Part 3-Internal Revenue Code and Drug Traffickers THE ANTI-INJUNCTION ACT AND SUITS TO I. INTRODUCTION Congress often employs its taking power to regulate conduct considered undesirable.' Regulation by taxation is in some respects more advantageous than other more traditional forms of regulation such as criminal statutes or licensing requirements. Often, individuals engaged in the taxed activity-for example, accepting wagers-must register with the local district director of the Internal Revenue Service2 (IRS), thereby admitting their involvement in conduct that may be made illegal under either federal or state criminal codes.3 In addition, such individuals usually must maintain comprehensive records of their taxable activities and file periodic returns. Fulfilling these requirements may also expose them to potential criminal liability by providing law enforcement officials with additional evidence of the illegal conduct. Of course, few individuals comply with these requirements. Although the Internal Revenue Code See, e.g., Int. Rev. Code of 1954, § 4401 (tax on accepting wagers); id. § 4461 (tax on coin-operated gaming devices, such as slot machines); id. § 5811 (tax on transfers of machine guns and other firearms). See, e.g., id. § 4412 (persons in business of accepting wagers must register with officer in charge of local IRS district); id. § 5802 (same requirement with respect to importers, manufacturers and sellers of firearms). The definition of "firearms" includes only those types of weapons that one would normally associate with criminal activities-sawed off shotguns, machine guns, silencers, bombs, grenades, or any concealable weapon. Id. § 5845. In every state except Nevada, gambling is broadly proscribed. Marchetti v. United States, 390 U.S. 39, 44-46 & n.5 (1968). There are also federal laws designed to control gambling. See, e.g., 18 U.S.C. § 1084 (1970) (criminal sanction for interstate transmission of wagering information); id. § 1953 (sanctions for interstate transportation of wagering paraphernalia). Sce, e.g., Int. Rev. Code of 1954, § 4403 (persons liable for wagering tax must keep daily records of all wagers); id. § 5842 (records must be kept of all firearms transactions). See, e.g., Treas. Reg. § 44.6011(a)-1(a) (1959) (IRS form 730 must be submitted cach month by those liable for payment of wagering taxes). Recently, the Internal Revenue Service revised form 730 to comply with changes made by Act of Oct. 29, 1974, Pub. L. No. 93-499, § 3, 88 Stat. 1550, adding Int. Rev. Code of 1954, § 4424. The instructions on the form were revised to explain the new law's prohibition against disclosure by employees of the Treasury Department of wagering tax information to state law enforcement officials. See 1975 Int. Rev. Bull. No. 7, at 21. Since December 1, 1974, this is no longer true with respect to wagering tax registrations and returns. See Int. Rev. Code of 1954, § 4424 (no Treasury Department employee may disclose any return, registration, or other information filed pursuant to the wagering tax statutes to any state or federal law enforcement agency). See generally note 32 infra. It has been estimated that organized gambling receives between $7 billion and $50 billion a year in bets. R. Knudten, Crime in a Complex Society: An Introduction to Criminology 190 (1970). Until 1975, the excise tax on wagering was 10 percent of the amount risked by the bettor. Int. Rev. Code of 1954, § 4401(a), as amended, Act of Oct. 29, 1974, Pub. L. No. 93-499, § 3(a), 88 Stat. 1550 (lowering tax to two percent). Thus, if everyone paid the tax due, the tax revenue from gambling for the years before 1975 should have been at least $700 million per year. However, in fiscal 1974, the IRS collected a mere $645,100 in wagering excise taxes, Treas. Bull., Nov. 1974, at 12. Therefore, it would appear that less than one percent of the potential wagering tax revenue is collected. 628 BOSTON UNIVERSITY LAW REVIEW 10 (Code) provides criminal sanctions for failure to register" or to file tax returns," the application of these provisions to those engaged in wagering activities has been declared unconstitutional by the Supreme Court. The Court did not, however, hold that civil assessment and enforcement of the tax was impermissible." Consequently, the IRS has concentrated its enforcement efforts on the collection of wagering taxes. In doing so, the IRS often bases its calculations of wagering tax liability on estimates and projections lacking any substantial factual foundation. 12 A taxpayer attempting to challenge the accurateness of his tax liability assessed under such circumstances has the burden of overcoming the presumption of correctness accorded all IRS assessments.' 