Stakes high for Snipes in Florida tax fraud case

updated 3:46 p.m. ET Jan. 13, 2008

OCALA, Fla. - Wesley Snipes made millions playing a half-man, half-vampire in the "Blade" trilogy, but believed he didn't have to pay any federal income taxes, according to prosecutors.

The 45-year-old action star, who faces a trial Monday on tax fraud and conspiracy charges, claims he was a victim of unscrupulous advice and didn't know he was doing anything illegal.

"He was completely innocent and he acted in good faith — not with any bad purpose or criminal intent to deceive or defraud the (Internal Revenue Service) at all," defense attorney Robert Barnes said.

Snipes also was paying millions in federal income taxes, until 2000 when he accepted the argument by two Florida men that he didn't have to, prosecutors say. Citing a long-rejected interpretation of federal tax code popular with tax protesters, Snipes allegedly tried to collect millions in illegal refunds.

If convicted, he faces up to 16 years in federal prison. Co-defendants Eddie Ray Kahn and Douglas P. Rosile could face 10 years.

Fringe interpretation of tax code
The government says Kahn founded a group in the 1990s, American Rights Litigators, and a successor group, Guiding Light of God Ministries, that purported to help members legally avoid paying taxes. Rosile, a former certified public accountant who had lost his licenses in Ohio and Florida, prepared the paperwork. Snipes joined their group in 2000.

Kahn's and Rosile's system relied on a fringe interpretation of the federal tax code which holds that U.S. citizens don't have to pay taxes on wages they earn within this country. It has been continually rejected as frivolous by judges and the IRS, but is still used by some tax protesters.

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"In reality, (Kahn's entities) were for-profit, commercial enterprises that promoted and sold fraudulent tax schemes that interfered with the administration of the internal revenue laws of the United States," an indictment said.

American Rights Litigators charged annual dues for members like Snipes and took 20 percent of any return generated, the indictment said.

The federal indictment charged Snipes with fraudulently claiming refunds totaling almost $12 million in 1996 and 1997 for income taxes already paid. Snipes was also charged with failure to file returns from 1999 through 2004.

The government didn't pay the refunds.

Requests denied
Part of Kahn's scheme, prosecutors allege, was to keep the IRS backed up with bizarre demands and heavy paperwork. ARL allegedly told Snipes to send a "determination letter" to check his tax status, and told him he didn't have to pay any taxes if the IRS did not respond.

Snipes also twice sent letters to IRS special agents investigating the case, in 2003 and early 2004, saying the agents had no authority to probe his tax situation.

Snipes' lawyers have filed a flurry of motions, most of them denied.

The most noteworthy was an unsuccessful change-of-venue request arguing that Snipes couldn't get a fair trial in Ocala because the central Florida town is racist. Snipes wanted the trial moved to New York, where he has a home. Prosecutors chose Ocala for the trial because Snipes had a home at Windermere, in the federal court district, and they alleged that most of the crimes happened in the district.

Kahn, who remains jailed, has no legal training but insists on representing himself and has made several missteps and peculiar motions. For example, he sought to be immediately freed because the indictment lists his name in all capital letters, and he claimed U.S. attorneys have no jurisdiction because Florida supposedly was never ceded to the federal government.

Those motions also were denied.

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