Wesley Snipes Played Chicken With The IRS… And Lost. Badly. Really Badly. He Literally Went From Passenger 57, To Prisoner #43355-018

By on August 7, 2023 in ArticlesEntertainment

"Nothing is certain… except death and taxes."

Wesley Snipes worked his butt off for more than a decade to reach the pinnacle of wealth and success in Hollywood. He smashed through perceptions and stereotypes along the way to becoming arguably the biggest action star on the planet in the 1990s. Along the way he earned tens of millions of dollars, mostly from his blockbuster film salaries. Unfortunately, like many other stories of Hollywood ascension, what goes up must come down. But unlike most fallen stars who succumb to drugs or alcohol, Wesley Snipe's personal demon was much more bland.

During that career pinnacle when he was earning tens of millions of dollars, Wesley Snipes wasn't paying his taxes. Amazingly, he truly believed he did not have to pay. He believed so strongly that he fought all the way up to the Supreme Court. This is the story of how Wesley went from Passenger 57 to prisoner #43355-018

Wesley Snipes

Wesley Snipes Tax Problems / Frazer Harrison/Getty Images

The Rise: Snipes The Action Star

When Wesley was 23, an agent discovered him in 1985 during a martial arts competition. A year later he made his film debut in the 1986 Goldie Hawn movie "Wildcats". That same year, he appeared on the hit TV show "Miami Vice" as a drug-dealing pimp. In 1987, Snipes put his dance performance training and martial arts skills to good use when he appeared in the Martin Scorsese directed music video of Michael Jackson's "Bad". That video caught the attention of director Spike Lee, who offered Snipes a small role in "Do The Right Thing". Snipes turned Lee down, opting for the larger part of Willie Mays Hayes in "Major League".

"Major League" was the first in a string of big box office hits for Snipes throughout the late 1980s and 1990s. He appeared in Spike Lee's "Mo Better Blues" and as the lead in the interracial relationship at the center of the drama in "Jungle Fever". Snipes' role as the drug kingpin Nino Brown in 1991's "New Jack City" was written especially for him and his amazingly nuanced performance cemented his status as a Hollywood superstar. Snipes worked steadily throughout the 1990s in films such as "Passenger 57", "Demolition Man", "Money Train", "The Fan", "U.S. Marshals", "Rising Sun", and "To Wong Foo, Thanks for Everything! Julie Newmar" in which Snipes played a drag queen.

Snipes was on a roll, showing audiences and Hollywood studio executives that he had range- playing everything from drug lords to drag queens. In fact, in 1997, Snipes won the Best Actor award at the Venice Film Festival for his dramatic performance in the Joe Eszterhas written, Mike Figgis directed film "One Night Stand". The film was a flop, in large part due to an interview Snipes gave in Ebony magazine in which he lashed out at African American women and listed all the reasons he didn't date them.

The following year "Blade" gave Snipes his biggest box office success, grossing more than $150 million worldwide. Snipes also was awarded with a star on the Hollywood Walk of Fame and an honorary doctorate from his college alma mater, SUNY/Purchase. Blade was also turned it into a franchise. Wesley was at the top of the Hollywood food chain and the peak of his career. Unfortunately, off set Wesley's arrogance and ego were beginning to lay a path of destruction in his life that would last for more than a decade.

As the third installment of the "Blade" franchise was getting ready to go into production, Wesley's arrogance led him to believe that he was owed input on every aspect of the production. New Line froze him out of all decisions, which pissed Snipes off mightily. Snipes filed lawsuits against New Line Cinema and the director of "Blade: Trinity", David S. Goyer, claiming that he was intentionally cut out of casting decisions and that his role was reduced to make more time for the roles of co-stars Ryan Reynolds and Jessica Biel. The suit with New Line was settled, but Snipes' problems were just beginning.

Unlike most Hollywood celebrities, Wesley's self-imposed path of destruction did not involve a single drug or a drop of alcohol. Wesley's downfall involved something far more dangerous than drugs and alcohol: The Internal Revenue Service.

The Fall: Snipes The IRS Protestor

Wesley's problems with the IRS date back to 2006 when he was charged with attempting to avoid paying taxes and filing $12 million worth of false refunds dating all the way back to 1996.

Between 1996 and 2004, Snipes earned approximately $37.9 million from various acting jobs. Unfortunately, during those years he apparently failed to pay a single penny in taxes.

In 2002 Wesley bought a lavish 10,000 square foot mansion in Alpine, New Jersey. He paid $5.6 million.

