United States v. Easterday

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,  No. 07-10347
Plaintiff-Appellee, D.C. No.
v.
 CR-05-00150-CRB
JACK E. EASTERDAY, ORDER AND
Defendant-Appellant. AMENDED
 OPINION

Appeal from the United States District Court
for the Northern District of California
Charles R. Breyer, District Judge, Presiding

Argued and Submitted
June 10, 2008—San Francisco, California

Filed August 22, 2008
Amended April 27, 2009

Before: Mary M. Schroeder and N. Randy Smith,
Circuit Judges, and Valerie Baker Fairbank,* District Judge.

Opinion by Judge Schroeder;
Dissent by Judge N.R. Smith

*The Honorable Valerie Baker Fairbank, United States District Judge
for the Central District of California, sitting by designation.

4869
4872 UNITED STATES v. EASTERDAY
COUNSEL

Gregory V. Davis, Washington, D.C., for plaintiff-appellee
United States of America.

Dennis P. Riordan, San Francisco, California, for defendant-
appellant Jack E. Easterday.

ORDER

The opinion filed August 22, 2008, and appearing at 539
F.3d 1176 (9th Cir. 2008), is hereby amended. The amended
opinion is filed concurrently with this Order.

With this amendment, Judge Schroeder has voted to deny
the petition for rehearing en banc, and Judge Fairbank has so
recommended. Judge N.R. Smith has voted to grant the peti-
tion for rehearing en banc.

The full court has been advised of the petition for rehearing
en banc and no judge has requested a vote on whether to
rehear the matter en banc. Fed. R. App. P. 35.

The petition for rehearing en banc is DENIED. No further
petitions for rehearing or rehearing en banc will be accepted.

OPINION

SCHROEDER, Circuit Judge:

This case illustrates the enduring truth of Ben Franklin’s
sage observation that “nothing is certain but death and taxes.”
It is an appeal from a conviction for willful failure to pay over
employee payroll taxes, in violation of 26 U.S.C. § 7202. The
defendant-appellant, Jack Easterday, sought an “ability to pay
 UNITED STATES v. EASTERDAY 4873
instruction” in order to contend to the jury that his failure to
pay over the taxes he owed was not “willful,” because he had
spent the money on other business expenses and therefore
could not pay it to the government when it was due. The dis-
trict court refused to give the instruction, and Easterday sub-
sequently was convicted and sentenced to thirty months in
prison.

The requested instruction was drawn from a portion of a
1975 decision of this court, United States v. Poll, 521 F.2d
329 (9th Cir. 1975), that we have never subsequently cited
favorably in the context of a prosecution for failure to pay
taxes. Poll in turn relied upon an earlier Ninth Circuit deci-
sion, United States v. Andros, 484 F.2d 531 (9th Cir. 1973),
that two other circuits have expressly rejected. See United
States v. Tucker, 686 F.2d 230, 233 (5th Cir. 1982); United
States v. Ausmus, 774 F.2d 722, 725 (6th Cir. 1985). Most
significantly, the holding of Poll that formed the basis for the
proposed instruction was effectively eradicated by subsequent
Supreme Court authority.

Easterday contends that Poll is binding on us because this
court has never expressly overruled it. The district court held
that Poll was no longer good law. We agree with the district
court. Poll’s requirement that the government prove that the
taxpayer had sufficient funds to pay the tax was premised on
a definition of willfulness that included some element of evil
motive. The Supreme Court subsequently rejected any such
definition of willfulness in the tax statutes. See United States
v. Pomponio, 429 U.S. 10, 12 (1976) (per curiam); see also
United States v. Cheek, 498 U.S. 192, 201-02 (1991). “Will-
ful” in the tax context means a voluntary, intentional violation
of a known legal duty. See Cheek, 498 U.S. at 201-02; United
States v. Powell, 955 F.2d 1206, 1211 (9th Cir. 1992). In
other words, if you know that you owe taxes and you do not
pay them, you have acted willfully. Poll has continued to be
referred to occasionally in other contexts, principally in the
child support area. See United States v. Ballek, 170 F.3d 871,
4874 UNITED STATES v. EASTERDAY
874 (9th Cir. 1999); H.R. Rep. No. 102-771, at 6 (1992). It
is not, however, good tax law. We therefore affirm.

