In the 1950s, from his garage in Atlanta, Georgia, Horace Ingram ran a large-scale lottery and numbers operation that employed over two dozen people, which violated Georgia state law. Ga.Code, §§ 26-6501, 26-6502. In addition, there was at the time a federal law that required persons in the business of accepting wagers to register with the government and to pay a special tax on those wages. 26 U.S.C.A. § § 4411, 4412 (1954), which Ingram and his partners operation failed to do. When federal authorities discovered Ingram’s enterprise, 31 people were indicted. The trial lasted 19 days and resulted in guilty verdicts.
The defendants had various roles in the operations, and there was evidence that there was a conscious decision to avoid detection by law enforcement. They registered motor vehicles in the names of nonexisting or deceased persons at fictitious addresses, and vehicles used in the business had been repainted in a different color or colors. Car were “souped-up” to permit escape or avoid surveillance, and a truck had been fitted with a secret compartment for the transporting of lottery tickets and other gambling paraphernalia. The employees of the operation frequently traveled in roundabout routes that often changed in carrying on the business of the lottery.
On appeal, some of the main defendants – including Horace Ingram and Rufus Jenkins – unsuccessfully argued on appeal that, apart from their effort to conceal the illegal operation (which they acknowledged) there was no evidence of any agreement or concert of action to evade and defeat the payment of the tax owed to the United States. United States v. Ingram, 259 F.2d 886 (5th Cir. 1958). The Supreme Court granted certiorari to consider these arguments.
Ingram v. United States, 79 S.Ct. 1314
The opinion, Ingram v. United States, 79 S.Ct. 1314 (1958), written by Justice Potter Stewart, noted the overwhelming evidence that the defendants had engaged with numerous others in a closely organized and large-scale numbers operation and that, through a variety of carefully planned stratagems, they made every effort to conceal its operation; that Ingram and Jenkins were liable for the federal taxes imposed by §§ 4401 and 4411 of the Internal Revenue Code and willfully failed to pay them; and that they were required by § 4412 of the Code to register with the official in charge of the Internal Revenue District, and that they failed to do so.
However, the Court reversed the conviction of two participants in an illegal gambling business – L.E. Smith and Mary Law – for conspiracy to evade taxes owed by the Ingram and Jenkins as a result of the large profits their business earned. The fact that they participated in concealing the gambling profits, according to the Court, was not enough to prove that they intended to evade income taxes, since the illegality of the business alone provided sufficient reason for concealing the income, and thus it was "not a case where efforts at concealment would be reasonably explainable only in terms of motivation to evade taxation." 79 S.Ct. at 1320. As it noted:
Indulging, as of course we must, in that view of the evidence most favorable to the Government, we simply cannot discern adequate foundation in the present record for a finding that Smith and Law had such knowledge of Ingram's and Jenkins' wagering tax liability. The record is completely barren of any direct evidence of such knowledge. It was not shown, for example, that any reference had ever been made by any of the petitioners to possible tax liability, or that they had filed a return or paid a tax in previous years. The Government relied instead upon evidence which, it asserts, circumstantially proved the requisite knowledge on the part of Smith and Law. These
circumstances were simply the intimate connection of Smith and Law with the operation of the lottery itself, their cooperation in conducting it secretly, and their apparent knowledge that it was conducted at a profit. The Government points out that not only would payment of the taxes have decreased the profits to be derived from operation of the lottery, but in addition would have
required registration, including the names and addresses of the bankers and writers, with the local internal revenue office and the posting of a wagering tax stamp at the place of business. 26 U.S.C. (Supp. V) ss 4412, 6806(c), 26 U.S.C.A. ss 4412, 6806(c). The information contained in the registration would have been available to local law enforcement officials. 26 U.S.C. (Supp. V) s 6107, 26 U.S.C.A. s 6107.
Ingram v. United States, 79 S.Ct. 1314, 1319-20 (1959).
5.5 Conclusion
Did Ingram mark the death knell to the use of criminal tax charges in more general illegal schemes? Can captured criminal exonerate themselves of tax charges by simply claiming that the issue of tax liability never crossed their minds, and that they therefore lacked the
requisite mens rea?
As always, the answer will depend on the facts of the particular case. Tax charges will continue to be appropriate where the evidence shows that the defendants were mindful of the need to conceal their activity from the IRS, as in Gricco. In addition, how much did the holding in Ingram depend on the fact that the business itself – an underground numbers racket – was illegal, which allowed the defendants to argue a more prominent non-tax motive for their efforts to conceal? The years since Ingram have seen tax charges used to redress the quintessential illegal enterprise – drug distribution networks. These cases are the subject of the next chapter.