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Findings of Fact

Salesman Co., Inc. The plaintiff's father invented the Moon and Lightning system of daily baseball pools in 1913. The system was copyrighted in Washington, D.C., and registered in Indiana in 1925.

9. The plaintiff and his stepmother purchased Silent Salesman Co., Inc., which she operated until his release from military service. Shortly after his release from such service, the plaintiff, together with his stepmother, operated Silent Salesman Co., Inc., which was then engaged in the printing of baseball pool tickets. This continued until the summer of 1948 when the plaintiff formed Rahke Printing Co., Inc., a similar business. Apparently the plaintiff thereafter purchased his stepmother's interest in Silent Salesman Co., Inc. He owned that company during 1952.

10. Beginning about December 1948, the plaintiff, in addition to printing the baseball pool tickets, was also engaged in distributing them. This was because the people who, prior to that time, had been performing the distribution of the tickets (who had purchased them from the plaintiff), found that * * * "the political climate wasn't fruitful for their enterprises at that time" ***

11. The distribution of baseball pool tickets is unlawful under the Indiana laws relating to lotteries.

12. Baseball pool tickets are printed on large block sheets of 120 tickets. The tickets making up these sheets are cut into individual tickets, which are pasted in cardboard books, and then the tickets are sold to customers by dealers. Lightning tickets are based on three numbers, and each set has 2,024 tickets. Moon tickets are based on four numbers, and each set has 10,626 tickets. Winning tickets depend on the baseball scores of teams in the National League, American League and American Association. The winning tickets are those having the teams scoring the highest number of runs. Tickets sell for 5, 10, 15 and 25 cents, and pay in prizes from $200 for a 5-cent Moon ticket, to a prize of $1,000 for a 25-cent Moon ticket. There are also prizes paying lesser amounts. There are 21 prizes on each set of Moon tickets, and 22 prizes on each set of Lightning tickets. In the winter, prizes are determined by numbers taken from daily newspapers.

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13. Baseball pool tickets are distributed to an agent or a dealer each week and are for use the following week. Each day's tickets are in a separate package. When the tickets are delivered to the dealer the tickets unsold from the prior week are picked up. The dealer always has two weeks' supply of tickets, the current week's and the next week's. Normally the operator has more tickets than he sells. Rahke's gross sales would be between 70 percent and 80 percent of the number of tickets purchased from the printing companies. Normally winnings were a little over 60 percent of gross sales. From the standpoint of the operator, the gamble is that if the unsold tickets are the ones that would have hits if they had been sold, the operator makes money. If the unsold tickets would not have hits, then there is an excessive portion of hits in the sold tickets and the operator loses money.

14. The plaintiff, in addition to the three printing companies, owned three companies which he described as "operating companies." These were called Hoosier City Sales Company, Capital City Sales Company, and Masten Specialty Company. Each of these firms was engaged in the sale and distribution of baseball pool tickets. The tickets printed by Rahke Printing Co., Inc., were sold to Hoosier City Sales Company and in turn distributed to participants in the baseball pool through agents or dealers of the latter firm. Similarly the tickets printed by the Silent Salesman Co., Inc., were sold to and distributed by Capital City Sales Company, and those of Masten Printing Co. were sold to and distributed by Masten Specialty Company. The printing firms occupied the first floor, and the “operating companies" occupied the second floor of the building described in finding 7.

15. The plaintiff received the profits earned by the three "operating companies" named above.

16. The baseball pool is a lottery, since the purchaser of a baseball pool ticket has paid for a chance to win prizes based upon the outcome of a baseball game. A winner would learn by looking at a newspaper and checking the baseball scores whether he had won a prize.

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Findings of Fact

17. By the terms of section 471 of the Revenue Act of 1951 (Public Law 183 of October 20, 1951, 65 Stat. 529) a 10-percent tax was imposed upon wagers, including wagers placed in a lottery conducted for profit. By its terms, it became effective on November 1, 1951.

18. Prior to November 1951 a meeting had been held, attended by the plaintiff and those individuals who were then engaged in the selling of baseball pool tickets, for the purpose of discussing how they should operate their business after the effective date of the 10-percent wagering tax. It was apparently agreed among them that each would reduce the amount of prizes so that additional funds would be made available for the payment of the wagering tax. The plaintiff did reduce the prizes in his operations and paid the tax beginning about November 1, 1951. After a short period of operation, however, the plaintiff suspected that his competitors were not following the agreement and were operating in such a manner that they were not reducing their prizes and not paying the tax. This caused him to lose business.

