Another chapter in the Wesley Snipes tax case

"Win" may be in the eyes of the beholder. Perhaps only in Hollywood would anyone call three years in prison and a $5 million fine a win, but that's how Wesley Snipes and his supporters characterized it last Spring when the sentence was handed down. Then again, when you consider that Snipes was looking at a possible six years in prison, up to $15 million in back taxes and more, he does seem to have gotten off easy.

So far, Snipes is free on bail while he appeals his sentence, and has been free to travel Europe. It's no surprise then, that prosecutors are not at all happy about the outcome. That may be why last month, the U.S. District Court Judge William Terrell Hodges added to Snipes's punishment by ordering him to reimburse the government $217,000, the cost of the prosecution.

The Case

To recap the charges against Snipes, the case goes back more than a decade. For 1996 and 1997, he filed tax returns showing that he owed a total of about $12 million, which he paid. Later, under the advice of tax protester Eddie Ray Kahn and former accountant Douglas P. Rosile, he became convinced that he hadn't owed the tax after all, and with the help of the two men, applied for refunds.

Snipes used the discredited "Section 861" argument that says U.S. citizens or residents can only be taxed on income derived from certain foreign sources, not on income earned in the United States. After the IRS granted the refunds, the tax agency took a closer look and determined that his arguments were bogus, ordering him to repay the refunds. Snipes refused.

Adding to his tax dilemma, Snipes is charged with failing to file tax returns for 1999-2004. Each charge carries the possibility of one year in prison.

The IRS maintains that Snipes shipped millions of dollars to accounts in Switzerland, Antigua, and the Isle of Man to avoid taxes. According to prosecutors, Snipes indulged in criminal conduct for nearly a decade, "... combining brazen defiance with insidious concealment... By these means Snipes has escaped paying more than $15 million in income tax to the IRS and has pursued an intended fraudulent harm to the United States Treasury of more than $41 million."

Even with that long list of complaints against him, in February, a jury acquitted Snipes of the worst of the charges (the two felony counts, accusing him of conspiracy and fraudulently seeking a refund). He was, however, found guilty of failing to file income tax returns. In an effort to influence his fate, one day before the sentencing, Snipes rounded up actor friends – including Woody Harrelson and TV Judge Joe Brown – to give testimony of his character.

Harrelson said of Snipes that, "He strives for rightness in all his relations and I realized early on what a true citizen of the world Wes is." Harrelson goes on to say that Snipes, "just came up against a very unjust system."

Judge Joe Brown said, "He represents what John Wayne used to represent, what Sidney Poitier did," Brown said. "You have to have it in you to play those cowboys." Brown added that Snipes is a role model to our youth.

Harrelson, Brown, and other Hollywood friends lobbied to have Snipes put on probation instead of going to prison, because, they said, imprisoning him would be a "travesty."

The prosecutors saw it differently. Their argument against Snipes included these words: "In the defendant Wesley Snipes, the court is presented with a wealthy, famous, and inveterate tax scofflaw. If ever a tax offender was deserving of being held accountable to the maximum extent for his criminal wrongdoing, Snipes is that defendant."

The prosecutors urged Judge Hodges to give Snipes the maximum sentence possible, to demonstrate what is possible when taxpayers attempt to defraud the system. IRS Commissioner Douglas Shulman said, "The law is very clear: people must pay their taxes. There is no secret formula that eliminates a person's tax obligations."

In spite of the glowing recommendations of Snipes' actor friends, he was sentenced to 36 months in prison and ordered to pay $5 million in fines. The mainstream media hailed the outcome as a "victory for Snipes," though they complained that the sentence was harsh compared to punishments meted out to others. Some claim that the recent IRS attention given to the tax returns of celebrities is a deliberate attempt to target them, but others say it is just part of the overall effort to collect what is owed by higher income taxpayers.

Stars Behind Bars

Stars Behind Bars

In early August, Judge Hodges added a footnote to Snipes's case, ordering him to pay the cost of his own prosecution, more than $217,000.

The same jury that acquitted Snipes of the worst of the charges found Kahn and Rosile guilty of conspiracy to defraud the Internal Revenue Service and presenting a fraudulent claim for payment to the IRS. Kahn is the founder and former leader of American Rights Litigators (ARL) based in Lake County, Florida.

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