The U.S. Tax Court recently upheld the IRS’ rejection of Wesley Snipes’ Offer in Compromise. Snipes has tax liabilities of approximately $23.5 million covering tax years 2001-2006. He already served three years in prison and recently made a cash offer of $842,061 to settle his balance.
His argument centered on a financial adviser diverting funds without his knowledge thus greatly reducing his wealth. At a collection hearing he requested that the IRS conduct a transferee investigation of the financial adviser, and if they found that his wealth was diverted, that his offer be accepted. The IRS denied; Offers in Compromise will never be accepted with conditions, and the collection hearing could not be held open long enough to accommodate an investigation.
The IRS settlement officer did however set Snipes’ Reasonable Collection Potential to $9,581,027 (better than $23.5M) in an effort to compromise for a final settlement. Snipes refused the offer and the settlement officer concluded that it was not in the Government’s best interest to settle. Wesley then filed a petition with the U.S. Tax Court to appeal the IRS decision. The Tax Court sustained the IRS decision.
The court noted that Snipes’ tax liabilities were not an issue. The court concluded that the settlement officer did not abuse her discretion, and that accepting Mr. Snipes’ offer was not in the best interest of the United States.