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Wesley Snipes’ case shows inner workings of tax court

A large tax bill may warrant a challenge. However, building a successful case against the Internal Revenue Service (IRS) is not an easy task. Former Hollywood great Wesley Snipes provides an example.

Mr. Snipes has taken on the IRS a couple of times. In 2010 he lost a battle against the agency over a failure to file taxes. His most recent battle involves an offer in compromise.

What is an offer in compromise? The IRS defines an offer in compromise (OIC) as “an agreement between a taxpayer and the IRS that settles a taxpayer’s tax liabilities for less than the full amount owed.”

Essentially, a taxpayer offers to pay a portion of the tax bill. The IRS would accept the lower payment and wipe out the remainder of the tax obligation based on the logic that this offered amount is the most the agency could possibly get from the taxpayer.

A second reason to accept the offer: doubt as to whether or not the alleged tax obligation is truly owed. An OIC can save the IRS and the taxpayer from going through a legal battle over the true tax obligation and resolve the matter for both parties.

Why did Mr. Snipes offer the IRS an OIC? Mr. Snipes did not challenge the tax obligation. Instead, his OIC was based on his alleged inability to pay his $23.5 million tax bill.

Mr. Snipes offered $842,061 in cash to settle the matter. The IRS rejected the OIC and Snipes filed a petition with the Tax Court. He stated the IRS settlement officer abused her discretion when she rejected the OIC and requested an expedited transferee investigation. The investigation was connected to the allegation that Snipes’ financial advisor had diverted funds without his knowledge — leading to his inability to pay the tax bill.

What did Tax Court decide? Ultimately, the Tax Court ruled in favor of the IRS. The court stated Mr. Snipes failed to provide the needed proof of his financial status to support the OIC.

What is next? Mr. Snipes is currently liable for the full tax obligation. He will either need to pay the entire tax bill or attempt to find an alternative solution.

Alternative solutions may be available for those with large tax obligations. The attorneys at Goldburd McCone, LLC can review your tax obligations and discuss your options.

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