Background

Easterday operated a chain of nursing homes in Northern
California through a parent corporation, Employee Equity
Administration (“EEA”), and its subsidiaries. Between 1998
and 2005, the total payroll tax liability for EEA and its sub-
sidiaries for the period from the fourth quarter of 1998
through the fourth quarter of 2005 was $44,864,162, of which
$26,018,869 was paid. Although the companies’ tax filings
accurately stated its tax liabilities, Easterday, through the cor-
poration, repeatedly failed to pay over to the Internal Revenue
Service (“IRS”) the full amount of payroll taxes due.

The IRS sent Easterday’s companies numerous notices
requesting payment of the delinquent taxes. When those
notices did not result in payment, the IRS sent notices inform-
ing Easterday’s companies of an intent to levy against each
company’s assets. Although Easterday was cooperative with
the IRS and took full responsibility for the tax delinquency,
his pattern of nonpayment continued. The IRS assessed liens
against corporate accounts, but when payment was still not
forthcoming, it eventually filed criminal charges. In 2005, the
government charged Easterday with 109 counts of failure to
pay over taxes in violation of 26 U.S.C. § 7202, with each
count representing a different quarter in which the taxes of
EEA and its subsidiaries were deficient.

Easterday did not dispute that he failed to pay the taxes
when due. His defense was simply that he lacked the financial
ability to comply with his tax obligations. Although the dis-
trict court ruled that ability to pay was not relevant, Easterday
was able to put on testimony that the nursing homes were
struggling financially and he had trouble paying the bills, with
losses of more than $20,000,000 between 1996 and 2005.
 UNITED STATES v. EASTERDAY 4875
Easterday’s witnesses testified, in essence, that Easterday
did not pay the payroll taxes because he used the money to
pay other company bills in order to keep the nursing homes
operational. Easterday asked the court to instruct the jury that
the government, in order to prove a willful failure to pay
taxes, must prove that at the time the taxes were due, the tax-
payer had the funds, and hence the ability to pay the obliga-
tion. Easterday’s proposed instruction was drawn in part from
the opinion in United States v. Poll, and provided as follows:

The word “willfully” means a voluntary, inten-
tional violation of a known legal duty, and not
through ignorance, mistake, negligence, even gross
negligence, or accident. In other words, the defen-
dant must have acted voluntarily and intentionally
and with the specific intent to do something he knew
the law prohibited; that is to say, with the intent
either to disobey or disregard the law.

....

In the context of this case, in order for the govern-
ment to meet its burden of willfulness beyond a rea-
sonable doubt, it must prove that on the dates the
taxes were due the taxpayer possessed sufficient
funds to be able to meet his legal obligations to the
government or that the lack of sufficient funds on
such date was created by (or was the result of) a vol-
untary and intentional act, without justification in
light of the financial circumstances of the taxpayer.

The district court declined to give this instruction, but did
instruct the jury that the government had the burden of prov-
ing that the defendant did not have a good faith belief that he
was complying with the tax laws, and that a defendant’s belief
could be in good faith even if it was unreasonable. The court
also instructed the jury that “[t]he tax laws do not permit an
employer to choose to use the monies held in trust for the
4876 UNITED STATES v. EASTERDAY
United States for other purposes, such as to pay business
expenses.”

Following a six-day jury trial, Easterday was found guilty
on 107 of 109 counts. The district court denied Easterday’s
motion for a judgment of acquittal or a new trial and sen-
tenced him to 30 months imprisonment, followed by three
years supervised release. Easterday now appeals from the
judgment and sentence.

Easterday’s principal contention on appeal is that pursuant
to United States v. Poll, he was entitled to a jury instruction
on the ability to pay “element” of 26 U.S.C. § 7202, and he
was entitled to present evidence to negate that “element.”
Accordingly, Easterday argues that the district court erred in
declining to give a Poll instruction and that it abused its dis-
cretion by limiting the testimony Easterday could offer con-
cerning the financial situation of, and burdens on, his
companies.

