Taxable Talk

You remember Wesley Snipes, actor and alleged tax cheat? Mr. Snipes is accused of amended a tax return to get back all of his taxes because he bought into the idea that only foreign income is taxable. (Hint: All income is taxable, unless Congress says otherwise.)

Snipes, who will soon be tried in Ocala, Florida, has now played the race card. As the Smoking Gun noted, his Caucasian co-conspirators haven’t been charged (yet). So he’s asking for his case to be dismissed. Snipes also alleges that he is the victim; that he succumbed to bad tax advice. On that, he’s right. However, by following the bad advice, and then by allegedly failing to withdraw his amended return claiming a $7.4 million tax refund, he stepped into the line of fire and has been charged with making a false claim for refund.

There’s only one huge problem with this motion: the promoters of Snipes scheme are in prison, as Joe Kristan noted this morning. If you go to the link, you’ll see that Joe quotes Quatloos.com and notes that Eddie Kahn, one of the promoters, “…represents the Hee-Haw contingent of the tax protestor movement…Eddie caters to the dumbest of the dumb, and his theories for not paying taxes are thus the dumbest of the dumb. Eddie has claimed variously that he can’t find the Form 1040, that the IRS was not created by Congress and apparently just materialized out of the blue, that the IRS doesn’t have the power to collect taxes, that the United States doesn’t actually include the states….” Let’s just say that if you bring up any of those arguments, you will be laughed out of court. Of course, every so often this kind of defense works….

It should be a fun summer for tax bloggers if Mr. Snipes continues down this path (but it may be a very long summer for Mr. Snipes).

Wesley Snipes is a fugitive no longer. According to the Associated Press, Snipes surrendered to federal authorities in Florida today. He was later released on a $1 million bond.

Snipes will be allowed to return to Namibia to finish the film he’s working on. However, he won’t be heading overseas in 2007 (at least until after his trial); he must return to the U.S. by January 10th and will then be restricted to traveling within the continental United States.

Joe Kristan speculates that if Snipes is convicted he’ll be looking at around six years at ClubFed. A pre-trial conference is scheduled for February 22nd.

Professor Maule of MauledAgain has a great column on the Wesley Snipes case. Among Professor Maule’s excellent points are,

“Snipes is a celebrity. People pay attention to him. Therefore, he has an obligation to set a good example. Although some celebrities do not want to be role models, the very fact that they are celebrities makes them so. I have advice for those who do not want to be role models: avoid the limelight, make a career in something obscure, and lay low. Yes, that course of action will cut your income by 90 percent or more. Such is the price that must be paid.”

and

“The only good thing that can come out of this [the Snipes case] is that the nation’s taxpayers will understand how much fraudulent garbage is being peddled. By that point, only those who truly wish to evade taxes will be signing up with the fraud merchants, as there would be even less reason to believe the “I didn’t know” excuse.”

Read the whole thing here; it’s well worth your time.

Wesley Snipes sent an email over the weekend to Scott Maxwell, a columnist at the Orlando Sentinel. Maxwell put the highlights of Snipes’ email in his column; the full, unedited email is in his blog. It makes interesting reading for a tax professional.

Snipes first notes, “Like the situation in New York, and Florida , I know this has more to do with a few individuals with access to power, making moves; trying to move up!; and less with some alleged crime against the whole population of the United States of America…It appears I’m to be the scapegoat….”

Given that Snipes is accused of fraudulently claiming refunds of $12 million, it would appear to my eyes that it’s a rather substantial alleged crime against the United States.

Snipes continues, “To be clear, I have no current relationship with Mr. Kahn and haven’t for more than four or five years. I never met Rosile and we never received the “refunds” requested. NOT ONE SINGLE DIME; did the IRS or the Treasury ever send ME.” [emphasis in original]

Well, there’s a problem with Snipes’ denial; he stands accused of fraudulently claiming refunds of $12 million. You don’t actually have to receive the refund in order to commit this crime.

Snipes goes on in his email to cite a website that has two links regarding the Snipes case. The first is to The Smoking Gun and his indictment; the second is to a website that purportedly shows that most income isn’t taxable.