13 However, some taxpayers have asserted that meeting this burden of proof requires a taxpayer to incriminate himself. Thus, taxpayers faced with large wagering tax assessments pursuant to which the Government may seize virtually everything a taxpayer owns15—have attempted to enjoin the assessments altogether. The Anti-Injunction Act16 (Act), section 7421(a) of the Code, proscribes all suits to enjoin the assessment or collection of any tax. However, in Enochs v. Williams Packing & Navigation Co., the Supreme Court held that, if the traditional prerequisites to equitable jurisdiction are met, a Int. Rev. Code of 1954, § 7201 (maximum penalty of $10,000 fine or five years' imprisonment or both for willful attempt to evade taxes in any manner). Id. § 7203 (in addition to other penalties, maximum fine of $10,000 or one year imprisonment or both for failure to file return). 10 Grosso v. United States, 390 U.S. 62 (1968); Marchetti v. United States, 390 U.S. 39 (1968). For further discussion of these cases see note 32 infra. 11 Marchetti v. United States, 390 U.S. 39, 61 (1968). 12 See note 37 and accompanying text infra. 13 Commissioner v. Hansen, 360 U.S. 446, 468 (1959); United States v. Anderson, 269 U.S. 422, 443 (1926). If, in a refund suit, the taxpayer argues not that he owes no tax but only that the assessment is excessive, he must also assume the burden of proving the correct amount owed. Helvering v. Taylor, 293 U.S. 507, 514 (1935). However, in a prepayment suit in the Tax Court, once the taxpayer has successfully demonstrated the invalidity of the Commissioner's assessment, an additional hearing in which the taxpayer does not have the burden of proof must be held to determine the correct amount due. Id. at 515-16. For discussion of the various avenues through which a tax assessment can be challenged see notes 39-42 and accompanying text infra. Because a taxpayer may not challenge the assessment of excise taxes-such as wagering taxes-in the Tax Court, wagering taxpayers may only recover excessive assessments through refund suits. Ser note 39 infra. Therefore, wagering taxpayers must assume the burden of proving either that the assessment is totally invalid or that it is excessive; if excessive, the taxpayer must show the proper amount owed. 14 Sce, e.g., Lucia v. United States, 474 F.2d 565, 576 (5th Cir. 1973) (en banc); Cole v. Cardoza, 441 F.2d 1337, 1339 (6th Cir. 1971). The self-incrimination argument has, however, been rejected by the courts. See notes 46-18 and accompanying text infra. 15 See, eg., Iannelli v. Long, 333 F. Supp. 107, 409 (W.D. Pa. 1971), rev'd, 487 F.2d 317 (3d Cir.), cert. denied, 414 U.S. 1040 (1973) (threatened seizure). It should be noted that summary seizure of property to collect taxes is constitutionally permissible. See Fuentes v. Shevin, 407 U.S. 67, 91-92 (1972). 16 The Anti-Injunction Act provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." Int. Rev. Code of 1954, § 7421(a). 17 370 U.S. 1 (1962). WAGERING TAXES AND THE ANTI-INJUNCTION ACT 629 taxpayer can enjoin the assessment of a tax when it is apparent that the Government could not ultimately prevail in a refund suit to recover the tax after it has been collected.18 Recently, a conflict among circuit courts has developed concerning the circumstances that are sufficient to come within the Williams Packing exception to the Act.19 This Note will examine the wagering tax system and suits to enjoin wagering tax assessments. It will demonstrate that courts faced with suits to enjoin wagering tax assessments have given the Williams Packing “Government cannot ultimately prevail" test two different, although overlapping, readings. Several courts have held that, if the taxpayer can show that the IRS' assessment was not a good faith effort at revenue collection, he is entitled_to_an_injunction because, under the circumstances, the Government could not ultimately prevail.2o Others have held that a taxpayer is entitled to an injunction only if he can demonstrate that, even if the law and facts are viewed in the manner most favorable to the Government, there is no possibility that the Government could ultimately prevail. This Note will conclude that the latter reading of Williams Packing is more consonant with the purpose of the Anti-Injunction Act and the wagering tax system and that, consequently, those courts that have read a requirement of good faith into the Williams Packing test have applied an erroneous standard. II. THE WAGERING TAX SYSTEM AND METHODS OF COLLECTION The wagering tax system,22 part of the miscellaneous excise tax provisions of the Code, imposes upon a person a two percent excise tax on the total of all wagers he accepts.23 The tax is based on the amount risked by the bettor,24 and the person liable for the tax is the one receiving the wager.25 Those persons engaged in the business of accepting wagers must keep daily records of all betting activities26 and must make these records available for inspection by revenue agents at any time.27 In addition, all persons required to pay the wagering tax must register with the district director of the IRS28 and must pay a yearly occupational tax of $500.29 18 Id. at 6-7. 