Discussion

[1] The statute under which Easterday was found guilty is
26 U.S.C. § 7202, a fairly rarely invoked provision that crimi-
nalizes a willful failure to pay over employees’ federal
income withholding taxes on wages. Section 7202 provides
that “[a]ny person required . . . 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 . . . be
guilty of a felony.”

The main issue in this appeal, as well as a subject of con-
siderable debate before the district court, pertains to the status
of Poll, and to what constitutes “willfulness” under the Tax
Code. Specifically, the parties disagree as to whether “willful-
ness” requires an affirmative showing by the government that
a defendant had an ability to pay his tax obligations and
whether it can be negated by a showing that a defendant was
 UNITED STATES v. EASTERDAY 4877
financially unable to satisfy his tax debt. This court has not
meaningfully revisited this issue since the 1970s.

In United States v. Andros, 484 F.2d 531, 533-34 (9th Cir.
1973), we said that to establish the “wilful failure to pay the
taxes assessed,” the government must prove that, on the date
the taxes were due, the taxpayer possessed “sufficient funds”
to pay the taxes, and that the taxpayer voluntarily and inten-
tionally did not pay them. We went on to say: “the require-
ment of wilfulness connotes ‘bad faith or evil intent’ or ‘evil
motive and want of justification in view of all the financial
circumstances of the taxpayer.’ ” Id. at 534 (quoting United
States v. Bishop, 412 U.S. 346 (1973)).

[2] Two years later, in United States v. Poll, this court
apparently found plausible the taxpayer’s contention that the
failure to pay over the taxes could not be considered “willful”
because he had offered 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.” 521 F.2d at 330-
31. Citing to Andros and Spies v. United States, 317 U.S. 492,
497-98 (1943), we held that Poll’s offer of proof regarding the
liquid resources of the corporation was relevant to the deter-
mination of whether the failure to pay over taxes was willful.
521 F.2d at 332. In the language that Easterday sought to
include as part of the charge to the jury in this case, we said:

[T]o 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 cir-
cumstances of the taxpayer.

Id. at 333.
4878 UNITED STATES v. EASTERDAY
This holding in Poll regarding ability to pay relied upon a
definition of willfulness, taken from Spies and Andros, that
included an element of “evil motive.” 521 F.2d at 333 (citing
Spies, 317 U.S. at 498)). We recognized this in Sorenson v.
United States, 521 F.2d 325, 328 n.3 (9th Cir. 1975) (quoting
Spies, 317 U.S. at 498), where we said: “The Poll holding is
only applicable to the criminal test of willfulness which
requires ‘some element of evil motive and want of justifica-
tion in view of all the financial circumstances of the taxpay-
er.’ ”

[3] The year after this court decided Poll, the United States
Supreme Court decided United States v. Pomponio, 429 U.S.
10 (1976) (per curiam), in which it repudiated this formula-
tion of willfulness. In Pomponio, the Court examined the vari-
ous formulations that had been used for the definition of
“willfully” in the Tax Code. See id. at 12. The Court
attempted to dissipate the confusion that had arisen from its
decision in United States v. Bishop, 412 U.S. 346 (1973), in
which the Court referred to a number of formulations of the
standard, including the formulation it used in Spies, of “evil
motive and want of justification in view of all the financial
circumstances of the taxpayer.”

The troublesome paragraph in Bishop was the following:

The Court, in fact, has recognized that the word
‘willfully’ in these statutes generally connotes a vol-
untary, intentional violation of a known legal duty.
It has formulated the requirement of willfulness as
‘bad faith or evil intent,’ United States v. Murdock,
290 U.S. 389, 398, or ‘evil motive and want of justi-
fication in view of all the financial circumstances of
the taxpayer,’ Spies v. United States, 317 U.S. 492,
498, or knowledge that the taxpayer ‘should have
reported more income than he did.’ Sansone v.
United States, 380 U.S. 343, 353. See James v.
 UNITED STATES v. EASTERDAY 4879
United States, 366 U.S. 213, 221; McCarthy v.
United States, 394 U.S. 459, 471.

