Adult Film Star Janine Sentenced to Six Months in Prison.

On July 17, 2008, the adult film star known as “Janine” (Janine Lindemulder) was charged with a misdemeanor count for willfully failing to pay tax (a violation of Internal Revenue Code section 7203). In August she pleaded guilty to the charge. Yesterday, the District Court of Oregon sentenced Ms. Lindemulder to six months in prison followed by one year of supervised release which could include up to six months in a halfway house.

Because the section 7203 willful failure to pay tax is a misdemeanor, we knew the prison sentence would be less than one year (a crime becomes a felony when the potential sentence carries potential prison time of more than one year). However, she likely received a reduction in her sentence under the United States Sentencing Guidelines for “acceptance of responsibility.” This means that if she had forced the case to trial and been convicted, she likely would have received a longer sentence. Keep in mind that while her sentence is only six months and she is likely to serve her time in a minimum security prison camp, it is still six months in prison.

In light of the more serious charges dealt with by Janine's celebrity counterparts: Richard Hatch (of CBS’ “Survivor fame) and Wesley Snipes (“Blade” movies) and the Joe Francis (creator of the “Girls Gone Wild” video series) prosecution, Janine Lindemulder’s sentence is not much of a surprise.  What these prosecutions show is that the IRS and Department of Justice are not deterred by celebrity in enforcing the tax laws.

Related news articles: here, here and here.

And Now...Another Celebrity in Trouble

As yet another commentary on how taxes can be interesting to everyone, this post is mostly just a link to another tax law blog. The Tax Girl blog has recently posted a story about even another celebrity of sorts that is facing tax trouble. The story (which can be read by clicking here) announces that Joe Francis (founder of the Girls Gone Wild video series) has recently pleaded not guilty to two counts of tax evasion.

Enjoy the commentary and short AP video clip on the story.

Another Celebrity Charged With Tax Crimes

As the author of a tax law blog, I quite often feel that taxes are interesting. I understand that not everyone may always feel this way, but sometimes tax related stories hit the news that have broad appeal. Recently, we have had the story of Richard Hatch (winner of the first season of the reality show contest "Survivor") and Wesley Snipes (of the "Blade" movies fame). Both were convicted of tax crimes. Now there is a celebrity of yet another sort that is facing tax trouble.

On July 17, The Smoking Gun web site announced that adult film star Janine Lindemulder had been charged with a misdemeanor count of willfully failing to pay tax due in violation of Internal Revenue Code section 7203.

While a misdemeanor carries a smaller penalty than a felony charge, a misdemeanor can still mean prison (just ask Mr. Snipes who was convicted to three years in prison - one year for each misdemeanor on which he was convicted). This will certainly be an interesting case to pay attention to, however, I expect that if she is convicted, her single misdemeanor count will help her fair much better than her celebrity counterparts. I am curious however as to whether her "different" kind of celebrity will bring any benefit.

The information document that charges her with the offense was filed on June 18 and can be found on The Smoking Gun web site.

Previous posts relating to Richard Hatch and Wesley Snipes can be found by clicking here.

Wesley Snipes Will Go To Prison

The Wesley Snipes tax evasion case was certainly the most high profile criminal tax case brought by the government in years. In spite of victories that he had in the trial court (acquittal on all felony charges). Mr. Snipes today learned what his sentence would be on the remaining three misdemeanors (failure to file) on which he was convicted.

A misdemeanor is a crime for which someone can be incarcerated for up to one year (a felony can result in a prison sentence of over one year). Today we learned that Wesley Snipes would serve the maximum sentence for his failure to file tax returns. Three Misdemeanors = Three Years.

That Snipes received the maximum sentence available suggests that while his attorneys were able to cleverly obtain acquittals of the felonies from the jury, the judge didn't agree with the arguments that were made. The judge would likely have handed down a lesser sentence if he had thought that the crime was limited to the misdemeanors. However, Wesley Snipes had avoided/evaded a substantial amount of taxes through teaming up with a group of people that are also facing their own consequences. The judge was certainly aware of how much went unpaid and how it was done. To hand down the maximum sentence, we can assume that he found Mr. Snipes' conduct eggregious.

One must wonder if the judge felt handicapped in handing down his sentence because he could only give three years. For this reason, Mr. Snipes should be very grateful for the acquittals that his lawyers got for him. If they hadn't done so, he could have been sitting for a much longer sentence.

If the $5 million dollar payment that Wesley Snipes has paid constitutes the tax, penalties and interest due, this case leaves two last interesting questions:

1) Will Wesley Snipes be sent to a minimum security prison camp (as is common in criminal tax cases) or will he end up in a more "prison-like" prison?

2) What is going to happen to all of the other people that participated in the same scheme that Snipes did?

It is not likely that each participant in the schemes will face criminal prosecution, rather, these other people can consider themselves to have benefited from Wesley Snipes' celebrity. However, we can safely assume that the government now has a list of names of all those people that participated in the American Rights Litigators and Guiding Light of God Ministries promoted schemes. These people will have to use the established IRS procedures to resolve their debts. Fortunately for them their, consequence will likely be limited to writing large checks made payable to "The United States Treasury."

