Marchetti v. United States/Opinion of the Court

Petitioner was convicted in the United States District Court for the District of Connecticut under two indictments which charged violations of the federal wagering tax statutes. The first indictment averred that petitioner and others conspired to evade payment of the anuual occupational tax imposed by 26 U.S.C. § 4411. The second indictment consisted of two counts: the first alleged a willful failure to pay the occupational tax, and the second a willful failure to register, as required by 26 U.S.C. § 4412, before engaging in the business of accepting wagers.

After verdict, petitioner unsuccessfully sought to arrest judgment, in part on the basis that the statutory obligations to register and to pay the occupational tax violated his Fifth Amendment privilege against self-incrimination. The Court of Appeals for the Second Circuit affirmed, 352 F.2d 848, on the authority of United States v. Kahriger, 345 U.S. 22, 73 S.Ct. 510, 97 L.Ed. 754, and Lewis v. United States, 348 U.S. 419, 75 S.Ct. 415, 99 L.Ed. 475.

We granted certiorari to re-examine the constitutionality under the Fifth Amendment of the pertinent provisions of the wagering tax statutes, and more particularly to consider whether Kahriger and Lewis still have vitality. 383 U.S. 942, 86 S.Ct. 1195, 16 L.Ed.2d 205. For reasons which follow we have concluded that these provisions may not be employed to punish criminally those persons who have defended a failure to comply with their requirements with a proper assertion of the privilege against self-incrimination. The judgment below is accordingly reversed.

The provisions in issue here are part of an interrelated statutory system for taxing wagers. The system is broadly as follows. Section 4401 of Title 26 imposes upon those engaged in the business of accepting wagers an excise tax of 10% on the gross amount of all wagers they accept, including the value of chances purchased in lotteries conducted for profit. Parimutuel wagering enterprises, coin-operated devices, and state-conducted sweepstakes are expressly excluded from taxation. 26 U.S.C. § 4402 (1964 ed. Supp. II). Section 4411 imposes in addition an occupational tax of $50 annually, both upon those subject to taxation under § 4401 and upon those who receive wagers on their behalf.

The taxes are supplemented by ancillary provisions calculated to assure their collection. In particular, § 4412 requires those liable for the occupational tax to register each year with the director of their local internal revenue district. The registrants must submit Internal Revenue Service Form 11-C, and upon it must provide their residence and business addresses, must indicate whether they are engaged in the business of accepting wagers, and must list the names and addresses of their agents and employees. The statutory obligations to register and to pay the occupational tax are essentially inseparable elements of a single registration procedure; Form 11-C thus constitutes both the application for registration and the return for the occupational tax.

In addition, registrants are obliged to post the revenue stamps which denote payment of the occupational tax 'conspicuously' in their principal places of business, or, if they lack such places, to keep the stamps on their persons, and to exhibit them upon demand to any Treasury officer. 26 U.S.C. § 6806(c). They are required to preserve daily records indicating the gross amount of the wagers as to which they are liable for taxation, and to permit inspection of their books of account. 26 U.S.C. §§ 4403, 4423. Moreover, each principal internal revenue office is instructed to maintain for public inspection a listing of all who have paid the occupational tax, and to provide certified copies of the listing upon request to any state or local prosecuting officer. 26 U.S.C. s 6107. Finally, payment of the wagering taxes is declared not to 'exempt any person from any penalty provided by a law of the United States or of any State for engaging' in any taxable activity. 26 U.S.C. § 4422.

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 acivity 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, 5 Wall. 462, 18 L.Ed. 497. 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, 18 U.S.C. § 1084; upon intersate and foreign travel or transportation in aid of racketeering enterprises, defined to include gambling, 18 U.S.C. § 1952; upon lotteries conducted through use of the mails or broadcasting, 18 U.S.C. §§ 1301-1304; and upon the interstate transportation of wagering paraphernalia, 18 U.S.C. § 1953.

State and local enactments are more comprehensive. The laws of every State, except Nevada, include broad prohibitions against gambling, wagering, and associated activities. Every State forbids, with essentially minor and carefully circumscribed exceptions, lotteries. Even Nevada, which permits many forms of gambling, retains criminal penalties upon lotteries and certain other wagering activities taxable under these statutes. Nev.Rev.Stat. §§ 293.603, 465.010 (1957).

