Blade’s Offer In Compromise

I am enough of a nerd to say that I enjoyed the Blade movies. I am a fan of Wesley Snipes, who played the half-vampire vampire hunter in the series.

You may recall that he got into big-time tax trouble several years ago. He bought into tax protestor arguments, such as being an ambassador from the planet Naboo or some similar nonsense. He spent three years in prison.

When he came out of prison the IRS wanted over $23 million in taxes, penalties and interest.

He went to a Collections Due Process hearing. The purpose of a CDP is to tamp-down IRS aggressiveness in separating you from your money. The CDP has limited range, but sometimes that range makes all the difference.

So he goes and requests collection alternatives.

Perfect. Exactly what a CDP is designed to do.

He proposes an installment agreement.

There are flavors of these, and one of the flavors is called a “partial pay.” For a partial, you have to convince the IRS that you are unable to fully pay your taxes over the period the IRS can collect from you. You almost have to provide photos of Bigfoot to persuade the IRS to go along.

Alternatively, he proposes an offer in compromise (OIC).

In some cases, the difference between a partial pay and an OIC can be slight, except for maybe at the edges. For example, enter a partial pay and the IRS may request payment adjustment if your income goes up. That is a risk you do not have with an OIC.

Right there you can anticipate that an OIC is harder to obtain than a partial pay.

And an OIC for an actor who has made millions from movies is going to be harder still.

OICs are the “pennies on the dollar” tripe you hear on radio or late-night commercials. Those “pennies” OICs are few and far between, and usually involve some or all of the following factors:

·      Someone was injured and will never work again

·      Someone has retired and will never work again

·      Someone owns next to nothing

·      Someone owes the IRS money   

The key theme here is that someone is broke, and there is little likelihood that condition will ever change.

Folks, that is not tax planning. That is bad luck in life, very poor life choices, or both.

Wesley Snipes put in an OIC of $842,061.

Out of $25 million plus.

Heck, even I don’t believe him.

Let’s begin with personal financials. You know the IRS is going to check him out, especially with such a lowball offer.

·      Snipes owns real estate and other assets through a series of related companies.

OK. The IRS is going to have to look at this.

·      Snipes argued that some of this real estate had been sold or went missing.

OK. The IRS is going to have to look at this.

·      Snipes argued that his financial advisor had “diverted” his assets and money without his knowledge or consent.

OK. The IRS is going to have to look at this.

·      Snipes requested that his tax liability be “transferred” to his advisor, as the advisor had conveniently “transferred” Snipe’s assets to himself. This would require an investigation, of course, and perhaps the IRS could place his account in “currently not collectible” status during the investigation.

I suspect there is or will be a lawsuit here. I would have hired an attorney and filed papers already.

The problem is that Appeals (where Snipes was at the moment) is not built for this. Snipes is requesting an audit, and audits are done by Examination. Given what was alleged, this matter could even go to the Criminal Division of the IRS. While Appeals can review the work of the field (Examination) division, they cannot perform the field investigation themselves.

·      He has one more argument: economic hardship.

Problem: the normal indicia of economic hardship include illness, disability, or exhaustion of income or assets providing for oneself or dependents. These do not apply in his case.

That leaves an argument that he is unable to borrow against assets, and the forced sale of said assets would leave him unable to meet basic expenses.

This argument may have traction. He is – after all – asserting that assets have disappeared and he doesn’t know when or where.

But he failed to provide enough financial information to allow the IRS to evaluate the matter. The IRS and the Court kept circling on this point. Could it be that he truly could not sherlock what happened to his money?

However, not providing information in an OIC tends to be fatal.

Still, the IRS was moved. They agreed to reduce the settlement to $9,581,027.

Snipes’ team said: No. It is $842,061 or nothing.

The Court said: Then nothing it is.

I suspect the most interesting part of the story is the part that was not provided: what happened to the real estate and other money?

I also wonder if there is a certain schadenfreude here.

Tax protestors sometimes use unnecessarily complicated structures (trusts, for example) to distance, obscure and possibly hide the ultimate control of money or assets. A protestor would not own real estate directly, for example. Rather an entity would own the real estate and the protestor would control the entity. Or there would be an intermediate entity owned by yet another entity controlled by the protestor.

What if the protestor goes to prison? The protestor might then cede a certain amount of authority over the entity/entities to someone – like an advisor - while incarcerated.

What happens if that advisor does not have the protestor’s best interest at heart?

Might sound a lot like what we read here.