Wesley Snipes and Richard Hatch

By now, many news websites and blogs across the internet have discussed the near accquittal of Wesley Snipes. For clarity, Wesley Snipes was not vindicated. He was convicted of 3 counts of misdemeanor failure to file. By any account, however, he managed to avoid some potentially severe consequences upon his acquittal on the more serious tax evasion felonies.

It will be interesting to see how Mr. Snipes is sentenced for the 3 misdemeanor convictions. It will also be interesting to see how the civil tax liability is resolved. Importantly, the reported defense that he was to use in the criminal trial was that "he didn't know he had to pay taxes" it was not that "he didn't have to pay taxes." As such, he may be facing down a tremendous tax debt in the coming years.

On a similar note, the same day that Wesley Snipes was partially acquitted, the 1st Circuit Court of Appeals handed down its decision in the Richard Hatch (CBS Survivor reality show winner) case. You may remember that Richard Hatch had argued that he thought someone else had paid the tax he owed on his Survivor winnings. Mr. Hatch's appeal contrasts the result in the Wesley Snipes case. The Court of Appeals disagreed with Mr. Hatch's argument that the government had deprived him of certain rights and his criminal conviction (including the sentence) was affirmed.

The text of the decision can be read here: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=1st&navby=docket&no=061902

Neither the Wesley Snipes case nor the Richard Hatch case says that people don't have to pay taxes. In fact, the cases suggest that you must obey the tax laws. The only thing to take from Wesley Snipes' accquittal from the tax evasion charges is this: based on the specific facts and circumstances presented to the jury, the government did not prove beyond a reasonable doubt that Wesley Snipes committed tax evasion.

IRS Audit Statistics

Last week the IRS released statistics regarding the 2007 fiscal year. Significant items in those statistics relate to who the IRS was auditing, how often the IRS filed liens, used levies and seized taxpayers’ property.

In the 2007 fiscal year:
1) The IRS collected $59.2 billion through audits, collection and document matching.
2) Audits of tax returns for taxpayers with incomes of $1 million or greater equaled 31,382.
3) Audits of tax returns for taxpayers with incomes of $200,000 or greater equaled 113,105.
4) Audits of tax returns for taxpayers with incomes of $100,000 or greater equaled 293,188.
5) Audits of tax returns for taxpayers with incomes of less than $100,000 equaled 1,091,375.
6) The IRS levied on the assets of 3,757,190 taxpayers
7) The IRS filed 683,659 liens
8) The IRS seized the assets of 676 taxpayers.
9) The IRS initiated 4,211 criminal investigations and 2,323 people were charged/indicted. The government had a 90.20% conviction rate.

The straight numbers don’t show that the number of audits of high income taxpayers has increased from prior years. In fact the IRS has deliberately pursued higher income taxpayers. However, the number of audits of taxpayers with less than $100,000 in income remains very high. Additionally, the number of liens and levies are higher than they have been in the last ten years. Seizures of taxpayer property are at the highest level they have been since 1998.

This means that the IRS is becoming more serious and effective in collecting taxes through its audit and enforcement procedures. The best ways to guard against additional tax, penalties and interest flowing from an audit is to have legal support for reporting positions at the time the tax return is filed and to retain adequate records to substantiate claimed deductions. If a taxpayer fails to do so, a skilled representative can help to reconstruct the legal and factual basis underlying a tax return, yet, this is not cost free. The best way to solve a tax problem is to avoid having the problem in the first place.

Will Wesley Snipes Avoid Going To Jail for Tax Evasion?

Obviously, this will be for a jury to decide. However, the argument that Wesley Snipes seems to be making "that the law doesn't require U.S. citizens to pay tax and that the government is collecting taxes illegally" usually doesn't hold up in court.

Today the New York Times reported that Wesley Snipes is heading to court. The article "Wesley Snipes to Go on Trial in Tax Case" (by David Cay Johnston, January 14, 2008) identifies a number of criminal tax cases in which defendants have been acquitted of criminal tax charges based on the argument that they really didn't believe that they were required to pay taxes. This appears to be an argument that the defendants lacked the requisite "intent" needed to be guilty of the crime of tax evasion. Two points should be made here: 1) a defendent is lucky if this argument works and 2) these people, even if they manage to avoid the criminal conviction, usually do not avoid the tax liability.

In the article, David Johnston points out that the IRS has generally recovered the civil tax liability from all of the defendants that have managed to avoid the criminal conviction. What should be learned from this is that the law does require the payment of taxes. Those who intentionally choose not to pay taxes are committing a crime. Those who unintentionally fail to pay taxes will still be liable for the tax debt. Anybody that tells you differently, is selling something.

Ultimately, taxes must be paid according to the provisions of the Internal Revenue Code. However, it is not necessary to pay more than what is required by the law and, if the law permits, one can structure his or her affairs to reduce a tax liability as much as possible. As Judge Learned Hand once wrote:

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

Personally, I'll be surprised if Mr. Snipes is acquitted. Even if he is acquitted, I'm confident that he won't avoid the civil tax liability.