412 U.S. at 360.

[4] The court in Pomponio endeavored to erase the miscon-
ception that such different formulations, including the “evil
motive” formulation of Spies, actually established different
standards. The Court clarified that “willfulness” means a vol-
untary, intentional violation of a known legal duty, and does
not “require[ ] proof of any [other] motivative.” 429 U.S. at
12. The Court said, “Our references to other formulations of
the standard did not modify [that] standard.” Id. The Court
explained that Bishop “did not . . . hold that the term requires
proof of any motive other than an intentional violation of a
known legal duty.” Id.

Accordingly, the portion of our decision in Poll which cre-
ated an additional requirement of proving ability to pay has
been undermined by the Supreme Court’s subsequent decision
in Pomponio. Poll is not consistent with the intervening
authority of the United States Supreme Court that must con-
trol our decision here.

In support of his contention that Poll nevertheless remains
good law, Easterday argues that Pomponio is “coextensive”
with this court’s earlier determination in United States v.
Hawk, 497 F.2d 365, 368 (9th Cir. 1974), that neither bad pur-
pose nor evil motive is an independent element of willfulness.
Easterday reasons that because Poll stated that it was consis-
tent with Hawk, and Pomponio approved Hawk, then Poll is
still good law.

This argument does not withstand close analysis. Poll
involved a charge of willful failure to collect or pay over tax.
Poll distinguished Hawk on the basis that the offense charged
in Hawk “was a willful failure to file federal income tax
returns.” Poll, 521 F.2d at 332 (emphasis in original). There-
4880 UNITED STATES v. EASTERDAY
fore, instead of following Hawk, Poll followed our earlier
decision in Andros because Andros involved prosecution of a
willful failure to pay a tax. Id. Andros, in turn, had followed
the Supreme Court’s decision in Spies. In Poll, we quoted at
length from Spies, highlighting its statement with respect to
a charge of willful failure to pay a tax, that “[w]e would
expect willfulness in such a case to include some element of
evil motive and want of justification in view of all the finan-
cial circumstances of the taxpayer.” Poll, 521 F.2d at 333
(citing Spies, 317 U.S. at 498) (emphasis in original). Because
Poll applied the Spies “evil motive” formulation of willful-
ness, and expressly distinguished Hawk, Poll held that finan-
cial circumstances were relevant to proof of willfulness under
26 U.S.C. § 7202.

Later, in Pomponio, the Supreme Court approved the will-
fulness formulation of Hawk, but disapproved the “evil
motive” formulation of Spies, holding that the standard is the
same in all tax contexts. It approved the standard iterated in
Bishop: “a voluntary, intentional violation of a known legal
duty,” and continued, “[o]ur references to other formulations
of the standard did not modify the standard set forth in [Bish-
op].” Pomponio, 429 U.S. at 12-13. Pomponio thus under-
mines the heart of Poll’s holding that financial circumstances
are relevant to a determination of willfulness under § 7202,
failure to collect or pay over tax. This is because Pomponio
expressly repudiates Spies’ “evil motive” formulation on
which Poll relied. 429 U.S. at 11-12.

The dissent, however, insists that the basis for Poll’s
requirement of proving an “ability to pay” has not been under-
mined. It does so because it fails to recognize that the Poll
requirement was founded upon the Spies formulation of will-
fulness that the Supreme Court rejected in Pomponio.
Although the dissent agrees that Pomponio intended to do
away with the misconception that the “evil motive” formula-
tion of Spies established a different standard of willfulness,
 UNITED STATES v. EASTERDAY 4881
the dissent fails to recognize that Poll’s holding rested on just
such a misconception.

This court, in Poll, thus held that the ability to pay was rel-
evant to the charge of willful failure to collect or pay over tax
because of Spies’ incorporation of an element of “evil
motive” into the requirement of willfulness in such tax cases.
After Pomponio, we must hold that there is no longer any
requirement of evil motive, upon which Poll’s holding rested.

