The US Tax Court just sided with the IRS against actor Wesley Snipe's claim of arbitrary and capriciousness in a settlement officer's rejection of Snipe's offer of $900,000 against his $23.5 million tax debt, including interest and penalties. The settlement officer offered to cut the debt by about two thirds to $9 million, but the actor appealed that offer, partially blaming his former financial advisor for mismanagement leading to a reduction in the value of his estate and partially claiming his estate had been further distressed to make it impossible to pay the offer. The Tax Court ruled that Snipes failed to sufficiently document his estate's assets and debts and that the settlement officer had properly followed procedure in issuing her determination.
Snipes was caught up in a tax protest movement that was resurgent in the 1990's and 2000's. Protesters claimed that the authority of the IRS to tax the income of citizens was unconstitutional and thus there was no legal requirement to either pay taxes or file tax returns. Collectively called the Section 861 argument (for that section under the US Code), various federal courts upheld the ability of the federal government, via the IRS, to impose and collect income taxes on citizens and rejected the claims of such petitioners. The actor is probably the most famous person convicted of tax evasion as a result of this movement, serving three years in prison.
Snipe's offer of about 4% of what was due is a common tactic of the tax settlement industry, which advertises heavily on TV and radio. Settlement advisors help taxpayers in offers-in-compromise (OIC) requests to the IRS, often using indigence or some form of diminished income capacity argument to effectively declare tax bankruptcy. In general it is only possible to obtain a reasonable OIC verdict if the taxpayers has little or no assets and no reasonable way through future income to repay. If there are assets then the IRS will require their liquidation to satisfy the tax debt. The actor's status as a bankable movie star has made any future income analysis work against his OIC argument.
TV commercials of smiling couples in standing in front of their tony suburban homes crowing about settling $50,000 tax debts for $100 are misleading at best and irresponsible at worst.
99% of taxpayers that owe money to the IRS don't need to file an offer-in-compromise to buy some breathing room to pay tax debt. The Service offers easy payment plans that can be applied for online at irs.gov/payments. Payment plans can be electronically applied for up to $50,000 in tax debt and payments can be stretched to as much as six years in duration. Interest does accrue during the payback period.
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