United States v. Easterday, 539 F.3d 1176 (9th Cir. 2008)

Jack Easterday operated a chain of nursing homes. Between 1998 and 2005, the payroll taxes for his company and its subsidiaries were approximately $45 million of which only $26 million was paid to the IRS. In his criminal trial for failure to pay over payroll taxes, Easterday did not dispute that he failed to pay the taxes – his defense was that he lacked the financial ability to comply with his tax obligations. During the trial, the district court refused Easterday’s request that the jury be instructed that in order to prove a willful failure to pay taxes, the government must prove that Easterday had the ability to pay the tax obligation. The jury convicted Easterday, and he was sentenced to 30 months of prison and three years of supervised release. In this appeal, the Ninth Circuit affirmed the judgment and sentence and held the district court had not erred in refusing the jury instruction that Easterday had sought. Cf. Kadillak v. CIR, 534 F.3d 1197 (9th Cir. 2008) (taxpayer’s election to recognize AMT income on his unvested shares of company stock was proper, but he was not entitled to a claim of right deduction when unvested shares were later forfeited upon termination).