[5] We therefore hold that insofar as Poll may be inter-
preted as requiring the government, in a failure to pay case
under § 7202, to prove that defendant had the money to pay
the taxes when due, and allowing the defendant to defend on
the ground that he had spent the money for other expenses,
Poll is inconsistent with Pomponio. It is also inconsistent with
common sense, for we think it unlikely that even under Poll
and Spies, a defendant could succeed in arguing that he did
not willfully fail to pay because he spent the money on some-
thing else. Cf. United States v. Gilbert, 266 F.3d 1180, 1185
(9th Cir. 2001) (concluding that defendant’s “act of paying
wages to his employees, instead of remitting withholding
taxes to the IRS, shows that he voluntarily and intentionally
violated § 7202”).

Indeed, in rejecting Andros and Poll, two of our sister cir-
cuits have made that very point. In United States v. Tucker,
686 F.2d 230 (5th Cir. 1982), a prosecution for willfully fail-
ing to pay income taxes, under 26 U.S.C. § 7203, the defen-
dant argued that he could not pay the taxes when they were
due because he had no assets to satisfy the debt and that his
failure to pay was not willful. The Fifth Circuit said that
“[t]his argument borders on the ridiculous. . . . [A] financial
ability to pay the tax when it comes due is not a prerequisite
to criminal liability under § 7203. Otherwise, a recalcitrant
taxpayer could simply dissipate his liquid assets at or near the
time when his taxes come due and thereby evade criminal lia-
bility.” Id. at 233. In United States v. Ausmus, 774 F.2d 722,
4882 UNITED STATES v. EASTERDAY
725 (6th Cir. 1985), the Sixth Circuit “rejected” the language
in Andros that suggested financial ability to pay was relevant
to criminal liability. The court said, “[o]therwise, a recalci-
trant taxpayer could spend his money as fast as he earns it and
evade criminal liability while not paying taxes as long as his
bank balance is zero when the taxpayer’s taxes are due.” Id.
Despite what we consider to be the unassailable logic pre-
sented by our sister circuits here, Easterday asks us to follow
the contrary reasoning of Andros and Poll essentially because
we have never formally repudiated it before now.

While we may not have explicitly overruled Poll or Andros
in the more than three decades since we issued those opinions,
neither have we cited them for the proposition that Easterday
asserts here. Poll is not completely dead, for it has been used
as a shorthand term describing the standard of “willful fail-
ure” to pay that has been discussed in the context of child sup-
port. See United States v. Ballek, 170 F.3d 871, 874 (9th Cir.
1999); H.R. Rep. No. 102-771, at 6 (1992). In the tax field,
however, it now exists only as a nearly completely buried
obstacle to traffic that generally has run over it or passed it by
for more than thirty years.

[6] The only remaining question is whether we are never-
theless bound by Poll because it has not been overruled by an
en banc court. Generally, a panel opinion is binding on subse-
quent panels unless and until overruled by an en banc decision
of this circuit. See, e.g., In re Complaint of Ross Island Sand
& Gravel v. Matson, 226 F.3d 1015, 1018 (9th Cir. 2000) (per
curiam) (“[A]bsent a rehearing en banc, we are without
authority to overrule [controlling circuit precedent].”).

[7] In Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003), we
convened an en banc court to consider the question of when
a panel decision may be overruled by intervening higher
authority that, while not on an identical issue or expressly
repudiating the panel decision, is inconsistent with its reason-
ing. We held that en banc review is not required to overturn
 UNITED STATES v. EASTERDAY 4883
a case where “intervening Supreme Court authority is clearly
irreconcilable with our prior circuit authority.” Id. at 900. We
explained that we must avoid inconsistencies between our
decisions and the decisions of a court of last resort. We said:

We must recognize that we are an intermediate
appellate court. A goal of our circuit’s decisions,
including panel and en banc decisions, must be to
preserve the consistency of circuit law. The goal is
codified in procedures governing en banc review.
See 28 U.S.C. § 46; Fed. R. App. P. 35. That objec-
tive, however, must not be pursued at the expense of
creating an inconsistency between our circuit deci-
sions and the reasoning of state or federal authority
embodied in a decision of a court of last resort.

We hold that the issues decided by the higher
court need not be identical in order to be controlling.
Rather, the relevant court of last resort must have
undercut the theory or reasoning underlying the prior
circuit precedent in such a way that the cases are
clearly irreconcilable.

