Don't Let Poor Tax Advice Land in Jail Like Wesley Snipes

Actor Wesley Snipes was sentenced Thursday to three years in prison for three misdemeanor counts of failing to file tax returns -- the maximum requested by federal prosecutors. Federal prosecutors said the actor for nearly a decade escaped paying more than $15 million in income tax returns by sending money to overseas accounts, though they acknowledged in court that the amount is in dispute. – CNN, 2010

Mr. Snipes says that he is not guilty and that he acted on the advice of two tax professionals. One is Douglas Rosile, who was stripped of his accounting license in 1997. The other is Eddie Kahn, who has served prison time for tax crimes. Both are under federal court order to stop promoting tax evasion, including the 861 position. They are being tried alongside him and are promoters of the 861 position and other tax theories. Mr. Snipes, 45, is charged with two felonies: conspiracy to defraud the government and filing a false claim for a $7 million refund (a claim for the year 1997, before he stopped paying ). He is also charged with failing to file tax returns for the six years starting in 1999. From 1999 to 2004, Wesley earned $38 million but did not pay any taxes during this period.

These two tax professionals maintain that the law only appears to require payment of taxes. All their theories have been rejected by the courts, including the one invoked by Mr. Snipes, which is known as the 861 position, after a section of the federal tax code.

So what exactly is Section 861? According to Wikipedia, under the tax protesters' section 861 argument, only income derived from "taxable activities" becomes "taxable income" Protesters state that regulation section 1.861-8T(d)(2)(iii) defines the taxable activities. The argument is that since the domestic activities of residents of the United States (Americans and resident aliens) are not shown to be taxable, the domestic income derived from such activities does not become taxable "gross income".

The IRS discusses in detail the truth about frivolous tax arguments at http://www.irs.gov/taxpros/article/0,,id=159853,00.html

One of the issues that the IRS addresses is that fact that some maintain that there is no federal statute imposing a tax on income derived from sources within the United States by citizens or residents of the United States. The premise for this argument is a misreading of sections 861, et seq., and 911, et seq., as well as the regulations under those sections.
The Law: As stated above, for federal income tax purposes, “gross income” means all income from whatever source derived and includes compensation for services. I.R.C. § 61. I.R.C. sections 861 and 911 define the sources of income (U.S. versus non-U.S. source income) only to establish a premise so that a taxpayer does not pay taxes in two countries. It does not indicate that income from sources within the United States is not taxable.

Current law provides that willful failure to file a tax return is a misdemeanor punishable by a term of imprisonment for not more than one year, a fine of not more than $25,000 ($100,000 in the case of a corporation), or both. A taxpayer who fails to file returns for multiple years commits a separate misdemeanor offense for each year.

What’s the moral of this story? Taxes tend to create a legal and moral duty in minds of people. People should willingly come forward and contribute to this cause and pay the fair amount of taxes as it acts as a source of fund for the Government, who in return use these in financing projects for developing the infrastructure of the country by way of building flyovers, bridges and other development projects. Tax is a social obligation of an individual.

As a CPA, I strongly believe everyone is responsible to pay taxes. I do believe however that a taxpayer should not pay more than their fair share of taxes. There are a lot of legal loopholes that help taxpayers not to pay more in taxes than are legally due. As much as I would like to reduce a client’s tax liability, I do not want them to go to jail because of my advice.

Are you getting the best tax advice possible? Work with a CPA who recognizes that they work for you and not the IRS. At the same time, ensure that the CPA is ethical and not selling you tax evasion in the guise of larger refunds or reduced tax liability. Work with a CPA who has an integrated approach to wealth building. This means that they take into account your social, , ethical, and moral responsibility when offering tax advice. It’s much better to pay the taxes and have all the time in the world to grow your business than pay less and then spend some time in jail.

As a small business owner, your goal should be to increase your income so that you have enough to pay your “FAIR SHARE” of the taxes and have enough left over to continue to grow your business.

JAIL TIME IS THE WORST TAX LIABILITY ANYONE CAN PAY!!

“Keep more of your Money this tax season”, Ebere Okoye, CPA http://www.wealthbuildingcpa.com/links/individual_services.pdf.