Phillips

dissenting

The majority admits that requiring Mr. Wray to pay more than $368,812 in penalties might well be unjust but claims it is compelled to do so by court precedents giving the IRS “Draconian enforcement power.” Majority opinion at 943. In fact, no Supreme Court or Ninth Circuit precedent requires the conclusion that the majority embraces here — that “gross negligence” is sufficient to sustain a verdict under 26 U.S.C. § 6672 , a provision that only penalizes someone who “willfully fails” to pay withholding taxes. Nor is such a conclusion required by a proper analysis of the various legal terms involved. In fact, it is the majority, not the Congress or prior courts, that arms the tax collector with Draconian enforcement power. Because I believe that the majority’s conclusion that “gross negligence” is the same as willful failure is contrary to law, and also unjust, I dissent.

In defending its decision to adopt a gross negligence standard, the majority states that gross negligence is not “mere” negligence. Majority opinion at 943. I would add that gross negligence is also not reckless disregard and is certainly not willful failure. While the meaning of the term “willful”…

Opinion by Judge KLEINFELD; Dissent by Judge REINHARDT.

This case involves the duty of a “responsible person” to pay his company’s withholding taxes. More particularly, the issue is the definition of “willfully” failing to pay.

Facts

Mr. Wray founded South Pacific Island Airways, Inc., in American Samoa. He owned all the stock in the corporation, and ran it as president.

In 1984, Mr. Wray was paralyzed from the neck down in a swimming accident. While he was in the hospital, a company plane veered off course in Norway, into or near Soviet air space. The FAA revoked the company’s certification because of that and other violations. As a condition of recertifying, the FAA required Mr. Wray and others previously in charge to resign their corporate offices.

The company still belonged entirely to Mr. Wray, however, and he caused the bank account to be moved into one for which he would have signing authority. Mary Phillips, the plaintiff, became the person running the company on a day to day basis. During the first two quarters of 1985, while Mr. Wray was confined to his apartment by his paralysis, the company did not pay its employee withholding taxes over to the IRS.

The jury…