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"The difference between tax avoidance and tax evasion is the thickness of a prison wall." — Denis Healey
Actor Wesley Snipes was sentenced on April 24 to three years in prison for three misdemeanor counts of failing to file tax returns. "Snipes' long prison sentence should send a loud and crystal clear message to all tax defiers that if they engage in similar tax defier conduct, they face joining him," said Assistant Attorney General Nathan J. Hochman of the Justice Department's tax division. Snipes was charged with failing to pay more than $15 million in income tax. Snipes was also fined $5 million.
A few hours before he was sentenced, Snipes gave the government three checks totaling $5 million. Prosecutors accepted the money but declined to change sentencing recommendations, saying that it was a fraction of the amount owed.
Snipes, who has not filed a tax return since 1998, claimed he was the victim of corrupt advisers. The so-called advisers were Douglas P. Rosile and Eddie Ray Kahn, both convicted on felony counts. Kahn was the founder of American Rights Litigators and Guiding Light of God Ministries, groups that purported to help members legally avoid paying taxes. Rosile prepared Snipes' paperwork — not his returns, because none were filed.
Snipes defended his case for years using the tax protestor argument that the government has no legal right to collect taxes. He also filed amended returns requesting $11 million in refunds from earlier years' filings.
The IRS and the Justice Department are active and successful in prosecuting tax crimes. For the year ended Sept. 30, 2006, the IRS initiated 3,907 criminal investigations. Of those cases, 2,720 were referred to the Department of Justice for prosecution. Charges were filed in 2,319 cases.
Justice has been extremely successful with this prosecutions. They won 2,019 convictions on these 2,319 cases — that's an 87 percent conviction rate. Of those convicted, 81.7 percent, or 1,650 were incarcerated.
There are three main tax crimes:
1) Tax evasion is a felony. It is a broad category that covers any cheating of the government on taxes. A person convicted can be sentenced to five years in prison and/or fined.
2) Filing a false return is also a felony. It is the charge in which a taxpayer has provided the government with false or misleading information on the taxpayer's tax return. The government does not have to prove the taxpayer intended to evade tax laws, only that the taxpayer filed a false return. If convicted, a person can be sentenced to up to three years in prison and fined.
3) Not filing a tax return at all is a misdemeanor. If convicted, the maximum sentence is 1 year in prison and/or a fine.
In addition to criminal sentences and fines, the IRS will pursue the tax plus interest and civil penalties.
Snipes is not alone among the rich and famous who have spent time behind bars for tax crimes. Billionaire Leona Helmsley, who said that only the "little people" pay taxes, served four years for evading millions in taxes. Luciano Pavoratti was convicted of tax evasion and ordered to pay $11 million to the Italian Courts. Willie Nelson didn't do time, but he made a $16 million settlement with the IRS and released an album called "The IRS Tapes: Who Will Buy My Memories," all the profits of which went to the IRS, and the IRS auctioned off all his personal belongings. Al Capone, Sophia Loren, Spiro Agnew, Darryl Strawberry, Richard Pryor — they all did time for evasion.
According to tax attorney Jeff Fouts, there are three kinds of people who get prosecuted for tax crimes: 1) Tax protestors who are unrepentant and continually refuse to file their tax returns, 2) smart alecks who think they know it all and who completely refuse to cooperate with the IRS, and 3) high-profile persons who are known in their respective communities. These persons are at high risk because the IRS may want to make an example of them so as to scare the community into compliance.
Don't think that its only celebrities and high-rollers that get prosecuted for tax crimes. According to the IRS' internal litigation guidelines, for willfully failing to file tax returns, prosecution will be recommended if the average yearly additional tax for criminal purposes would be at least $2,500. For filing a false tax return, prosecution will be recommended if the average yearly additional tax for criminal purposes would be $2,500 or more. Dollar amounts below $2,500 will not prevent prosecution if the taxpayer has engaged in continued noncompliance or flagrant misconduct.
If you're in trouble with the IRS, haven't filed returns, filed false returns or otherwise evaded taxes — seek the help of a qualified tax professional. This is serious business.
E-mail: Patti@spencerlawfirm.com