Connecticut, in which petitioner allegedly conducted his activities, has adopted a variety of measures for the punishment of gambling and wagering. It punishes '(a)ny person, whether as principal, agent or servant, who owns, possesses, keeps, manages, maintains or occupies' premises employed for purposes of wagering or pool selling. Conn.Gen.Stat.Rev. § 53-295 (1958). It imposes criminal penalties upon any person who possesses, keeps or maintains premises in which policy playing occurs, or lotteries are conducted, and upon any person who becomes the custodian of books, property, appliances, or apparatus employed for wagering. Conn.Gen.Stat.Rev. § 53-298 (1958). See also §§ 53-273, 53-290, 53-293. It provides additional penalties for those who conspire to organize or conduct unlawful wagering activities. Conn.Gen.Stat.Rev. § 54-197 (1958). Every aspect of petitioner's wagering activities thus subjected him to possible state or federal prosecution. By any standard, in Connecticut and throughout the United States, wagering is 'an area permeated with criminal statutes,' and those engaged in wagering are a group 'inherently suspect of criminal activities.' Albertson v. SACB, 382 U.S. 70, 79, 86 S.Ct. 194, 199, 15 L.Ed.2d 165.

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. Section 6107 of Title 26 requires the principal internal revenue offices to provide to prosecuting officers a listing of those who have paid the occupational tax. Section 6806(c) obliges taxpayers either to post the revenue stamp 'conspicuously' in their principal places of business, or to keep it on their persons, and to produce it on the demand of Treasury officers. Evidence of the possession of a federal wagering tax stamp, or of payment of the wagering taxes, has often been admitted at trial in state and federal prosecutions for gambling offenses; such evidence has doubtless proved useful even more frequently to lead prosecuting authorities to other evidence upon which convictions have subsequently been obtained. Finally, we are obliged to notice that a former Commissioner of Internal Revenue has acknowledged that the Service 'makes available' to law enforcement agencies the names and addresses of those who have paid the wagering taxes, and that it is in 'full cooperation' with the efforts of the Attorney General of the United States to suppress organized gambling. Caplin, The Gambling Business and Federal Taxes, 8 Crime & Delin. 371, 372, 377.

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. Reg. v. Boyes, 1 B. & S. 311, 330; Brown v. Walker, 161 U.S. 591, 599-600, 16 S.Ct. 644, 647, 648, 40 L.Ed. 819; Rogers v. United States, 340 U.S. 367, 374, 71 S.Ct. 438, 442, 95 L.Ed. 344. 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. Unlike the income tax return in question in United States v. Sullivan, 274 U.S. 259, 47 S.Ct. 607, 71 L.Ed. 1037, every 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.' See id., at 263, 47 S.Ct. 607. 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, supra; Lewis v. United States, supra. We must therefore consider whether those cases have continuing force in light of our more recent decisions. Moreover, we must also consider the relevance of certain collateral lines of authority; in particular, we must determine whether either the 'required records' doctrine, Shapiro v. United States, 335 U.S. 1, 68 S.Ct. 1375, 92 L.Ed. 1787, or restrictions placed upon the use by prosecuting authorities of information obtained as a consequence of the wagering taxes, cf. Murphy v. Waterfront Commission, 378 U.S. 52, 84 S.Ct. 1594, 12 L.Ed.2d 678, should be utilized to preclude assertion of the constitutional privilege in this situation. To these questions we turn.

The Court's opinion in Kahriger suggested that a defendant under indictment for willful failure to register under § 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, supra. 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. 274 U.S., at 263, 47 S.Ct. at 607.

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.' Albertson v. SACB, 382 U.S. 70, 79, 86 S.Ct. 194, 199, 15 L.Ed.2d 165. 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.' United States v. Kahriger, supra, 345 U.S. at 34, 73 S.Ct. at 516 (concurring opinion). 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.' 348 U.S., at 423, 75 S.Ct., at 418.

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 histrically 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 uninformed waivers of the privilege have been said to have occurred. See, e.g., Carnley v. Cochran, 369 U.S. 506, 82 S.Ct. 884, 8 L.Ed.2d 70. Compare Johnson v. Zerbst, 304 U.S. 458, 58 S.Ct. 1019, 82 L.Ed. 1461; and Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680. 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.' Morgan, The Privilege against Self-Incrimination, 34 Minn.L.Rev. 1, 37. 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. See generally McKee, The Fifth Amendment and the Federal Gambling Tax, 5 Duke B.J. 86. 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. See, e.g., Acklen v. State, 196 Tenn. 314, 267 S.W.2d 101.

