Waterman and Moore, Circuit Judges, and Bonsal, District Judge.*fn*
Emilio Pizzarello (appellant) appeals from an order of the District Court for the Southern District of New York, 285 F. Supp. 147, entered in an action to enjoin the levy of a jeopardy assessment*fn1 for unpaid wagering taxes on money illegally seized by the United States (the Government). The order, entered on May 31, 1968, denied appellant's application for a preliminary injunction against the levy on $125,882 in currency, obtained by Special Treasury Agents, to satisfy a tax assessment of $282,440.70. It also denied his application pursuant to 28 U.S.C. §§ 2282 and 2284 for a three-judge court to hear his suit for a preliminary injunction and directed dismissal of his suit for a permanent injunction.
The tax assessment of $282,440.70 was personally approved by the District Director of the Internal Revenue Service following an unsuccessful criminal prosecution of Pizzarello for illegal wagering activity and an equally unsuccessful forfeiture proceeding brought against the $125,882.*fn2 The background of these suits is set out in greater detail below.
The record in the criminal prosecution indicates that Pizzarello, a proprietor of a luncheonette in Mount Vernon, New York, was arrested on April 15, 1965, and charged with being in the business of illegally accepting wagers. He was searched incident to his arrest and ten horse bet slips, one pay and collect slip and $425 in currency were discovered, including marked currency given to him shortly before as a wager by an undercover agent.
Four hours after his arrest, Special Treasury Agents caused a wall safe in the back of the luncheonette to be opened and $123,017 in cash was discovered, along with insurance policies and a savings account book. Shortly thereafter, wedged between the metal top and a wooden leg of a table next to the safe, $2,440 and a large number of policy or betting slips were found. The total amount seized on April 15, 1965, therefore, amounted to $125,882.
In due course an information was filed alleging that Pizzarello had operated a gambling establishment illegally from March 30, 1965, to April 15, 1965, without registering with the District Director as required by 26 U.S.C. § 4412 and without paying the special occupation tax imposed by 26 U.S.C. § 4411. At about the same time, a libel of information was filed to forfeit the $125,882*fn3 seized on his arrest.
At a suppression hearing prior to his trial, the warrant under which Pizzarello had been arrested was declared to be invalid for lack of probable cause.*fn4 65 Cr. 729 (S.D.N.Y. Oct. 25, 1965). With it fell the search and seizure by which the agents had obtained the $123,017 and the $2,440 and bet slips wedged under the table top. However, the remaining $425 in currency, the ten horse bet slips and the one pay and collect slip taken from Pizzarello's person incident to his arrest, as well as evidence of wagering transactions amounting to $290 placed by Special Agents with him and other gambling activities viewed by them were not suppressed and were used against him at his trial.
Notwithstanding his assertions that compliance with the registration and occupation tax provisions would have violated his Fifth Amendment privilege, the information resulted in conviction, without wilful intent, which was affirmed by this Court on November 17, 1967. United States v. Pizzarello, 386 F.2d 177 (2d Cir. 1967). However, the affirmance was vacated by the Supreme Court on March 4, 1968, Stone v. United States, 390 U.S. 204, 88 S. Ct. 899, 19 L. Ed. 2d 1035, and the case remanded in light of 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).
Marchetti held that the registration and occupational tax provisions of the federal wagering tax laws could "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." Id. 390 U.S. at 42, 88 S. Ct. at 699. The rationale was that since gambling was an "area permeated with criminal statutes," both federal and state, the obligation to register with the District Director created a "real and appreciable" hazard of self-incrimination.
Similarly, Grosso held that an individual cannot be prosecuted for failure to pay the wagering excise tax because of the same self-incriminatory hazards. The Court also concluded that the "required records" doctrine, Shapiro v. United States, 335 U.S. 1, 68 S. Ct. 1375, 92 L. Ed. 1787 (1948), could not be "appropriately applied to these circumstances," inasmuch as a gambler's records did not have "public aspects" which would render them at least analogous to public documents, and as the purpose of the United States' inquiry was financial, rather than "essentially regulatory." Id. 390 U.S. at 67, 68, 88 S. Ct. 709. The interest of the United States was assumed to be the collection of revenue and not the prosecution of gamblers. United States v. Calamaro, 354 U.S. 351, 358, 77 S. Ct. 1138, 1 L. Ed. 2d 1394 (1957).
Subsequent to the Marchetti and Grosso decisions and the reversal of his criminal conviction, Pizzarello sought summary judgment against the United States in the forfeiture action.*fn5 By a decision filed May 8, 1968, Judge Tyler held that the "money having been determined to be nonforfeitable, the government has no further legal claim to the entire sum of $125,882" and that "this sum must be turned over to claimant Pizzarello." 286 F. Supp. 643, 647 (S.D.N.Y.1968). However, before this decision, a "Statement of Tax Due," dated April 24, 1968, was sent to Pizzarello declaring a jeopardy assessment of $282,440.70 for unpaid taxes. No indication was given that the assessment was, in fact, for unpaid wagering taxes; the claim was said to be based "on an audit of [his] tax return for the period shown," although none had been filed.
As a result of the intervening jeopardy assessment, no order has been entered in the forfeiture suit and, as a levy was imminent on the $125,882, Pizzarello sought a preliminary injunction to restrain the collection of the tax. Contending that the jeopardy assessment, coming as it did before the filing of the opinion in the forfeiture proceeding, amounted to a frustration since it relegated him to a suit for refund, he argues that to meet the required burdens in a refund suit, he would be forced to waive his Fifth Amendment privilege, or give up the money. This alleged dilemma is said to permit the Government to achieve an indirect forfeiture under the guise of a jeopardy assessment, having failed to achieve forfeiture directly. Because the tax claim becomes a lien in favor of the Government upon all property and rights to property of the taxpayer on assessment, Pizzarello asserts he will be ruined unless this Court reverses the District Court's refusal to grant an injunction against the assessment and levy.
At the outset, the Government challenges the power of this Court to grant the relief the appellant requests. The Government asserts, and the District Court so held, that injunctive relief is barred by 26 U.S.C. § ...