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What not to do with an offer in compromise for the IRS

Even Hollywood’s elite find the Internal Revenue Service (IRS) a tough adversary. The most recent to learn this lesson: Hollywood movie star Wesley Snipes.

A bit of history, not Wesley Snipes’ first battle over taxes: The actor, famous for starring roles in Blade, Demolition Man and White Men Can’t Jump, has a bit of history battling the IRS. In 2008, the government successfully pursued criminal charges for failure to file tax returns. The conviction resulted in a jail sentence, served at a minimum-security facility.

Current battle, another loss: The IRS now claims the actor owes $23.5 million in back taxes. This finding is a result of the agency looking back into Mr. Snipes’ for more than a decade. Part of the issue arose from poor tax advice. The actor took the advice of an accountant and anti-tax advocate that claimed Mr. Snipes was not legally required to pay taxes. This was false, and the IRS mounted a successful claim against the accountant for multiple tax crimes including providing this type of faulty advice.

Mr. Snipes sought a Collection Due Process hearing to resolve his tax obligations with the IRS. He presented an offer in comprise of approximately 4 percent of his tax bill. The IRS refused. The agency stated it believed the actor could pay his debt and that he was hiding funds in various shell companies. Mr. Snipes took the IRS to court, claiming the agency had abused its discretion. Ultimately, the Tax Court held in favor of the IRS noting the actor was not cooperative with the agency in its attempts to track down all of his assets.

Lessons for anyone facing a large tax bill, options are available: This case shows that structuring an offer in compromise is not an easy task. The IRS does not approve every offer it receives and, most importantly, frowns upon those who try to hide assets while making an offer. As a result, such an offer must be structured and presented wisely. An attorney experienced in these matters can help.

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