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; for this the Court in Kahriger could vouch as authority only a generalization at 8 Wigmore, Evidence § 2259c (3d ed.1940). 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. We are, in any event, bid to view the constitutional commands as 'organic living institutions' whose significance is 'vital not formal.' Gompers v. United States, 233 U.S. 604, 610, 34 S.Ct. 693, 695, 58 L.Ed. 1115.

The central standard for the privilege's application has been whether the claimant is confronted by substantial and 'real,' and not merely frifling or imaginary, hazards of incrimination. Rogers v. United States, 340 U.S. 367, 374, 71 S.Ct. 438, 442, 95 L.Ed. 344; Brown v. Walker, 161 U.S. 591, 600, 16 S.Ct. 644, 648, 40 L.Ed. 819. This principle does not permit the rigid chronological distinction adopted in Kahriger and Lewis. For one thing,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 prosecutive 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. Compare Ala.Code, Tit. 14, §§ 302(8)-302(10) (1958); Ga. Code Ann. § 26 6413 (Supp.1967). 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.

We must next consider the relevance in this situation of the 'required records' doctrine, Shapiro v. United States, 335 U.S. 1, 68 S.Ct. 1375, 92 L.Ed. 1787. It is necessary first to summarize briefly the circumstances in Shapiro. Petitioner, a wholesaler of fruit and produce, was obliged by a regulation issued under the authority of the Emergency Price Control Act to keep and 'preserve for examination' various records 'of the same kind as he has customarily kept * *  * .' Maximum Price Regulation 426, § 14, 8 Fed.Reg. 9546, 9548-9549 (1943). He was subsequently directed by an administrative subpoena to produce certain of these records before attorneys of the Office of Price Administration. Petitioner complied, but asserted his constitutional privilege. In a prosecution for violations of the Price Control Act, petitioner urged that the records had facilitated the collection of evidence against him, and claimed immunity from prosecution under § 202(g) of the Act, 56 Stat. 30. Petitioner was nonetheless convicted, and his conviction was affirmed. 2 Cir., 159 F.2d 890.

On certiorari, this Court held both that § 202(g) did not confer immunity upon petitioner, and that he could not properly claim the protection of the privilege as to records which he was required by administrative regulation to preserve. On the second question, the Court relied upon the cases which have held that a custodian of public records may not assert the privilege as to those records, and reiterated a dictum in Wilson v. United States, 221 U.S. 361, 380, 31 S.Ct. 538, 544, 55 L.Ed. 771, suggesting that 'the privilege which exists as to private papers cannot be maintained in relation to 'records required by law to be kept in order that there may be suitable information of transactions which are the appropriate subjects of governmental regulation, and the enforcement of restrictions validly established." 335 U.S., at 33, 68 S.Ct. at 1392. The Court considered that 'it cannot be doubted' that the records in question had 'public aspects,' and thus held that petitioner, as their custodian, could not properly assert the privilege as to them. Id., at 34, 68 S.Ct. at 1393.

We think that neither Shapiro nor the cases upon which it relied are applicable here. Compare generally Note, Required Information and the Privilege against Self-Incrimination, 65 Col.L.Rev. 681; and McKay, Self-Incrimination and the New Privacy, 1967 Sup.Ct.Rev. 193, 214-217. Moreover, we find it unnecessary for present purposes to pursue in detail the question, left unanswered in Shapiro, of what 'limits * *  * the government cannot constitutionally exceed in requiring the keeping of records *  *  * .' 335 U.S., at 32, 68 S.Ct. at 1391. It is enough that there are significant points of difference between the situations here and in Shapiro which in this instance preclude, under any formulation, an appropriate application of the 'required records' doctrine.