335 F.3d at 900.

[8] Pursuant to Miller, we conclude that it is not necessary
to convene an en banc court in order to hold that Poll, and its
antecedent Andros, are no longer binding authority for the
proposition that a defendant’s ability to pay his tax liability is
relevant to the determination of willfulness under 26 U.S.C.
§ 7202. In keeping with Pomponio, 429 U.S. at 12, and
Cheek, 498 U.S. at 201-02, we hold that willfulness does not
require the government to prove that a defendant had the abil-
ity to meet his tax obligations. The district court’s refusal to
give a Poll instruction to the jury and the instruction it did
give on willfulness were thus proper.

[9] For similar reasons, the district court did not abuse its
discretion in refusing to admit evidence proffered by Easter-
4884 UNITED STATES v. EASTERDAY
day in order to show how and why he spent money owed to
the IRS to pay other business expenses. Such evidence would
have been relevant only if a defendant were entitled to defend
on the ground that he had spent the tax money for other needs.
Because the financial circumstances of a defendant do not
bear on the determination of willfulness under § 7202, Easter-
day’s proffered evidence was irrelevant, and the district court
did not abuse its discretion by excluding it. See Fed. R. Evid.
401.

Easterday’s remaining contentions are without merit.

AFFIRMED.

N.R. SMITH, Circuit Judge, dissenting:

In this case, I find myself between “the proverbial rock and
a hard place.” I can either adhere to precedent (with which I
do not agree) or I can join the majority and try to overrule bad
circuit precedent. Although I agree that United States v. Poll,
521 F.2d 329 (9th Cir. 1975) is bad law, Poll is the control-
ling law of this circuit and I understand a three-judge panel
is not able to undo precedent set forth by another three-judge
panel. See Hulteen v. AT&T Corp., 498 F.3d 1001, 1009 (9th
Cir. 2007) (“A three-judge panel must follow a prior circuit
decision unless a subsequent decision by a relevant court of
last resort either effectively overrules the decision in a case
‘closely on point’ or undercuts the reasoning underlying the
circuit precedent rendering the cases ‘clearly irreconcilable.’ ”
(citation omitted)). In my view, because Poll is not irreconcil-
able with United States v. Pomponio, 429 U.S. 10 (1976) (per
curiam), we are required to either follow Poll or make a sua
sponte en banc call. See In re Complaint of Ross Island Sand
& Gravel, 226 F.3d 1015, 1018 (9th Cir. 2000) (per curiam)
(“[A]bsent a rehearing en banc, we are without authority to
overrule [controlling circuit precedent].”).
 UNITED STATES v. EASTERDAY 4885
The majority, however, has chosen to write around circuit
precedent in order to avoid a result that they do not like. I
therefore respectfully dissent for the following reasons. First,
the majority legally errs by finding that Poll is no longer good
law. Second, because of its error in finding that Poll was
overruled by Pomponio, the majority incorrectly affirms the
district court in its refusal to instruct the jury that the govern-
ment must prove that Easterday had the financial ability to
meet his tax obligations. Thus, I would reverse and remand
for a new trial, because Easterday’s ability to pay was an ele-
ment of the crime the government needed to prove beyond a
reasonable doubt.

I. Discussion

Poll discusses two separate questions: (a) willfulness, and
(b) the relevance of evidence demonstrating an inability to
pay in order to rebut the willfulness of a failure to pay over
employee payroll taxes. See 521 F.2d at 331 (“These 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.”).
In Poll, we held that the willfulness definition was correct,
and that the evidence of inability to pay was relevant to rebut
the presence of willfulness. See id.

The majority, however, incorrectly concludes that “Poll’s
requirement that the government prove that the taxpayer had
sufficient funds to pay the tax was premised on a definition
of willfulness that included some element of evil motive.” In
Poll, we based our holding, in part, on Supreme Court prece-
dent found in Spies v. United States, 317 U.S. 492, 498
(1943), which states that “[w]e would expect willfulness . . .
to include some element of evil motive and want of justifica-
tion in view of all the financial circumstances of the taxpay-
er.” Poll, 521 F.2d at 333. We also, however, relied on United
States v. Hawk, 497 F.2d 365 (9th Cir. 1974) to recognize that
it is “not error to fail to include the words ‘and/or evil
4886 UNITED STATES v. EASTERDAY
motive’ ” when determining the “willfully” standard. Poll,
521 F.2d at 332.

