United States v. Poll

¶5OPINION

¶6SNEED, Circuit Judge:

¶7Appellant was charged in a two-count indictment for willfully causing P. B. Industries, Inc., a corporation of which he was president, to fail to truthfully account for and pay over employees’ federal income withholding taxes on wages and social security (FICA) taxes for the first two quarters of 1973 in violation of 26 U.S.C. § 7202. That section is as follows:

§ 7202. Willful Failure To Collect Or Pay Over Tax.

Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution. Aug. 16, 1954, c. 736, 68A Stat. 851.

¶8The case was tried on stipulated facts and appellant was convicted on both counts. The stipulation is set out in the margin.1 Appellant here contends that § 7202 requires proof of both a willful failure to truthfully account and a willful failure to pay over and argues that *331his failure to pay over cannot be considered “willful” in light of his offer to prove that the corporation lacked the liquid resources to pay the full amounts due and that he intended to make up the deficiencies later.

¶9The district court denied the offer of proof and held that the stipulation established a violation of § 7202. The memorandum decision of the district court states:

The court finds and holds such offered evidence is irrelevant and inadmissible, because § 7202 requires that the failure to truthfully account for and pay over the taxes be done ‘willfully,’ and such term does not require proof of an intent to defraud the Government, United States v. Klee, No. 73-2741 [494 F.2d 394] (9th Cir., 3/28/74 at p. 2), but ‘connotes a voluntary, intentional violation of a known legal duty’ accompanied by a ‘bad purpose or evil motive.’ United States v. Bishop, 412 U.S. 346 at 360, 361 [93 S.Ct. 2008, 36 L.Ed.2d 941] (1973).

¶10These actions raise two questions: viz. whether the foregoing definition of “willfully” is correct and whether the evidence offered to rebut the presence of willfulness was irrelevant and inadmissible. We hold that the definition is substantially correct but that the evidence offered is relevant under that definition and therefore admissible. The conviction is reversed and we remand to the district court for further proceedings consistent with this opinion.

¶11We recently considered the meaning of “willfully,” as it relates to a criminal penalty provided by the Internal Revenue Code, in United States v. Hawk, 497 F.2d 365 (9th Cir.), cert. denied, 419 U.S. 838, 95 S.Ct. 67, 42 L.Ed.2d 65 (1974). There we approved the following charge with respect to willfulness in a prosecu*332tion for failure to file income tax returns under 26 U.S.C. § 7203.

Now, we come to specific intent and willfulness. The specific intent of willfulness is an essential element of the crime of failing to make an income tax return. The term “willfully” used in the statute . . . means voluntary, purposeful, deliberate, and intentional as distinguished from accidental, inadvertent, or negligent. Mere negligence, even gross negligence, is not sufficient to constitute willfulness under this criminal law.

. The failure to make a timely return is willful if the defendant’s failure to act was voluntary and purposeful and with the specific intent to fail to do what the law requires (sic) to be done; that is to say, with the bad purpose to disobey or disregard the law that requires him to disclose to the Government facts and (sic) material to the determination of his income tax liability. .

There is no necessity that the Government prove that the defendant had the intention to defraud it or to evade the payment of any taxes for the defendant’s failure to file to be willful under this provision of law. That is, the intention to avoid the law or to pay the taxes constitutes the crime charged by each of these counts as long as it is willful and knowing as I have defined the term for you. On the other hand, the defendant’s conduct is not willful if you find that he failed to file a return because of negligence, inadvertence, accident, or due to his good faith misunderstanding of the requirements of the law, if there was such misunderstanding. (Emphasis added.) 497 F.2d at 366 n. 2.

¶12We held that it was not error to fail to include the words “and/or evil motive” in the emphasized portion of the above quoted charge. See also United States v. Ducharme, 505 F.2d 691, 693 (9th Cir. 1974); Cooley v. United States, 501 F.2d 1249, 1252-53 (9th Cir. 1974).

¶13The definition of “willfully” employed by the trial court here does not depart significantly from that which we approved in Hawk. The offense charged here, however, is different from that in Hawk. There the offense charged was a willful failure to file federal income tax returns. Here it is a willful failure to truthfully account for and pay over taxes required to be withheld. Both the failure to truthfully account for and to pay over must be willful. We believe, and so hold, that the defendant’s offer of proof regarding the liquid resources of the corporation and his intention to make up the deficiencies later was relevant and admissible in his effort to refute the willfulness of the failure to pay over. Hawk, addressed to a crime not involving a failure to pay, is not contrary to this holding.

¶14We are guided by United States v. Andros, 484 F.2d 531, 533 (9th Cir. 1973) where we held that the financial circumstances of the accused are relevant in determining whether the failure to pay taxes is willful. Our decision in Andros, which involved prosecution of a willful failure to pay a tax under 26 U.S.C. § 7203, is rooted in Spies v. United States, 317 U.S. 492, 497-98, 63 S.Ct. 364, 367, 87 L.Ed. 418 (1943) where the Court observed:

The difference between willful failure to pay a tax when due, which is made a misdemeanor, and willful attempt to defeat and evade one, which is made a felony, is not easy to detect or define. Both must be willful, and willful, as we have said, is a word of many meanings, its construction often being influenced by its context, United States v. Murdock, 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381. It may well mean something more as applied to nonpayment of a tax than when applied to failure to make a return. Mere voluntary and purposeful, as distinguished from accidental, omission to make a timely return might meet the test of willfulness. But in view of our traditional aversion to imprisonment for debt, we would not without the clearest manifestation of Congressional intent assume that mere knowing *333and intentional default in payment of a tax, where there had been no willful failure to disclose the liability is intended to constitute a criminal offense of any degree. We would expect willfulness in such a case to include some element of evil motive and want of justification in view of all the financial circumstances of the taxpayer. (Emphasis added.)

¶15As Andros indicates, the relevance of the taxpayer’s financial circumstances is not limited to instances in which he is charged with tax evasion under 26 U.S.C. § 7201. Nor do we think such circumstances are irrelevant to the proof of willfulness under 26 U.S.C. § 7202. We believe that to establish willfulness the Government must establish beyond a reasonable doubt that at the time payment was due the taxpayer possessed sufficient funds to enable him to meet his obligation or that the lack of sufficient funds on such date was created by (or was the result of) a voluntary and intentional act without justification in view of all the financial circumstances of the taxpayer.

¶16Neither the legislative history of 26 U.S.C. § 72022 nor the reported cases *334thereunder3 are inconsistent with our holding.

¶17Reversed and Remanded.