Opinion ID: 361300
Heading Depth: 1
Heading Rank: 2

Heading: Submission to the jury of Griffin's wagering tax liability

Text: 16 We now turn to the government's contentions of error. With respect to Griffin, who was found by the jury not to be liable for any tax, the government contends that he was liable as a matter of law and the only jury issue was the extent of his liability. The crucial issue is whether Griffin was engaged in receiving wagers for or on behalf of the owners of the numbers ring, within the meaning of 26 U.S.C. § 4411. 17 The numbers operation was structured in this way: Each day a winning number was generated through use of the total sales of stocks and bonds sold on the New York Stock Exchange that day. Local bettors would contact one of the writers involved in the operation and tell him the number he had selected and the amount of his wager. The writers phoned in to the central bank the numbers selected and the amount wagered on each number. The money deposited with the writers was picked up by pick up men, less a 15% Commission retained by the writers, and transported by them to the bank. 8 The pick up men received as compensation 25% Of the gross amount that had been bet with the writers who were handled by the pick up men. 9 If a bettor won the bank would send his winnings through the pick up men back to the writer, who would then pay off the customer. 10 Although the writers called in the wagers directly to the bank, they were chosen for participation in the scheme by the pick up men, who exercised some supervision over them. Viewing the facts in the light most favorable to Griffin, the jury could reasonably have concluded that Griffin was a pick up man in the operation. 11 The issue presented is whether this type of participation renders Griffin liable for the wagering tax as a matter of law. 18 26 U.S.C. § 4401(c) makes every person who is engaged in the business of accepting wagers liable for federal wagering tax. 12 Although the record is not completely unambiguous, we understand from it and the government's briefs that the government is not urging that Griffin is liable under this provision of § 4401(c). 13 Instead the government bases Griffin's liability on the last clause of § 4401(c), which must be read in conjunction with two other statutory provisions. The last sentence of § 4401 makes any person who fails to register as required by 26 U.S.C. §§ 4411 & 4412 liable for the wagering tax on wagers accepted. 26 U.S.C. § 4411 requires each person who is engaged in receiving wagers for or on behalf of any person who is liable for the wagering tax under § 4401(c) to pay a special $50 yearly tax. 26 U.S.C. § 4412 requires a person who is required to pay the special § 4411 tax to register with IRS and in his registration reveal the name of the person he is engaged in receiving wagers for or on behalf of. Griffin did not register with IRS, and the government contends that this failure makes him liable for the tax on all of the wagers accepted by the writers hired by him. 14 The issue is whether his role as intermediary in the numbers operation included receiving wagers for or on behalf of any person liable for the wagering tax, in this case the owners of the central bank. 19 If Griffin had done nothing more than pick up money from the writers and turn it over to the bank, he would not be liable for the tax. The Supreme Court has construed the phrase receiving wagers as not including middlemen in a gambling scheme who merely convey wagers from writers to the central bank, U. S. v. Calamaro, 354 U.S. 351, 77 S.Ct. 1138, 1 L.Ed.2d 1394 (1957), and Treasury regulations conform to this view. See 26 C.F.R. § 44.4411-1(b) (1977). 15 20 The government insists that Griffin was not solely a pick up man. Rather, the government says, when Griffin selected the writers who actually accepted wagers and who thus clearly were engaged in receiving wagers for or on behalf of any (liable) person he created an agent-principal relationship, thereby rendering the wagers just as much received by him as they would have been had the bettors placed the wagers directly with him. 21 The district judge to some extent accepted this incorporation of agency principles into the wagering tax statute, instructing the jury that (a)ny wagers received by an agent or an employee on (Griffin's) behalf shall be considered to have been accepted by and placed with (Griffin), but he added the significant qualification that Griffin would be liable for wagers received by his agents only so long as he has a proprietary interest in the wagering activity. The government objected, contending that this qualification was error because a principal is deemed to bear legal responsibility for the acts of his agents regardless of whether he has a proprietary interest in their acts. We need not reach this contention nor decide whether agency law should be used in construing the federal wagering tax statute, 16 because the government failed to produce evidence showing that the writers hired by Griffin were his agents. 