The IRS scored much more than a glancing blow to former action movie powerhouse actor Wesley Snipes this week, with the Tax Court sustaining the Service’s rejection of a lowball offer in compromise settlement. Snipes owes more than $23.5 million in back taxes to the government, dating back to between 1999 and 2006, a period during which he made approximately $40 million but paid no taxes (he also didn’t file tax returns during that time).
Snipes was convicted of three misdemeanor counts of failing to file tax returns back in 2008, and eventually served three years in federal prison between 2010 and 2013. After his release, the IRS once again assessed past due taxes, this time totaling roughly $23.5 million after accounting for original tax amounts, penalties and interest. Snipes, in seeing that massive tax bill, proffered an offer in compromise of less than $843,000, which represents only four percent of the assessed taxes due.
The IRS rejected the offer in compromise, at which point Snipes appealed, arguing that the rejection was an abuse of discretion and an arbitrary determination against him. Snipes filed motions with the Tax Court seeking a Collection Due Process hearing, but those motions fell on deaf ears. The Tax Court rejected his motions back in 2016, but the IRS did counteroffer with a potential settlement amount of $9.5 million, representing less than half of the original assessed amount.
Snipes again offered his compromise amount of $843,000, without giving the IRS verification of his income and assets. The IRS again rejected it, and the Tax Court recently agreed with the Service. The Court found that the IRS did not abuse their discretion, there were no arbitrary determinations, and that Snipes wasn’t cooperating with the process.
Offers in compromise are very effective tools for getting rid of tax debt if done properly and in good faith. Perhaps if Snipes’ offer were truly a good faith negotiation, the outcome of the Tax Court case might have been very different.