Wesley Snipes

In 2008, Wesley Snipes was criminally convicted and sentenced to three years in jail for not filing tax returns. The years in dispute were 1999-2001, just after the release of Blade, and the total tax bill was around $7 million. He was making a very public political point, so the IRS and Department of Justice had no problem returning the favor and making a very public example of him.

Basically, Snipes and his advisors, Eddie Ray Kahn and Douglas P. Rosile, claimed that the US government could not legally tax him. Kahn (pronounced con…) was a very public anti-tax advocate, who fled to Panama after his indictment and is still in jail for conspiracy to defraud the government. Among their other non-sensical arguments, they claimed that the IRS was not a legitimate government agency and that based on Internal Revenue Code Section 861, Snipes owed no taxes.

Section 861 applies to income of nonresident aliens and foreign corporations, but tax protesters like Kahn take the code section and its regulations out of context and apply them to US residents, which would greatly narrow the standard definition of taxable income. Unfortunately for Kahn (and Snipes), this interpretation completely ignores Section 61, which defines gross income as “all income from whatever source derived.”

Josh Norris
Joseph Nacchio

In 2007, Joseph Nacchio, former CEO of Qwest Communications, was convicted on 19 counts of insider trading and, in addition to receiving a 70-month prison sentence, was forced to forfeit over $44 million of ill-gotten gains. Of course, Nacchio had already paid income taxes on that $44 million back in 2001, so in 2007, he filed for an $18 million tax refund.

Did he get it? In short – no. But several interesting issues did come up as the case made its way through the system. His lawyers tried to argue that his payment was considered restitution and not a forfeiture, which is barred as deductible under §162(f). And although he was convicted of insider trading, he never admitted guilt or took the stand at trial, so they tried to claim he was unaware of his ill-gotten gains, which would allow a deduction under §1341.

In the end, the Court of Appeals essentially admitted that enforcing forfeiture with after-tax money is a double slap in the face, but as a matter of public policy, they were ok with it.

Josh Norris