19. About December 1, 1951, the plaintiff increased the amount of prizes to the point where they had been previously, and continued to pay the 10-percent wagering tax. This continued until June 30, 1952.

20. On June 6, 1952, the plaintiff wrote to the Commissioner of Internal Revenue, with copies sent to the Attorney General of the United States, the Chairman of the Senate Finance Committee, and to the Chairman of the House Ways and Means Committee, in part as follows:

This is to notify you that certain businesses in Indianapolis, Indiana are operating in violation of SubChapter A-Tax on Wagers of the Internal Revenue Code. This is well known by the Collector's office at Indianapolis. Because of the long delay, it is apparent that no action is contemplated by the Revenue officials. My interest in this matter is one of self-preservation, for it is impossible to compete with non-taxpaying lotteries.

The writer is engaged in the operation of a baseball Pool coupon business in Indianapolis as a retailer. When the Federal Tax Law became effective Nov. 1, 1951, the 10% wagering tax was collected and paid to

Findings of Fact

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the Collector each and every month. This would have been impossible had the tax been absorbed, since my business is operated on less than a 2.5% net profit on gross wagers. The 10% tax was collected as a separate charge. This raised the price of my tickets 10% higher than those of my competitors. We have also notified all of our agents that they must have the Special Tax Stamp for Wagering.

None of my competitors have done this. They have felt that a loophole in the law made it possible for them to identify themselves with some American Legion, V.F.W., or other organization, and thereby avoid the tax. They have done this, and have not paid the tax. They have also informed all agents that it is not necessary to purchase the Special Tax Stamp if they do business exclusively with them. Under these conditions of competition, it is impossible for me to remain in business and obey the law.

Forty years ago my father, Emil K. Rahke, invented the system of baseball pool operation known as "Moon" and "Lightning." One of my companies, the Silent Salesman Co., Inc., holds Federal copyrights on these. We enjoy in Indiana a superior reputation for honesty and fair dealing. None of our competitors has been in business over eight years, and recently they all have been [in] trouble with the Internal Revenue Department.

My attorneys have not even investigated the possibility of my associating myself with some fraternal organization, for we have felt that the purpose of the law was to collect more revenue, rather than to raise the profit of what might possibly be tax-exempt fraternities. And certainly one cannot believe that my competitors have chosen to give these fraternities their profits. No matter how the connection may show on paper, the big percentage of the profits will obviously inure to the former owner. A thorough investigation would show that what is an attempt at "tax avoidance" is really a "tax evasion."

I understand that my competitors' attorneys are trying to show cause why their clients should not pay the 10% tax. That reason certainly cannot be that it would put them out of business, because I have paid the tax and have remained in business, even in the face of nontaxpaying competition. If your office would enforce the law, all of us would remain in business on the same basis; and revenue for the United States from that source would be considerable.

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Findings of Fact

The following is a statement of taxes I have paid, according to Regulation 132, since Nov. 1, 1951.

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The following is a list of my competitors who have violated Regulation 132.

Not one of my competitors has paid the 10% wagering tax since December 1951. It is a conservative estimate that the United States has lost over $250,000 in collectible taxes from them alone since December 1951.

I am requesting the [that] immediate action be taken to enforce the law in this area. Or, unless immediate action is taken, since my business cannot survive much longer against non-taxpaying competition, I request permission to operate my business exempt from Regulation 132 likewise.

21. About the middle of June, 1952, the plaintiff's bookkeeper told him that he had lost about $60,000 so far that year and that he could operate for about two weeks before he would be broke. The plaintiff talked to Wilbur Plummer [Assistant Collector of Internal Revenue] and to his attorneys about his situation and thereafter called Walter Thompson on the telephone. Walter Thompson was formerly a competitor of the plaintiff, selling a baseball pool ticket known as "Big Tom". Mr. Thompson told the plaintiff he had gone out of business and that the Moose in Rushville, Indiana, were selling the tickets. Thompson told the plaintiff to contact Mr. Chester Fryberger at the Moose Lodge in Rushville, Indiana, about taking over his ticket operation. The plaintiff and Fryberger met at Rushville that night and discussed the feasibility of the Rushville Moose taking over the operation of the plaintiff's baseball pool ticket business.

22. Mr. Chester Fryberger is now employed as a plant engineer for a printing concern and also is an instructor

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