Each of the three principal elements of the doctrine, as it is described in Shapiro, is absent from this situation, First, petitioner Marchetti was not, by the provisions now at issue, obliged to keep and preserve records 'of the same kind as he has customarily kept'; he was required simply to provide information, unrelated to any records which he may have maintained, about his wagering activities. This requirement is not significantly different from a demand that he provide oral testimony. Compare McKay, supra, at 221. Second, whatever 'public aspects' there were to the records at issue in Shapiro, there are none to the information demanded from Marchetti. The Government's anxiety to obtain information known to a private individual does not without more render that information public; if it did, no room would remain for the application of the constitutional privilege. Nor does it stamp information with a public character that the Government has formalized its demands in the attire of a statute; if this alone were sufficient, the constitutional privilege could be entirely abrogated by any Act of Congress. Third, the requirements at issue in Shapiro were imposed in 'an essentially non-criminal and regulatory area of inquiry' while those here are directed at a 'selective group inherently suspect of criminal activities.' Cf. Albertson v. SACB, 382 U.S. 70, 79, 86 S.Ct. 194, 199, 15 L.Ed.2d 165. The United States' principal interest is evidently the collection of revenue and not the punishment of gamblers, see United States v. Calamaro, 354 U.S. 351, 358, 77 S.Ct. 1138, 1143; but the characteristics of the activities about which information is sought, and the composition of the groups to which inquiries are made, readily distinguish this situation from that in Shapiro. There is no need to explore further the elements and limitations of Shapiro and the cases involving public papers; these points of difference in combination preclude any appropriate application of those cases to the present one.

Finally, we have been urged by the United States to permit continued enforcement of the registration and occupational tax provisions, despite the demands of the constitutional privilege, by shielding the privilege's claimants through the imposition of restrictions upon the use by federal and state authorities of information obtained as a consequence of compliance with the wagering tax requirements. It is suggested that these restrictions might be similar to those imposed by the Court in Murphy v. Waterfront Commission, 378 U.S. 52, 84 S.Ct. 1594, 12 L.Ed.2d 678.

The Constitution of course obliges this Court to give gull recognition to the taxing powers and to measures reasonably incidental to their exercise. But we are equally obliged to give full effect to the constitutional restrictions which attend the exercise of those powers. We do not, as we have said, doubt Congress' power to tax activities which are, wholly or in part, unlawful. Nor can it be doubted that the privilege against self-incrimination may not properly be asserted if other protection is granted which 'is so broad as to have the same extent in scope and effect' as the privilege itself. Counselman v. Hitchcock, 142 U.S. 547, 585, 12 S.Ct. 195, 206, 35 L.Ed. 1110. The Government's suggestion is thus in principle an attractive and apparently practical resolution of the difficult problem before us. Compare Mansfield, The Albertson Case: Conflict Between the Privilege Against Self-Incrimination and the Government's Need for Information, 1966 Sup.Ct.Rev. 103, 159; and McKay, supra, at 232. Nonetheless, we think that it would be entirely inappropriate in the circumstances here for the Court to impose such restrictions.

The terms of the wagering tax system make quite plain that Congress intended information obtained as a consequence of registration and payment of the occupational tax to be provided to interested prosecuting authorities. See 26 U.S.C. § 6107. This has evidently been the consistent practice of the Revenue Service. We must therefore assume that the imposition of use-restrictions whould directly preclude effectuation of a significant element of Congress' purposes in adopting the wagering taxes. Moreover, the imposition of such restrictions would necessarily oblige state prosecuting authorities to establish in each case that their evidence was untainted by any connection with information obtained as a consequence of the wagering taxes; the federal requirements would thus be protected, only at the cost of hampering, perhaps seriously, enforcement of state prohibitions against gambling. We cannot know how Congress would assess the competing demands of the federal treasury and of state gambling prohibitions; we are, however, entirely certain that the Constitution has entrusted to Congress, and not to this Court, the task of striking an appropriate balance among such values. We therefore must decide that it would be improper for the Court to impose restrictions of the kind urged by the United States.

We are fully cognizant of the importance for the United States' various fiscal and regulatory functions of timely and accurate information, compare Mansfield, supra, and Meltzer, Required Records, the McCarran Act, and the Privilege against Self-Incrimination, 18 U.Chi.L.Rev. 687; but other methods, entirely consistent with constitutional limitations, exist by which Congress may obtain such information. See generally Counselman v. Hitchcock, supra, 142 U.S. at 585, 12 S.Ct. at 206, compare Murphy v. Waterfront Commission, supra. 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.

Nonetheless, we can only 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.

Reversed.

Mr. Justice MARSHALL took no part in the consideration or decision of this case.

(For concurring and dissenting opinions see No. 12, Grosso v. United States, 88 S.Ct. 709, decided this day.)