A federal appeals court has affirmed the tax fraud conviction and three-year prison sentence of actor Wesley Snipes for failing to file his tax returns.

The “Blade” star was convicted in February 2008 of three misdemeanor counts of willful failure to file his tax returns for 1999, 2000 and 2001, but was acquitted of felony tax charges. He has been free on bond pending his appeal  (see Wesley Snipes Appeals Tax Conviction). Snipes’s attorneys argued that his trial should not have taken place in Florida, and that the trial court erred in sentencing and the instructions given to the jury. However, the U.S. Court of Appeals for the Eleventh Circuit affirmed the rulings of the district court on Friday.

Sometime around 2000, according to the court, Snipes became involved in co-defendant Eddie Ray Kahn’s organization, American Rights Litigators, which purported to assist customers in resisting the Internal Revenue Service. ARL employees, including co-defendant Douglas Rosile, who was Snipes’s accountant and tax preparer, sent “voluminous” letters to the IRS challenging the agency’s authority to collect taxes. The centerpiece of their resistance, according to the court, was the “861 argument” that the domestic earnings of individual Americans do not qualify as “income” under the law, because the earnings did not come from a listed source.

“The ARL message appeared to have found a welcome audience in Snipes,” wrote the court. “Although Snipes earned more than thirty-seven million dollars in gross income from 1999 to 2004, he did not file individual federal income tax returns for any of those years. These were not, however, silent years. After meeting with ARL, Snipes began a long conversation with the IRS. He sent treatises describing theories about why the IRS was powerless to collect income taxes from him and several altered tax forms demanding money for taxes he had rendered in earlier years. Thus, for example, in April 2001, Snipes sent an altered form 1040X, styled as an Amended United States Individual Income Tax Return, in which he demanded a refund of over seven million dollars for taxes paid for the calendar year 1997, allegedly paid in error.”

The court noted that Snipes’s correspondence with the IRS advanced several arguments justifying his failure to file his personal tax returns, including that he was a “non-resident alien to the United States,” that earned income must come from “sources wholly outside the United States,” that “a taxpayer is defined by law as one who operates a distilled spirit plant,” and that the Internal Revenue Code’s taxing authority “is limited to the District of Columbia and insular possessions of the United States, exclusive of the 50 States of the Union.”

Snipes also claimed that as a “fiduciary of God, who is a 'nontaxpayer,'” he was a “foreign diplomat” who was not obliged to pay taxes. However, the court noted, when Snipes consulted his long-time tax attorneys about his resistance to paying federal income taxes, they advised him that his position was contrary to the law and that he was required to file tax returns. The firm terminated Snipes as a client when Snipes refused to file his tax returns.

The court added that the actor’s resistance to the IRS did not stop at his personal filings. He integrated the ALR tax “teachings” into the accounting methodology of his film production companies, and after June 2000, his companies stopped deducting payroll and income taxes from its employees’ paychecks. Snipes also began to proselytize this theory of tax resistance. He invited several employees to an “861” educational seminar at his home.

“When accounts-payable employee Carmen Baker attended the seminar and questioned the ‘861’ theory, Snipes ordered her to leave his house, later telling her that he was ‘disappointed’ in her and that if she was ‘not going to play along with the game plan,’ she should find another job,” the court noted.

The IRS launched a criminal investigation of Snipes after the agency received his altered Form 1040X for the year 1997 in April 2001, demanding a refund of over $7 million based upon the “861” argument. On Oct. 12, 2006, a Florida grand jury returned a superseding indictment, charging Snipes and his two co-defendants, Kahn and Rosile, with various crimes relating to a fraudulent tax scheme. Snipes was arraigned on Dec. 8, 2006.

He filed a motion in June 2007 to move the venue to New York, but the district court twice denied the motion. In early October 2007, Snipes moved for a continuance after he had fired his counsel for incompetence and hired new lawyers. After the district court granted the continuance, the actor’s new lawyers challenged the venue again, alleging that the government had chosen Ocala County, Fla., as the location for the trial for racially discriminatory reasons.

His attorney had claimed at the time that "the government chose the most racially discriminatory venue available, with the best possibility of an all-white jury," and that the Ocala area was a "hotbed of Klan activity."

Snipes also attempted to file a statutory transfer election, claiming that the district court could disregard the statutory 20-day deadline for filing change of venue motions because the ineffective assistance of his prior counsel constituted “good cause.” The trial court denied both venue motions.

After the district court refused to conduct a pretrial evidentiary hearing on the issue of venue, Snipes lodged a notice of appeal with the appeals court on the venue-related orders. The appeals court denied it, concluding that an order pertaining to the venue was effectively reviewable after the lower court’s entry of judgment.

The case proceeded to a 14-day trial in January 2008. At the trial, an IRS witness testified that although Snipes had regularly filed individual federal income tax returns for the years 1993 through 1998, he had not filed any returns for calendar years 1999 through 2004.

IRS Special Agent Cameron Lalli testified extensively about the investigation of the alleged tax conspiracy, the court noted. He described a telephone conversation with Snipes and his lawyer in May 2002, during which Lalli informed Snipes that he was under investigation for tax crimes. When he read Snipes his rights, which included the right to remain silent, Snipes replied, “Very interesting.”

In the course of the investigation, the grand jury served subpoenas on the office staff of Snipes’s production company, Amen RA Films. Former accounts payable employee Carmen Baker testified at the trial that when she received the grand jury subpoena, Snipes ordered her “not to respond, not to talk to anybody or to disclose any information on the company.” When Baker asked Snipes why she should not respond, Snipes replied, “It doesn’t matter. I have [a confidentiality agreement] with your signature on it. . . . [I]f you do contact them, you will have to pay the consequences.” According to Baker, Snipes’s warning made her feel “very upset,” “uneasy,” and “scared.”

Toward the end of the trial, Snipes requested a specific jury instruction on venue. The district court granted Snipes’s request, instructing the jury that the Sixth Amendment protects a defendant’s right to a “trial in the state and district wherein the crime shall have been committed.” The court instructed the jury that the government must prove venue — the district of Snipes’s legal residence —  by a preponderance of the evidence, and that the jury must acquit Snipes if the government had not met its burden.

Snipes also sought jury instructions on both general good faith and good faith reliance upon the advice of counsel to supplement the standard willfulness instructions. The district court granted these requests, too, according to the appeals court.

Snipes also sought an instruction on good faith reliance based upon the Fifth Amendment, explaining that if he “had a good faith belief in his right to assert his [Fifth Amendment] privilege not to incriminate himself then [he] would not be guilty of acting willfully.”

On Feb. 1, 2008, the jury convicted co-defendants Kahn and Rosile on the conspiracy and false claim charges, but acquitted Snipes on the same charges. The jury instead convicted Snipes on the misdemeanor charges of willful failure to file individual federal income tax returns for calendar years 1999, 2000, and 2001. The jury acquitted Snipes, however, on the failure-to-file charges for 2002, 2003 and 2004.

The appeals court noted that the proper venue for the crime of willfully failing to file an individual federal income tax return is either the federal judicial district in which the defendant resided at the time of the offense or the judicial district of the designated service center. It denied the appeal on the venue grounds, noting that an appeal needed to be filed within 20 days of arraignment, and that the court could not extend the deadline for such an appeal.

“Snipes’s putative motion for elective transfer would already have been two weeks late when his attorneys first requested an extension of time to file motions,” said the court.

The appeals court also rejected Snipes’s other arguments against the venue of the trial, instructions to the jury and sentencing. “The district court acted well within its considerable discretion in sentencing Snipes to thirty-six months in prison,” said the appeals court.

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