Venice accountant linked to Snipes scheme

Prosecutors alleged Tuesday that the actor tried to get millions of dollars from the IRS that he didn't deserve.

SARASOTA -- The plot goes like this: Movie star Wesley Snipes doesn't want to pay income taxes and enlists help from an accountant who lives in Venice.

They file paperwork that says the government owes Snipes $12 million in tax refunds and he stops paying taxes.

Actually, that would probably be a bad movie.

But those are the allegations laid out in a federal indictment unsealed Tuesday that charges Snipes and two alleged business associates with fraud and conspiracy.

Snipes, best known for his roles in "New Jack City," "White Men Can't Jump" and the "Blade" trilogy, is one of hundreds of people to be involved in a nationwide IRS crackdown on tax fraud.

The IRS brags that it has increased tax-crime prosecutions by 43 percent since 2001. The government has also obtained more than 200 civil court injunctions against people accused of defrauding the government.

Prosecutors say Snipes became a member of a Florida-based "tax protest organization" in 2000.

The group, American Rights Litigators, and its successor, Guiding Light of God Ministries, told Snipes that according to a little-known tax rule, U.S. citizens can only be taxed on income made in other countries, and are entitled to returns on previously paid taxes.

The argument is based on section 861 of the tax code, and has become known as the "861 argument" by government regulators. It has been consistently rejected by courts.

"It's a conspiracy against the IRS, basically to harass the IRS, from doing its lawful job in term of collection of taxes," U.S. Attorney Paul I. Perez, of the Middle District of Florida, said at a news conference on Tuesday.

One month after he paid for a membership in the American Rights Litigators, Snipes had the head of the group tell his tax advisers about the "861 argument" and even hosted a private seminar about it at his California home, the indictment states. Snipes' tax advisers told him the argument didn't have any merit, according to the government.

Later in 2000, Snipes claimed he did not understand the tax laws and did not know if they applied to him in a document called an "Affidavit of Incompetence," the indictment states.

Snipes faces up to 16 years in prison on charges of defrauding the government and failing to pay his income taxes for 6 years.

Perez said the government has not been able to find Snipes yet, and does not know whether Snipes is aware of the indictment.

Snipes' attorney and agent were unavailable for comment.

Also indicted Tuesday was Eddie Ray Kahn of Sorrento, Fla., who government prosecutors say is the founder of American Rights Litigators, and Douglas P. Rosile Sr. of Venice.

Prosecutors say the businesses sold fraudulent tax schemes and Rosile prepared fraudulent tax returns for those businesses despite losing his CPA licenses in Ohio and Florida.

Rosile surrendered himself to authorities Tuesday morning and was released on his own recognizance. Perez said Kahn is reported to be in Panama.

The IRS sued Rosile over his tax preparations in 2002, saying he had a hand in more than $36 million in bogus refund claims and falsified tax forms for clients in at least 32 states. The IRS listed Snipes' $7.3 million bogus refund claim prepared in 2001 as the largest filed by Rosile.

The indictment accuses Rosile, Kahn and Snipes of trying to make it appear as if Snipes had no liability for federal income taxes and trying to obtain nearly $12 million in refunds for income taxes he paid in 1996 and 1997.

They sent millions of dollars worth of fraudulent "Bills of Exchange" to the Secretary of the Treasury for Snipes, the indictment states. Snipes also failed to file income tax returns from 1999 to 2004, which is part of the "861 argument" scheme, the indictment states.

Several Southwest Florida men have been nailed in recent years over their use of tax avoidance schemes.

Last year a federal judge permanently barred Carel A. "Chad" Prater and Richard W. Cantwell from selling services they claimed would help taxpayers avoid paying income taxes.

The judge's permanent injunction capped a three-year battle by the U.S. Justice Department against the men.

A federal court had earlier found that Prater promoted tax fraud through various means, including filing invalid "judgments" against the Internal Revenue Service.

Prosecutors said Prater, who lived in Nokomis, charged nearly 1,000 clients from $500 to $20,000 for his services. Cantwell, then a resident of Manatee County, was an associate of Prater.

In 2004, the Justice Department sued David Marvin Swanson of Sarasota for allegedly promoting an illegal tax scheme.

The government said Swanson used sham trusts and limited liability companies to promote illegal tax avoidance.

THE 861 ARGUMENT

An increasingly popular income-tax dodge is known as the "861 argument" or the "861 position."

Section 861 of the tax code specifies that wages are taxable.

Promoters of the 861 argument claim the code limits income taxes primarily to wages from foreign-owned companies. Income from domestic sources is not taxable, they say.

However, for decades, every court that has heard an 861 argument has rejected it as meritless, including several federal appeals courts.

Dozens of promoters continue to sell the argument through books, seminars and Web sites.

Larken Rose, one of the leading national promoters of 861, dared the Justice Department to prosecute him. It did, and last year he was convicted on five counts of willfully failing to file tax returns.

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