s protection, it would be excluded from the situations in which it has historically been guaranteed, and withheld from those who most require it. Such inferences, bottomed on what must ordinarily be a fiction, have precisely the infirmities which the Court has found in other circumstances in which implied or uniformed waivers of the privilege have been said to have occurred. To give credence to such “waivers” without the most deliberate examination of the circumstances surrounding them would ultimately license widespread erosion of the privilege through “ingeniously drawn legislation.” We cannot agree that the constitutional privilege is meaningfully waived merely because those “inherently suspect of criminal activities” have been commanded either to cease wagering or to provide information incriminating to themselves, and have ultimately elected to do neither.

The Court held in both Kahriger and Lewis that the registration and occupational tax requirements are entirely prospective in their application, and that the constitutional privilege, since it offers protection only as to past and present acts, is accordingly unavailable. This reasoning appears to us twice deficient: first, it overlooks the hazards here of incrimination as to past or present acts; and second, it is hinged upon an excessively narrow view of the scope of the constitutional privilege.

Substantial hazards of incrimination as to past or present acts plainly may stem from the requirements to register and to pay the occupational tax. In the first place, satisfaction of those requirements increases the likelihood that any past or present gambling offenses will be discovered and successfully prosecuted. It both centers attention upon the registrant as a gambler, and compels “injurious disclosure[s]” which may provide or assist in the collection of evidence admissible in a prosecution for past or present offenses. These offenses need not include actual gambling; they might involve only the custody or transportation of gambling paraphernalia, or other preparations for future gambling. Further, the acquisition of a federal gambling tax stamp, requiring as it does the declaration of a present intent to commence gambling activities, obliges even a prospective gambler to accuse himself of conspiracy to violate either state gambling prohibitions, or federal laws forbidding the use of interstate facilities for gambling purposes.

There is a second, and more fundamental, deficiency in the reasoning of Kahriger and Lewis. Its linchpin is plainly the premise that the privilege is entirely inapplicable to prospective acts.... We see no warrant for so rigorous a constraint upon the constitutional privilege. History, to be sure, offers no ready illustrations of the privilege’s application to prospective acts, but the occasions on which such claims might appropriately have been made must necessarily have been very infrequent....

The central standard for the privilege’s application has been whether the claimant is confronted by substantial and “real,” and not merely trifling or imaginary, hazards of incrimination. This principle does not permit the rigid chronological distinction adopted in Kahriger and Lewis. We see no reason to suppose that the force of the constitutional prohibition is diminished merely because confession of a guilty purpose precedes the act which it is subsequently employed to evidence. Yet, if the factual situations in which the privilege may be claimed were inflexibly defined by a chronological formula, the policies which the constitutional privilege is intended to serve could easily be evaded. Moreover, although prospective acts will doubtless ordinarily involve only speculative and insubstantial risks of incrimination, this will scarcely always prove true. As we shall show, it is not true here. We conclude that it is not mere time to which the law must look, but the substantiality of the risks of incrimination.

The hazards of incrimination created by 4411 and 4412 as to future acts are not trifling or imaginary. Prospective registrants can reasonably expect that registration and payment of the occupational tax will significantly enhance the likelihood of their prosecution for future acts, and that it will readily provide evidence which will facilitate their convictions. Indeed, they can reasonably fear that registration, and acquisition of a wagering tax stamp, may serve as decisive evidence that they have in fact subsequently violated state gambling prohibitions. Insubstantial claims of the privilege as to entirely prospective acts may certainly be asserted, but such claims are not here, and they need only be considered when a litigant has the temerity to pursue them.

We conclude that nothing in the Court’s opinions in Kahriger and Lewis now suffices to preclude petitioner’s assertion of the constitutional privilege as a defense to the indictments under which he was convicted. To this extent Kahriger and Lewis are overruled....

... [W]e ... conclude, under the wagering tax system as presently written, that petitioner properly asserted the privilege against self-incrimination, and that his assertion should have provided a complete defense to this prosecution. This defense should have reached both the substantive counts for failure to register and to pay the occupational tax, and the count for conspiracy to evade payment of the tax. 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.

The judgment of the Court of Appeals is Reversed.

MR. JUSTICE BRENNAN, CONCURRING.

... The wagering excise tax, the occupational tax, and the registration requirement are only parts of an interrelated statutory system for taxing illegal wagers. Whatever else Congress may have meant to achieve, an obvious purpose of this statutory system clearly was to coerce evidence from persons engaged in illegal activities for use in their prosecution.

The Court’s opinions fully establish the statutory system’s impermissible invasions of the privilege. Indeed, 26 U.S.C. 4401 should create substantial suspicion on privilege grounds simply because it is an excise tax upon persons “engaged in the business of accepting wagers” or who conduct “any wagering pool or lottery.” The persons affected by this language are a relatively small group, many of whom are engaged in activities made unlawful by state and federal statutes. But 4401 is actually even more directly confined to that group. Section 4402 (1) exempts from the tax wagers placed with a parimutuel wagering enterprise “licensed under State law,” and 4421 defines “wager” to exclude most forms of unorganized gambling such as dice and poker, and defines “lottery” to exclude commonly played games such as bingo and drawings conducted by certain tax-exempt organizations. The effect of these exceptions is to limit the wagering excise tax under 4401 almost exclusively to illegal, organized gambling.

