Internal Revenue Service
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 Rev. Rul. 77-51

1977-1 C.B. 346

Section 472 -- LIFO Inventories

IRS Headnote

Wagering; delinquency and fraud penalties; failure to file returns and pay tax. In view of the enactment of section 4420 of the Code, the delinquency and fraud penalties imposed by sections 6651 and 6653 may be assessed and collected for failure, after November 1974, to file wagering Forms 11-C and 730 and pay the required taxes. (Also Sections 6651, 6653; 26 CFR 301.6651-1, 301.6653-1.)

Full Text

Rev. Rul. 77-51

Advice has been requested whether the Internal Revenue Service can assess and collect delinquency and fraud penalties under section 6651 and section 6653 of the Internal Revenue Code of 1954 for failure to file Form 11-C (Special Tax Return and Application for Registry-Wagering) and Form 730 (Tax on Wagering) and pay tax in view of the Supreme Court decisions in Marchetti v. U.S. 390 U.S. 39 (1968), 1968-1 C.B. 500, and Grosso v. U.S. 390 U.S. 62 (1968), 1968-1 C.B. 495, and the subsequent enactment of section 4424.

In Marchetti v. U.S., the Court held that to require a taxpayer to file a registration (Form 11-C) under the wagering tax provisions violated the Fifth Amendment right against compulsory self-incrimination.

In Grosso v. U.S., the Court applied the same rationale to the required filing of an excise tax return (Form 730) under the wagering tax provisions.

Section 6107 of the Code, which permitted the public inspection of the names of all persons paying wagering occupational taxes, was repealed by section 203(a) of Pub. L. 90-618, 1968-2 C.B. 749.

Section 4424 of the Code, effective December 1, 1974, provides that no Treasury Department official or employee may disclose, except in connection with the administration or enforcement of internal revenue taxes, any document or record supplied by a taxpayer in connection with such taxes or any information obtained through any such documents or records. Further, certain documents related to the wagering taxes and information obtained through such documents may not be used against the taxpayer in any criminal proceeding except in connection with the administration or enforcement of internal revenue taxes.

Section 6651 of the Code imposes penalties for failure to timely file a return and failure to timely pay the tax shown on the return unless such failure is due to reasonable cause.

Section 6653 of the Code imposes a penalty for underpayment of tax due to fraud.

Congress enacted section 4424 of the Code with the intent of removing any constitutional impediment to the enforcement of the wagering taxes. See H. Rep. No. 93-1401, 93d Cong., 2d Sess. 5 (1974), 1974-2 C.B. 459, (Conference Report). A taxpayer who complies with the wagering tax statutes is no longer confronted by substantial hazards of self-incrimination.

Accordingly, a taxpayer who fails to file Form 11-C or Form 730 that is due on or after December 1, 1974, may be subject to the delinquency or fraud penalties imposed by sections 6651 and 6653 of the Code.