Failure To Pay $15 Million in Taxes Justifies Prison

Question: In a recent column, you talked about the IRS putting the actor Wesley Snipes in prison for 2 ½ years and assessing a $5 million fine because he didn’t pay his $15 million of income taxes on time. Since he did ultimately pay his taxes, even late, that’s a bunch of BS and typical IRS overreach!

Answer: Wesley Snipes made $38 Million in five years from 1998-2003 and didn’t file a tax return because he claimed that he was a non-resident alien in those five years. After getting out of prison, Snipes settled his $15 Million tax debt for less than $1 Million. Note: When I was a summer law clerk at the Department of Treasury in Washington, D.C., I knew nothing about income taxes. For some bizarre reason I was assigned to the Income Tax Enforcement Division. Our primary function was to reconstruct the income of a taxpayer who the IRS believed was not reporting the correct taxable income. For example, if the income tax return showed the occupation of the taxpayer was a property manager, and the taxable income reported was $80,000/year, but the taxpayer owned two Porsches and a 4,000 sq. foot second home in Newport Beach, the IRS would assign agents to reconstruct the income and expenses of the taxpayer by reviewing mortgages, motor vehicle records, and estimate a minimum taxable income of at least $500,000/year.

If a taxpayer such as Wesley Snipes could have criminal liability for not paying his taxes, we would transfer the file to the Department of Justice (“DOJ”) who could file criminal charges against the taxpayer. If the DOJ, however, didn’t think that they could get a criminal conviction for tax evasion at a jury trial, they would return the file stamped “NOL PROS,” which is Latin for “nolle prosequi,” or “no prosecution.”

Note: There was little government “overreach.” On the contrary, the DOJ would rarely prosecute a taxpayer for criminal tax evasion. The worst example of “NOL PROS” was a mortician in a small Tennessee town reporting taxable income of $80,000, but the IRS reconstructed his taxable income to be at least $1.2 million. The reason the DOJ gave us for “NOL PROS” was that the rural areas of Tennessee did not like the IRS, and a jury was probably not going to convict a small town Tennessee businessman.