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.