19 Compare James v. United States, 74-1 U.S. Tax Cas. ¶ 16,142 (W.D. Ky. 1974), aff'd per curiam, 75-1 U.S. Tax Cas. ¶ 16,179 (6th Cir. Feb. 12, 1975), petition for cert. filed, 43 U.S.L.W. 3501 (U.S. Mar. 8, 1975) (No. 74-1129), with Lucia v. United States, 474 F.2d 565 (5th Cir. 1973) (en banc). 20 See notes 69-83 and accompanying text infra. 21 See notes 84-94 and accompanying text infra. 22 Int. Rev. Code of 1954, §§ 4401-24. 23 Id. § 4401(a). 24 Id. § 4401(b). 25 Id. § 4401(c). Forms of gambling licensed or conducted by a state are exempted from collection or payment of the tax. Id. § 4402. See also id. § 4421 (the definition of the terms "wager" and "lottery" effectively exempt all church bingo games and other lotteries run by charities). 26 Id. § 4403. 27 Id. § 4423. 28 Id. § 4412. 29 Id. § 4411. 630 BOSTON UNIVERSITY LAW REVIEW From 1968 to 1974, civil tax assessments were the exclusive means of enforcing the wagering tax laws. Although the 1974 nondisclosure provisions of section 442430 may have cured the self-incrimination problems found fatal to criminal enforcement of the wagering tax laws in Marchetti v. United States31 and Grosso v. United States, 32 civil assessment will probably remain an often used method of discouraging violations of gambling laws.3 33 34 The IRS' method of wagering tax assessment and collection can be swift and harsh. The Code authorizes the Secretary or his delegate immediately to assess and to demand payment of any wagering tax if its collection is determined to be jeopardized by delay, whether or not the time for filing a return has expired. Because wagering taxes are normally only owed by persons suspected of criminal activities-persons who are likely to hide their assets35-collection will almost always be jeopardized by delay. Consequently, as a practical matter, wagering taxes can be assessed 30 Act of Oct. 29, 1974, Pub. L. No. 93-499, § 3, 88 Stat. 1550, adding Int. Rev. Code of 1954, § 4424. 31 390 U.S. 39 (1968). 32 390 U.S. 62 (1968). Until Marchetti and Grosso were decided, district IRS officers were required to keep available for public inspection lists of all persons who had paid the occupational tax on wagering. Act of Aug. 16, 1954, ch. 61, § 6107, 68A Stat. 756 (formerly Int. Rev. Code of 1954, § 6107), repealed, Act of Oct. 22, 1968, Pub. L. No. 90-618, § 203(a), 82 Stat. 1235. A certified copy of the list was to be furnished to any prosecuting officer who applied for it. Id. Although the Court in Marchetti recognized that Congress intended the wagering tax scheme to aid the prosecution of criminal anti-gambling laws, 390 U.S. at 58-59, it held that the listing requirement exposed those persons paying the occupational tax to such a serious hazard of criminal liability for violating state or federal gambling laws that a federal criminal prosecution for failure to register for and pay the tax violated the fifth amendment's privilege against self-incrimination. Id. at 54. On the same day that Marchetti was decided, the Court held in Grosso that a criminal prosectuion for failure to file a wagering tax return likewise violated the fifth amendment. 390 U.S. at 66-67. Although the IRS was not required by statute to divulge to prosecutors the names of those filing returns, it routinely did so. Id. The 1968 repeal of the listing requirement, see Act of Oct. 22, 1968, Pub. L. No. 90-618, § 203(a), 82 Stat. 1235, may have sufficiently dealt with the Court's objections in Marchetti, but it may not have cured the constitutional defects of informal disclosure found significant in Grosso. To remove these lingering doubts and to "remove any constitutional problems regarding the enforcement of the wagering taxes," H.R. Rep. No. 93-1401, 93d Cong., 2d Sess. 6 (1974) (conference report), Congress enacted section 4424. Act of Oct. 29, 1974, Pub. L. No. 93-499, § 3, 88 Stat. 1550, adding Int. Rev. Code of 1954, § 4424. This section prohibits Treasury Department disclosure of any information filed pursuant to the wagering taxes to any person other than federal officials charged with criminal enforcement of the wagering tax laws. Id. §§ 4424(a), (b). 33 The mere existence of a nondisclosure provision will not necessarily convince those engaged in illegal activity to keep daily records or to file wagering tax returns. Moreover, even when criminal prosecution is possible, the Government may choose civil litigation because of the lesser burden of proof. Also, a criminal prosecution for violating gambling laws will not bar a civil assessment for unpaid taxes. Finally, it should be noted that vigorous enforcement of civil tax assessments can be an effective deterrent. See, e.g., Lucia v. United States, 474 F.2d 565 (5th Cir. 1973) (en banc) (assessment of $2,653,640); James v. United States, 74-1 U.S. Tax Cas. ¶ 16,142 (W.D. Ky. 1974), aff'd per curiam, 75-1 U.S. Tax Cas. ¶ 16,179 (6th Cir. Feb. 12, 1975), petition for cert. filed, 43 U.S.L.W. 3501 (U.S. Mar. 8, 1975) (No. 74-1129) (assessment of $929.000). 