IRS Clamps Down on Wesley Snipes and Other Tax Protesters, 02/01/2008

Actor Wesley Snipes has given the anti-tax movement in the U.S. a new face. The actor earned more than $38 million between 1999 and 2004, but failed to file any income tax returns for those years. He and his co-conspirators claimed that a technicality in the Internal Revenue Code allowed him to escape taxation of his earnings. If convicted of the criminal tax charges against him, he faced up to 16 years in prison.

Snipes’ defense team argued that Snipes should not be found guilty of the criminal charges because he relied on the advice of his co-conspirators. On February 1, 2008, a federal jury found Snipes innocent of the criminal charges. However, the jury did convict his co-conspirators of the criminal tax charges and Snipes still owes millions in back taxes, penalties and interest.

Like many others, Snipes fell for the siren song of the tax protester movement. Tax protesters use many arguments as to why they don’t owe any income taxes, including an argument that the Sixteenth Amendment was never legally ratified and that signing a tax return under penalty of perjury is a violation of the Fifth Amendment right against self-incrimination. Another ploy used by tax protesters is the “pure trust,” which is also referred to as a “constitutional trust” or “common law trust.”

The tax protesters distinguish these trusts from the trusts that are commonly used in estate planning. Proponents of the pure trust and its brethren promise that, unlike other trusts, the pure trust is totally private, offers total asset protection and its earnings are not subject to income taxes and estate taxes.

An individual reviewing various tax promoter websites that describe these types of trusts may be impressed with the protections and promises that are made (or implied). Whatever the site actually says, what the promoter is selling is the perceived opportunity to set the individual’s own assets aside, yet retain control of them and protect them from creditors, divorcing spouses, and tax agencies. Legitimate tax and estate planning professionals all know that this promise is bogus.

Before investing in any trust or other type of estate plan, a thoughtful investigation of the potential benefits and pitfalls of the plan must be made. Consult with a knowledgeable estate planning attorney to get the full story concerning your plan, and the available methods for minimizing taxes, and to avoid entanglements with the IRS. A complimentary consultation is available with one of the attorneys at Morris Hall is available by request.