As IRS enforcement efforts continue to expand, offers in compromise (OICs) remain one of the most sought-after tools for taxpayers struggling with overwhelming liabilities. But as the case of actor Wesley Snipes shows, the OIC process requires transparency, documentation, and cooperation—without it, even high-profile taxpayers may find their offers rejected.
Below is a closer look at how the offer-in-compromise process works, and why it ultimately did not benefit Mr. Snipes.
A Long History of Tax Controversy
Actor Wesley Snipes has a long-running history of tax controversy with the IRS. In November 2018, Mr. Snipes was handed another defeat when an IRS decision to reject his offer-in-compromise was upheld by the United States Tax Court.
Since approximately 2000, Mr. Snipes has been engaged in battle with the IRS. Relying on theories generally described as “frivolous tax arguments,” Mr. Snipes found himself in very warm water with the IRS. As a result of his failure to file tax returns between 2001 and 2006, Mr. Snipes was sentenced to three years in prison plus a multi-million-dollar fine.
The IRS Lien and the OIC Request
Released from prison in 2013, Mr. Snipes received a Notice of Federal Lien of $23.5 million for tax debt accrued during his period of protest. In response, he submitted an offer-in-compromise to the IRS.
Just like it sounds, offers-in-compromises are sums of money offered to the IRS in a good-faith attempt to settle tax liabilities. When a taxpayer proposes a compromise, the IRS conducts an investigation to determine the taxpayer’s true ability to pay—analyzing assets, income, expenses, and overall financial condition.
Following its investigation, the IRS concluded that Mr. Snipes’ reasonable collection potential (RCP) could be around $17 million. Mr. Snipes offered $842,061.
What Went Wrong With the Offer
Offers-in-compromise are an important tool that can help taxpayers negotiate a realistic settlement to overwhelming tax debt. But to reach a settlement, the taxpayer must provide a complete and accurate financial picture.
Unfortunately for Mr. Snipes, he did not work with the IRS to fully evaluate his financial condition or provide adequate documentation to support his stated inability to pay. Instead, he challenged the IRS’s determinations and returned to court, alleging the agency overstepped its bounds.
After further review, the IRS lowered the RCP to approximately $9 million—an amount Mr. Snipes again rejected. In its November 2018 decision, the Tax Court dismissed Mr. Snipes’ objections, leaving him responsible for at least $9 million, and possibly the entire $23.5 million.
Lessons for Taxpayers Considering an OIC
Tax lawyers are often called upon to help clients prepare an offer-in-compromise and navigate the investigative and negotiation process. An OIC can be a powerful way to resolve tax liabilities—but only when the submission is supported by accurate disclosures, full cooperation, and a strategic approach to the IRS review.
Considering an Offer in Compromise? Know Your Options.
Wesley Snipes’ experience underscores a critical point: even when an offer-in-compromise is available, the IRS must be convinced that the amount offered is the taxpayer’s true ability to pay. Incomplete financial information, inconsistent disclosures, or a lack of cooperation can quickly lead to a rejected offer.
If you’re considering an OIC or facing significant tax debt, consulting with an experienced tax lawyer can help ensure your submission is thorough, credible, and aligned with IRS expectations. At Robert J. Fedor, Esq., LLC, we assist taxpayers nationwide with preparing, negotiating, and resolving OICs, as well as responding to IRS audits and investigations.
To help you better understand how the OIC process works—and how to avoid common mistakes—download our complimentary Offer in Compromise eBook. It offers practical guidance on what the IRS looks for, how collection potential is determined, and how you can strengthen your case.