34 Int. Rev. Code of 1954, § 6862(a). 35 See Marchetti v. United States, 390 U.S. at 47. WAGERING TAXES AND THE ANTI-INJUNCTION ACT 631 and collected at any time. Upon receiving notice of tax due and demand for payment, the taxpayer must pay the tax at once; upon the taxpayer's failure or refusal to pay, the IRS may immediately begin to collect by levy and distraint against his property.36 The assessments themselves often appear arbitrary and unsupported by any substantial factual foundation. It is not unusual for the Government to assess a taxpayer for four or five years' back taxes in an amount based solely on an extrapolation of a few days' betting slips seized in a raid.37 Considering the magnitude of the sums that may be involved38 and the suddenness with which tax liability may be assessed and assets levied it is not surprising that many individuals subject to such methods of tax collection seek judicial relief. The Code provides two basic avenues for challenging one's tax liability.39 For all types of tax, the taxpayer may pay the tax and then sue for a 36 Int. Rev. Code of 1954, § 6331(a); see Treas. Reg. § 301.6862-1 (1967). 37 See, e.g., Lucia v. United States, 474 F.2d 565, 574 (5th Cir. 1973) (en banc) (tax for over four years calculated from one day's betting slips); Mitchell v. Commissioner, 416 F.2d 101 (7th Cir. 1969) (tax for four years based on four days' records); Pizzarello v. United States, 408 F.2d 579, 583 (2d Cir.), cert. denied, 396 U.S. 986 (1968) (tax for five years based on betting slips for three days). 38 See note 33 supra. 39 The vast majority of taxpayers simply file income tax returns and pay the tax owed with no further collection procedure required. See B. Bittker & L. Stone, Federal Income Estate and Gift Taxation 932-33 (4th ed. 1972). If, however, the IRS believes that a taxpayer owes additional tax, or has failed to pay the enure tax due, it will determine that a deficiency exists. Id. at 913-14. The IRS then informs the taxpayer of the deficiency by mailing to him a preliminary notice. Id. at 914. Upon receipt of this notice, the taxpayer has 30 days to either pay the tax or request a conference with the district director, reviewable by the regional director, in which an effort will be made to resolve the case. M. Garbis & R. Fromme, Procedures in Federal Tax Controversies, Administrative & Trial Practice 15-17 (1968). If no settlement is reached within the administrative review framework, the IRS is required to send the taxpayer a statutory notice of deficiency by secured mail. Int. Rev. Code of 1954, § 6212(a). For a 90-day period following the mailing of this notice, the IRS may not attempt to collect the deficiency, id. § 6213(a); hence, the letter is known as a "90-day letter." After receipt of this letter, the taxpayer may contest liability in either of two alternative forums. Within the same 90 days that the IRS may not attempt to collect the deficiency, the taxpayer may file a petition with the Tax Court for a prepayment redetermination of the deficiency. Id. Alternatively, he may pay the alleged deficiency and file a claim for a refund either in a federal district court or in the Court of Claims. 28 U.S.C. § 1346 (1970). However, he must give the district director six months to administratively redetermine the deficiency before suing for a refund. Int. Rev. Code of 1954, § 6532(a)(1). With either method of judicial review, the court's decision is reviewable by a federal court of appeals and ultimately by the Supreme Court. The Code grants the IRS special powers and procedures if there is reason to believe that the collection of the revenue would otherwise be jeopardized by delay. Id. §§ 6861 (jeopardy assessment), 6331(a) (distraint). Under these procedures, the IRS does not have to wait the normal 90 days before beginning assessment, levy and scizure of the taxpayer's property. However, the IRS must still provide the taxpayer with notice of the deficiency within 60 days of the jeopardy assessment, id. § 6861(b), and allow the taxpayer to petition the Tax Court for a redetermination. Id. § 6861(c). In addition, although a taxpayer's assets may be seized, the IRS is prohibited from actually disposing of them during the time in which the taxpayer may petition the Tax Court or during the pendency of Tax Court proceedings. Id. § 6863(b)(3). However, if the IRS determines that a taxpayer intends to leave the country without paying his taxes or that he intends to conceal himself or his property in order to avoid payment of his taxes, the Code provides that his taxable year may be immediately |