Within a few years he also stopped paying the property tax bill. Here's the mansion:

He was forced to sell this home in 2014 at a $2.1 million loss.

As if failing to pay taxes for many years wasn't bad enough, Wesley took things a step further.

Wesley also used forged documents to receive $12 million worth of undeserved refunds reflecting his income between 1996 and 1998. So why did he essentially ignore and steal from the IRS? This is where the story takes a crazy turn. Wesley explained his actions by using a controversial tax theory called the..

"861 argument"

The "861 argument" revolves around the language of section 861 of the Federal tax code. People who use this 861 argument claim the tax code's language makes domestic income of U.S. citizens and residents not taxable. The language instead states that "compensation for services" is taxable. This argument claims that because the 861 provision does not specifically list wages, for example from acting in a movie, they therefore are not taxable. As a side note, the 861 argument has never been successful for anyone in the history of American tax law. Furthermore, Snipes failed to file tax returns for 1999, 2000, 2001, 2002, 2003, and 2004.

Unfortunately, the government wasn't buying what Wesley was selling. Wesley Snipes spent four years battling the government on his tax charges. He went to trial in February 2008. His defense team intimated that their defense would take a month and they planned to call an illustrious list of witnesses including Muhammad Ali, Spike Lee and even Barbra Walters. However in the end, his defense spent just ONE HOUR arguing his case.

The prosecution was not as brief. They presented what was a fairly rock solid and simple case of a person earning $40 million, paying zero in taxes AND requesting $12 million in refunds.

Wesley was found guilty of three misdemeanor counts of failure to file federal income tax returns. He was sentenced to three years in prison. And while three years may sound like a long sentence for a silly tax issue, the prosecution had been seeking a 16 year sentence. So Wesley got off easy in a way.

In addition to his prison sentence, over time Wesley was ordered to pay $17 million in back taxes, interest and penalties to the IRS.

Snipes appealed the verdict without success in 2010. He began his three year sentence at McKean Federal Correctional Institution on December 9, 2010. Snipes took his appeal all the way to the United States Supreme Court, but in 2011 the justices declined to hear the case.

Between December 2010 and April 2013, Wesley Snipes served 845 days in federal prison in McKean County, Pennsylvania. He served 90% of his three year sentence.

Wesley was released from prison on April 2, 2013.

An Offer They Can Refuse

After being released, Wesley made what is called an "Offer In Compromise," (OIC) to the IRS.  Essentially with an OIC, a tax offender offers an amount of money he or she hopes the IRS will accept to settle the debt once and for all, typically for pennies on the dollar. By this time, with interest and penalties, Wesley's debt had ballooned from $17 million to $23.5 million. Wesley offered to clear that debt in exchange for an OIC of $842,061, citing his lack of means to pay the remainder. That's 3.5% of the total amount due.

Perhaps not surprisingly, the government rejected his OIC.

This rejection kicked off another legal appeal. That appeal would drag on until November 1, 2018 when a judge upheld the IRS' rejection of his OIC, claiming that Snipes had failed "to provide bona fide documentation to prove his assets and financial condition."

The IRS countered that based on his assets and income potential, Wesley's "reasonable collection potential" was $17,482,152.

After yet another appeal, the IRS extended an offer to reduce the debt to $9,581,027.

Wesley rejected this offer!!! Instead he re-asserted his original OIC of $842,000.

From the judge's ruling:

"Given the disparity between petitioner's $842,061 OIC and the settlement officer's calculation of $9,581,027 as his RCP, as well as petitioner's inability to credibly document his assets, the settlement officer and her manager had ample justification to reject the offer… Accordingly, we conclude that the settlement officer did not abuse her discretion in determining that acceptance of petitioner's OIC was not in the best interest of the United States."

Wesley has continued to work in the years since his release from prison. His first film role of his post prison career was in the third installment of the Sylvester Stallone "Expendables" franchise. He has appeared in a number of television series over the years, and in 2021 he had a memorable part in Eddie Murphy's "Coming 2 America."

I actually can't determine if Wesley has paid off any of his debt. I could not find a recent filing from the government showing he had either paid or failed to pay down what is presumably the $9.5 million proposed offer. Considering how stubbornly he has fought the debt up to this point, maybe he's still fighting. We may not know the answer until the IRS officially clears him after the debt is satisfied OR if they file another suit due to lack of payment. Either way, what's the lesson of this story? Simple. Pay your damn taxes!

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