It’s a pity that the truth is almost the exact opposite: almost all income is taxable in the United States. We wrote about this in a previous Snipes post, but we’ll reproduce it again:

“Thus, citizens of the United States generally also are taxed on income earned outside the geographical boundaries of the United States unless they prove that the income is specifically exempted. E.g., sec. 61(a); Cook v. Tait, 265 U.S. 47, 54, 56 (1924).” [From Specking, et. al., v. Commissioner, 117 T.C. No. 9]

The one piece of good news is that Snipes, according to the email, does plan on returning to face the charges. He also is planning on getting good counsel. That looks like a very good idea, as no deal has been done. “There is no deal that has been worked out,” U.S. Attorney’s Office spokesman Steve Cole told the Associated Press on Monday. “The only thing we have discussed is coming back to face the charges.”

There’s a possible new entrant into the Bozo Taxpayer’s Hall of Fame: Wesley Snipes. The Tampa Tribune reported that Snipes does not have a deal. Assistant U.S. Attorney Robert O’Neill told the Tribune, “We have no idea where that came from.”

Snipes is currently in Namibia filming the movie Gallowwalker. The United States does not have an extradition treaty with Namibia, though the Tribune quotes Steve Cole, a spokesman for the U.S. Attorney’s Office in Tampa, as saying that the government is “making progress toward getting him to the United States.”

So will Snipes follow the Richard Hatch method or will he make a deal? We should have an answer in December.

Hat Tip: TaxProf Blog

According to Variety, actor Wesley Snipes has agreed to surrender to federal authorities upon his return to the United States. He has also reportedly agreed to a repayment plan with the IRS. Snipes is currently in Namibia filming Gallowwalker. Snipes is accused of defrauding the IRS out of $12 million, and if convicted was looking at up to 16 years at ClubFed.

The CBC report also noted that one of Snipes’ accountants was caught in Panama and extradited to the U.S. Eddie Ray Kahn was indicted on Wednesday in Florida on tax charges; the other accountant was already under arrest.

>From the press reports it appears that Snipes will not serve any jail time. Indeed, given the sums that Snipes likely receives from making movies, his debts will be paid off relatively quickly.

Well, Edwin Kanguatjivi told Reuters that Mr. Snipes is filming a movie in Namibia. “It is confirmed. He is definitely here.” The United States does not have an extradition treaty with Namibia.

Meanwhile, a South African report states that Snipes is filming the movie Gallowwalker, and that its’ producers have asked to delay Snipes’ return to the United States until December, when filming has completed.

Snipes has been in trouble in the past: reckless driving on a motorcycle, a phony South African passport, and carrying a concealed weapon. Snipes faces up to sixteen years in prison if convicted on all of the tax charges.

Joe Kristan of Roth Tax Updates has a great summary of the Snipes charges. And the Los Angeles Times has a good background article, too.

Actor Wesley Snipes was indicted today on eight counts of tax fraud. Snipes is accused of not filing tax returns for the last six years and of filing false refund claims totaling $12 million.

Over the last six years Snipes appeared in at least eight films, including The Art of War, Blade 2, and Blade: Trinity. He also produced Blade 2 and Blade: Trinity.

The Associated Press report notes that Snipes used American Rights Litigators (ARL). ARL was sued by the Department of Justice in 2003. Among the charges in the indictment is that ARL takes 20% of the refund and that ARL has a history of filing false returns.

The indictment’s main point is that Snipes and his preparers prepared returns that included only foreign income. If you’re a regular reader of this blog, you know that the U.S. taxes the worldwide income of its citizens (and permanent residents).

Thanks to The Smoking Gun, we can see Snipes’ 1997 Amended Return (Form 1040X). On page 1, we can see that Snipes’ return has been amended to remove $19,238,192 of income, generating a refund of $7,360,755. The reason is shown on page 3: The income previously reported is “not from taxable sources per [IRS Regulation]1.861-8(f)(1).” The three pages that follow attempt to justify this position.

Did you notice the title of the form on page 3? It’s Form 8275-R, used, “To disclose items or positions taken that are contrary to Treasury regulations.” Not only is this position contrary to regulations, it’s contrary to the Tax Code, which is law: Section 61(a) states that income is all income from whatever sources: “Thus, citizens of the United States generally also are taxed on income earned outside the geographical boundaries of the United States unless they prove that the income is specifically exempted. E.g., sec. 61(a); Cook v. Tait, 265 U.S. 47, 54, 56 (1924).” [From Specking, et. al., v. Commissioner, 117 T.C. No. 9]

Meanwhile, Snipes is nowhere to be found. Soon, though, he may be joining Richard Hatch in the Bozo Taxpayers Hall of Fame, and serve 16 years in ClubFed.