Moreover, the code contemplates extensive record-keeping reporting by persons obligated to pay the tax. But these are records and reports which would incriminate overwhelmingly....

Thus 4401 requires that taxpayers send the Government every month both the tax due and the completed Form 730. That much can start them on the road to prison. The Service then is free to take various steps to assure that it does. It may investigate such taxpayers. It may subpoena taxpayers’ records to ascertain whether the payments are accurate. It can and does pass on for use by prosecuting authorities the facts of payments and filing and any other evidence uncovered. These many, substantial dangers easily satisfy the test for incrimination fashioned by our cases....

MR. JUSTICE STEWART, CONCURRING.

If we were writing upon a clean slate, I would agree with the conclusion reached by THE CHIEF JUSTICE in these cases. For I am convinced that the Fifth Amendment’s privilege against compulsory self-incrimination was originally meant to do no more than confer a testimonial privilege upon a witness in a judicial proceeding. But the Court long ago lost sight of that original meaning. In the absence of a fundamental re-examination of our decisions ... I am compelled to join the opinions and judgments of the Court.

MR. CHIEF JUSTICE WARREN, DISSENTING.

The Court today strikes down as unconstitutional a statutory scheme enacted by Congress to make effective and enforceable taxes imposed on wagers and the occupation of gambling. In so doing, it of necessity overrules United States v. Kahriger(1953), and Lewis v. United States (1955). I cannot agree with the Court’s conclusion on the constitutional questions presented, and I would affirm the convictions in these two cases on the authority of Kahriger and Lewis.

In addition to being in disagreement with the Court on the result it reaches in these cases, I am puzzled by the reasoning process which leads it to that result. The Court professes to recognize and accept the power of Congress legitimately to impose taxes on activities which have been declared unlawful by federal or state statutes. Yet, by its sweeping declaration that the congressional scheme for enforcing and collecting the taxes imposed on wagers and gamblers is unconstitutional, the Court has stripped from Congress the power to make its taxing scheme effective. A reading of the registration requirement of 26 U.S.C. 4412, as implemented by Internal Revenue Service Form 11-C, reveals that the information demanded of gamblers is no more than is necessary to assure that the tax-collection process will be effective. Registration of those liable for special taxes is a common and integral feature of the tax laws. So also is the requirement of public disclosure. And the reach of the registration and disclosure requirements extends to both lawful and unlawful activities. Because registration and disclosure are so pervasive in the Internal Revenue Code, it is clear that such requirements have been imposed by Congress to aid in the collection of taxes legitimately levied. Because most forms of gambling have been declared illegal in this country, gamblers necessarily operate furtively in the dark shadows of the underworld. Only by requiring that such individuals come forward under pain of criminal sanctions and reveal the nature and scope of their activities can Congress confidently expect that revenue derived from that outlawed occupation will be subject to the legitimate reach of the tax laws. Indeed, it seems to me that the very secrecy which surrounds the business of gambling demands disclosure....

In addition to being in disagreement with the Court on the result it reaches in these cases, I am puzzled by the reasoning process which leads it to that result. The Court professes to recognize and accept the power of Congress legitimately to impose taxes on activities which have been declared unlawful by federal or state statutes. Yet, by its sweeping declaration that the congressional scheme for enforcing and collecting the taxes imposed on wagers and gamblers is unconstitutional, the Court has stripped from Congress the power to make its taxing scheme effective. A reading of the registration requirement of 26 U.S.C. 4412, as implemented by Internal Revenue Service Form 11-C, reveals that the information demanded of gamblers is no more than is necessary to assure that the tax-collection process will be effective. Registration of those liable for special taxes is a common and integral feature of the tax laws. So also is the requirement of public disclosure. And the reach of the registration and disclosure requirements extends to both lawful and unlawful activities. Because registration and disclosure are so pervasive in the Internal Revenue Code, it is clear that such requirements have been imposed by Congress to aid in the collection of taxes legitimately levied. Because most forms of gambling have been declared illegal in this country, gamblers necessarily operate furtively in the dark shadows of the underworld. Only by requiring that such individuals come forward under pain of criminal sanctions and reveal the nature and scope of their activities can Congress confidently expect that revenue derived from that outlawed occupation will be subject to the legitimate reach of the tax laws. Indeed, it seems to me that the very secrecy which surrounds the business of gambling demands disclosure....

I apprehend that the Court, by unnecessarily sweeping within its constitutional holding the registration requirements of 4412, is opening the door to a new wave of attacks on a number of federal registration statutes whenever the registration requirement touches upon allegedly illegal activities.... In my view, the Court has failed to take account of these relevant implications in the very broad holdings of today’s decisions.