Wesley Snipes, Actor, Millionaire, Cautionary Tale

There are people in this country (and you probably live with a few of them) who think everything in Hollywood is good and golden. These are the folks who can watch the descent of Britney Spears and Lindsay Lohan from cute pop stars to wrecked, plastic tabloid fodder and think -- Why not me?

For those people, there's nothing that can be done except making them comfortable and keeping them out of direct sunlight.

The rest of us, though, should take a good look at Hollywood and take a lesson from actor Wesley Snipes. Snipes, best known for the Blade vampire trilogy, was sentenced to three years in prison for willfully failing to file his income tax returns this past April. He was convicted in February on three misdemeanor counts of failing to file by a federal court in Florida. Snipes was acquitted of the more serious charges of felony conspiracy and tax fraud. (You can read more about the Snipes case here)

There's a lesson here, and here it is: It can happen to you.

Don't misunderstand. There are plenty of people in the country who have not filed income tax returns and who walk free today. Undoubtedly the IRS targeted Mr. Snipes and his cohorts (including his accountant and a tax protester organization to which Mr. Snipes belonged) because Snipes is a popular and bankable Hollywood star. Wealth and fame can make you a fat target. But the IRS does nothing without calculation, and the Snipes trial was meant to send a message. And the message has been heard: No one is immune from criminal prosecution if they don't file their tax returns.

Even before the Snipes case, the IRS was increasing efforts to enforce tax return compliance through penalties and other tactics. In recent years, the IRS has expanded the statute of limitations to pursue unfiled tax returns to six years from the date the return was due. The Service has also added a $25,000 penalty for each unfiled tax return (in addition to the threat of prison). The IRS has beefed up civil penalties as well. The Internal Revenue Code (the administrative laws governing the IRS's authority to collect taxes) lets the IRS impose a penalty of up to 25 percent of the amount owed for unfiled returns.

If you don't file, the IRS is likely to file on your behalf. This is no gift. While the IRS-created return (called a "Substitute for Return" or SFR) relieves you of your obligation to file, it does you no favors. The SFR only considers your income earned for a given year. It provides only one exemption and one deduction. In other words, an SFR does not take into consideration any of your actual expenses. It's a losing proposition for the tax payer.

The best defense against the criminal and civil penalties is to file your tax returns now. You might not have the paperwork, you might be afraid that filing will bring all the wrath of the IRS on you, or you might just hope the problem will go away. Put those issues aside and contact a tax professional who can help.

Take a lesson from Wesley Snipes.