22 The government's burden in wagering tax suits is not heavy, but neither is it nonexistent. A presumption of correctness attends IRS wagering tax assessments, but it is premised on the government's production of evidence that would support an inference that the taxpayer was in fact engaged in gambling activity that made him liable for the tax. See Carson v. U. S.,560 F.2d 693, 697 (CA5, 1977); Gerardo v. Commissioner, 552 F.2d 549, 554 (CA3, 1977); Pizzarello v. U. S., 408 F.2d 579, 583 (CA2, 1969). Ignoring for the moment Griffin's testimony that he physically accepted a few wagers, the government, in establishing Griffin's wagering tax liability, relied on evidence that allegedly supported an inference that the writers Griffin collected from were his agents. Thus the initial question presented to us is whether the evidence put forward by the government was sufficient to support an inference that an agency relationship existed. 23 The government relies upon Griffin's power to select writers and his payment of the writers 17 as tending to prove that the writers were his agents. 18 The argument is contrary to agency law. If an agency relationship did exist between Griffin and his writers, he would have had the power to hire and fire and the power of supervision, but his exercise of these two powers is not sufficient to show that a principal-agency relationship existed. See, e. g., Radich v. U. S., 160 F.2d 616, 618 (CA9, 1947) (power of termination does not establish agency); Mathews Conveyor Co. v. Palmer Bee Co., 135 F.2d 73, 81 (CA6, 1943) (power of one to control conduct of another does not establish agency); First Jackson Securities Corp. v. B. F. Goodrich Co., 253 Miss. 519, 176 So.2d 272, 278 (1965) (employee not synonymous with agent). The most characteristic feature of an agency relationship is missing. The writers employed by Griffin were given no power to bring about business relationships between third parties and Griffin. They were employed by Griffin to bring about contractual relationships between bettors and the bank. Griffin was not liable on the bets placed with his writers; he was not responsible for paying off winning bettors. Since an essential characteristic of an agency is the power of the agent to commit his principal to business relationships with third parties, See, e. g., Esmond Mills v. Commissioner,132 F.2d 753, 755 (CA1, 1943); Easterling v. Volkswagen of America, Inc.,308 F.Supp. 966, 981-82 (S.D.Miss., 1969); Economic Research Analysts, Inc. v. Brennan, 232 So.2d 219, 221 (Fla.App., 1970); First Jackson Securities, supra ; Restatement (Second) of Agency, § 1(2) & 1(3), Comments d & e (1957), Griffin was not the principal of the writers when they were writing numbers on which the bank was obligated to pay. The most plausible way to view the arrangements of the gambling operation is that the writers accepted wagers not as agents of Griffin but as agents of the bank, which bore responsibility for paying the winners. Thus, still leaving aside the few bets that Griffin physically accepted, we conclude that Griffin was not engaged in receiving wagers within the meaning of § 4411 and that it was not necessary to submit to a jury the issue of whether the writers were his agents. U. S. v. Marquez, 332 F.2d 162, 163-64 (CA2, 1964) (Marshall, J.), is apparently to the contrary, but we do not accept its reading of Calamaro to mean that only gambling operation members who are exclusively pick up men are exempt from the wagering tax. The policy argument that imposing liability on Griffin would further the statutory purpose of ascertaining the identity of the ringleaders of gambling rings, is misplaced because, as the Calamaro court said, 24 The fact remains, however, that Congress did not choose to subject all employees of gambling enterprises to the tax and reporting requirements, but was content to impose them on persons actually engaged in receiving wagers. Neither we nor the Commissioner may rewrite the statute simply because we may feel that the scheme it creates could be improved upon. 25 354 U.S. at 357, 77 S.Ct. at 1142, 1 L.Ed.2d at 1399. 26 Finally we turn to the very few bets that Griffin admitted physically accepting. Had proper proof been introduced, Griffin could have been found liable for tax arising out of these direct bets. But the government submitted the case to the jury on the two theories, Griffin's liability arising from the numerous bets placed with the alleged agents and the few bets placed directly with Griffin. It introduced no estimate or evidence of the dollar amount of the direct bets. The government having failed on its burden of coming forward with evidence on the agency theory, no presumption of correctness of the gross assessment arose with respect to the few direct bets included therein. There was no burden on the part of Griffin to refute presumptive correctness; indeed, it was, and is, obvious that the gross assessment, which was based upon both indirect and direct bets, could not be correct with respect to only direct bets.