The majority correctly recognizes that the Supreme Court
“in Pomponio endeavored to erase the misconception that
such different formulations, including the ‘evil motive’ for-
mulation of Spies, actually established different standards.” In
Pomponio, the Court held that the term “willfully” does not
require “proof of any motive other than an intentional viola-
tion of a known legal duty.” 429 U.S. at 12. The Court
explained the meaning of willfulness by stating that

The Court, in fact, has recognized that the word
“willfully” . . . generally connotes a voluntary, inten-
tional violation of a known legal duty. It has formu-
lated the requirement of willfulness as “bad faith or
evil intent,” or “evil motive and want of justification
in view of all the financial circumstances of the tax-
payer,” or knowledge that the taxpayer “should have
reported more income than he did.”

Our references to other formulations of the stan-
dard did not modify the standard [that the word
‘willfully’ . . . generally connotes a voluntary, inten-
tional violation of a known legal duty].

Id. (internal citations and quotations omitted).

Thus, even when the formulation of “evil motive” or “bad
purpose” is used in explaining the standard for willfulness, the
standard is not modified. Willfulness, in the context of tax
laws, “simply means a voluntary, intentional violation of a
known legal duty.” Id. at 12-13 (emphasis added) (citing
Hawk, 497 F.2d at 368); see also United States v. Cheek, 498
U.S. 192, 201-02 (1991). There is no requirement the govern-
ment prove bad purpose or evil motive and want of justifica-
tion. See Pomponio, 429 U.S. at 12-13; Hawk, 497 F.2d at
 UNITED STATES v. EASTERDAY 4887
368. The holding in Poll is therefore consistent with the Pom-
ponio definition of willfulness.

In Poll, we held that “to establish willfulness the Govern-
ment 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 suffi-
cient 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.” 521 F.2d at
333 (emphasis added). Our holding in Poll therefore relied on
the same definition of willfulness as determined in Pomponio
(“a voluntary, intentional violation of a known legal duty”).
In fact, Pomponio actually supports that idea that Poll used
the correct definition of willfulness. See 429 U.S. at 12-13
(noting that “as the other Courts of Appeals that have consid-
ered the question have recognized, willfulness in this context
simply means a voluntary, intentional violation of a known
legal duty” (citing Hawk, 497 F.2d at 366-69)).

As discussed, our determination of willfulness in Poll
relied, in part, on Hawk, which the Supreme Court approved
in Pomponio. In Hawk, we noted that the Supreme Court, in
Murdock v. United States, 290 U.S. 389 (1933), held that

[W]illfulness requires proof that the act was done
with knowledge it was wrongful. The Court dis-
cussed a number of ways of expressing this type of
specific intent, and among the terms mentioned were
“bad purpose” and “evil motive.”

However, neither bad purpose nor evil motive is
an independent element of a willful failure to file
under § 7203. The term “evil motive” is merely a
“convenient shorthand expression to distinguish lia-
bility based on conscious wrongdoing from liability
based on mere carelessness or mistake.” Thus the
term expresses, in a brief way, the more cumber-
4888 UNITED STATES v. EASTERDAY
somely stated concept of specific intent in Murdock,
a concept the instructions must ultimately convey.
This, we think, was all that Murdock- and Bishop-
meant by the use of that term.

Hawk, 497 F.2d at 368 (internal citations omitted).

Thus, although Poll quoted Supreme Court precedent
regarding the inclusion of “evil motive and want of justifica-
tion” to determine willfulness, we were referencing the “vol-
untary, intentional violation of a known legal duty”
formulation discussed in Pomponio. Even though the wording
was different, Supreme Court precedent dictates that the
meaning underlying the term “willfulness” in Poll was the
same as used in Hawk and Pomponio. Poll’s definition of
willfulness was not premised on a belief that willfulness
requires an evil motive or bad purpose. Poll, therefore, still
holds that the ability to pay is relevant to demonstrate willful-
ness, and Pomponio did not state otherwise. Although Pom-
ponio did discuss the willfulness question, see 429 U.S. at 12-
13, the portion of our decision in Poll that created an addi-
tional requirement of proving ability to pay was not under-
mined by Pomponio. The basis for Poll’s requirement of
proving ability to pay has therefore not been eliminated. No
subsequent decision from this circuit or from a relevant court
of last resort has overruled the requirement presented in Poll
that evidence regarding inability to pay is relevant to rebut the
presence of willfulness. See Poll, 521 F.2d at 332 (“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.”).

