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Tax Notes

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Tax Notes



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Several tax crimes in the code involve failure to pay known or assessed tax liabilities. For generations, there has been controversy over whether a taxpayer’s lack of funds from which to make payment should preclude conviction for those crimes. The potency of the financial inability defense1 has waned over the years. The recent decision of a divided Ninth Circuit panel in Easterday continues that trend, but the defense should still have life in some situations and some courts.

Part I of this report describes the tax crimes to which a financial inability defense may be relevant. Part II discusses Easterday. Part III traces the evolution of the defense and the willfulness element. Part IV analyzes the multiple views that have emanated from the courts on the existence and contours of the financial inability defense.

Finally, Part V evaluates whether the defense still has or should have any vitality. Prosecutors might attempt to read Easterday and other cases as unequivocally rejecting the defense, regardless of context. Part V refutes that absolutist position. Instead, it argues that context – especially the reason for a defendant's lack of funds – should matter a great deal. Easterday and other cases may have narrowed the range of acceptable reasons for financial inability, but they should not be viewed as having eliminated them. Although its sphere of activity has been circumscribed, the defense still has life.


© 2009 Steve R. Johnson


First published in Tax Notes.

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