Pomponio also did not overrule Poll because Pomponio and
Poll address different issues. In Pomponio, the Supreme
Court, affirming this court’s holding in Hawk, held that evil
motive is not an independent element of filing false income
 UNITED STATES v. EASTERDAY 4889
tax returns under 26 U.S.C. § 7206 and that instructions
regarding evil motive are thus unnecessary. 429 U.S. at 12-13.
In Poll, by contrast, this court considered whether the govern-
ment must prove that a defendant was capable of meeting his
tax obligations. 521 F.2d at 333. We specifically noted that
the ability to pay rule was not contrary to Hawk because
Hawk addressed “a [w]illful failure to file [a] federal income
tax return[ ],” not a crime “involving a failure to pay.” 521
F.2d at 332. Because Pomponio affirmed Hawk, and because
this court held, in Poll, that the ability to pay rule is consistent
with Hawk, Poll is consistent with Pomponio. Thus, Pom-
ponio is not “clearly irreconcilable” with Poll, and Poll
remains good law. See Hulteen, 498 F.3d at 1009. We are
therefore bound by Poll because it has not been overruled by
an en banc court. See In re Complaint of Ross Island Sand &
Gravel, 226 F.3d at 1018.

The majority also references this court’s decision in United
States v. Gilbert, 266 F.3d 1180 (9th Cir. 2001), for the prop-
osition that Poll is inconsistent with both Pomponio and com-
mon sense. In Gilbert, the defendant argued “that his failure
to pay over the withholding tax was not willful because [his
business] did not have the funds to pay the taxes.” 266 F.3d
at 1185. The government responded “that it presented suffi-
cient evidence at trial that Gilbert voluntarily and intention-
ally paid net wages to his employees with knowledge that
withholding taxes were not being remitted to the IRS.” Id.
This court affirmed on the basis that the evidence was suffi-
cient. See Id. This court, however, did not explicitly or implic-
itly overrule the ability to pay rule. The district court in
Gilbert had given a Poll instruction, and this court did not
criticize the district court for having done so. In fact, this
court did not reference the ability to pay rule or Pomponio.
This court instead discussed how Poll did not concern
“whether § 7202 required the failure [to both account for and
pay over withholding tax], but instead addressed the issue of
how to define willfulness under § 7202.” Id. at 1183. This
court held that “whether § 7202 required the failure to both
4890 UNITED STATES v. EASTERDAY
account for and pay over the tax, were dicta.” Id. That hold-
ing, however, does not address whether the ability to pay can
be used as a defense. Gilbert therefore merely discusses
whether § 7202 requires the failure to both account for and
pay over withholding tax. Thus, there is no basis in Gilbert
for the proposition that Pomponio overruled Poll.

To the extent the district court excluded evidence regarding
the financial situation of Easterday’s companies and his
inability to pay (based on its flawed interpretation of Pom-
ponio), the district court abused its discretion. See United
States v. Gallagher, 99 F.3d 329, 331-32 (9th Cir. 1996).
Moreover, the district court’s failure to instruct the jury that
the government must prove that Easterday had the ability to
meet his tax obligations is a constitutional error “because the
jury did not have the opportunity to find each element of the
crime beyond a reasonable doubt.” Martinez v. Borg, 937
F.2d 422, 423 (9th Cir. 1991). The district court rejected a
large amount of evidence regarding Easterday’s nursing
homes’ financial difficulties. Because this evidence “could
rationally lead to a contrary finding with respect to the omit-
ted element,” the district court’s error was not harmless and
Easterday is entitled to a new trial. Neder v. United States,
527 U.S. 1, 19 (1999).