The list of celebrities, sports stars, politicians, and others who found themselves in hot water over unpaid taxes in 2009 is long. Here’s a recap.
Celebrities love the spotlight, unless the illumination is from the IRS
Joe Francis, the producer of the Girls Gone Wild videos started the year in jail. But in November, after pleading guilty to some charges and having others dropped, he was sentenced to time served – 301 days in jail –plus a year’s probation and a quarter million dollar fine. The charges against him included underreporting his income by about $20 million, and later, bribing jail workers in Nevada while he was being held on the tax charges. Throughout the investigation, Francis maintained that his accountant, Michael Barrett, was the cause of his tax problems. Just as Francis was finally coming to a settlement with the IRS, the spotlight of blame does seem to have fallen on Barrett and two other employees of Francis’s company, Mantra Films. No arrests have been made as yet, but the three employees are accused -- among other things -- of setting up shadow corporations and then using them to bilk Mantra out of hundreds of thousands of dollars.
Update: In late December Francis told reporters that, within three hours of the judge accepting his plea bargain, the IRS filed a lien for $33,819,087 for back taxes from 2001, 2002, and 2003, according to TMZ.com. He speculated that the only reason the IRS would freeze his assets is for revenge.
Survivor winner Richard Hatch is like the bad boy who craves attention even if it is negative. After being sentenced to 51 months in prison on evasion of taxes on his $1 million Survivor prize, Hatch was serving the end of his sentence confined at his sister’s Newport, Rhode Island home. Then last August, as he was nearing the end of the sentence term, he went on the Today Show, to give what authorities are calling an unauthorized media interview. Hours later, authorities knocked on his sister’s door and escorted Hatch back to jail. Once the news of the arrest got out, the Today Show aired parts of the interview that had previously been cut. In those clips. Hatch accused officials of convicting him for tax evasion, not because he was guilty, but because of his sexual orientation and arrogant behavior. After his re-arrest, Hatch was taken to the Barnstable County Jail in Bourne, Massachusetts to finish his incarceration. The ACLU did help him ask the court to return him to house arrest, but Judge Nathaniel Gorton denied the request. Earlier this year Hatch went to court to ask if he could participate in Survivor’s 20th season, filmed in Samoa. That request was also denied.
There may be only one celebrity name that made more tax news in 2009 than Hatch, and that is Nicolas Cage. In 2008 Cage fought the IRS and won - sort of. The tax agency wanted $1.8 million in unpaid taxes, but settled for about a third, $660,000. Cage and his entourage crowed about the victory. Unfortunately, that investigation opened a much bigger can of worms for Cage. In 2009, the IRS went after him for $6.26 million, related to 2007 income, and another $360,000 for income earned between 2002 and 2004. As if all that was not enough, Cage is also the target of a breach of contract complaint filed by East West Bank, which claims that Cage has not paid back a $2 million loan.
Like so many other celebrities currently in tax trouble, Cage is blaming a representative. In the 2008 fight, the actor credited business manager Samuel J. Levin for the “win,” but this year Cage filed a $20 million lawsuit against Levin, who he says, "lined his (own) pockets with several million dollars in business management fees” while sending the actor “down a path toward financial ruin."
Update: Over Christmas People magazine reported that Cage was being sued by Red Curb Investments, for $36.7 million for unpaid loans. On December 28th they corrected that story. Red Curb is suing Cage for failure to pay back $3 million in loans made in 2007. The lender is also suing Cage’s former accountant, Samuel Levin, for $3 million, claiming he defrauded the company by not disclosing Cage’s financial status before the loans were made.
Who will win in a showdown between Batman and the Taxman? Action star, Val Kilmer may have superpowers on the movie screen, but he will likely be no match for the IRS. Last July, Bergen County, New Jersey authorities filed a lien against Kilmer on an address that houses professional offices. It's not clear what Kilmer's relationship is to the property, but satisfying the debt will cost him more than half a million dollars... $538,858. The portion that represents interest and penalties was not revealed.
Kilmer has lived on a 6,000 acre riverfront ranch in Pecos, New Mexico for the last 20 years. The ranch was once part of a much larger ranch -- Forked Lightning -- owned by the late actress Greer Garson and her oilman husband.
As of April of this year the entire ranch was listed for sale for $33 million, by Orvis/Cushman & Wakefield, a Colorado real estate firm. The Wall Street Journal quoted Kilmer as saying that he wanted it to be purchased by "someone who has the time and the finances" to take care of the property.
Here are a few other celebrities whose stories you may want to check out.
2009 has seen a long list of musicians and sports figures, and others caught in the crosshairs of tax trouble
In recent weeks, the Hip Hop group Black Eyed Peas made news when it was learned that their business manager, Sean Larkin, had not filed tax returns for the group for ten years on about $10 million in income due to what he calls an “inadvertent oversight.” Now the real fight seems to be between Larkin and the group’s attorney, Helen Yu.
Helen Yu, excoriated him for the tax-related failure. "Larkin knowingly and/or recklessly breached his fiduciary duties as a business manager by failing to timely make elections to tax various entities affiliated with the music group . . . resulting in losses of no less than $1.1 million to the members of the music group."
Based on those and other comments, Larkin is suing Yu for $5 million for defamation of character. Both Larkin and Yu are being represented by powerhouse attorneys. The Black Eyed Peas are not parties to the legal proceedings.
On November 16, the Internal Revenue Service filed a lien against singer Aaron Carter (also a former Dancing With the Stars participant) in the Los Angeles Superior Court, in the amount of $1,010,635. Of that, $965,285 relates to income earned in tax year 2003. The balance is taxes on income earned in 2006. Carter’s manager, Johnny Wright, told Entertainment Tonight, "It is unfortunate that while Aaron was a minor, his finances were grossly mismanaged by his previous team which has lead to the current situation of which he was unaware of until today. Aaron is working with a new team to take appropriate actions towards speedy resolution of the matter and looks forward to putting this behind him and moving forward with the next stage of his music career."
In 2003, when Carter was 16, he fired his manager-mother, who he says stole $100,000 from his earnings and mismanaged his career and finances. At that point he took legal action to become an emancipated minor.
According to a report in BuddyTV.com, in early December, Carter announced that he was trying to introduce a new law in the United States that will "protect young people from their parents who want to beat the system."
AllHipHop.com says singers Foxy Brown and Toni Braxton face hefty tax liens for unpaid state taxes. R& B singer Braxton and her husband, Keirston Lewis, are accused of owing $79,315 to the state of California. The state filed a lien against the couple in March 2009. That’s a mere drop in the bucket compared to $641,558 owed by Foxy Brown for federal taxes to the State of New York. Since 2003, six liens have been filed against the rap singer. This is the latest in a number of legal wrangles in recent years for Brown, who faced assault charges and served eight months of a one-year sentence at Rose Singer Center for women, at Rikers Island in New York, early last year. Accusations that she received favorable treatment there led to the resignation of several top officials at the New York State Department of Correctional Services.
In three separate cases, rappers, Method Man, Nas and DMX also are looking at various levels of tax trouble. The most bizarre of these three is Method Man, whose real name is Clifford Smith, a member of Wu-Tang. Smith admits that he may have received many notices of unpaid taxes, but he wasn’t paying attention.
"Myself, I'm a pothead", he told reporters. "It's no secret. Everyone knows that. I go on the road and forget everything else. Sure, [the tax department] sent letters to my house saying, 'We need this money.' They started sending them in 2002." By his own admission, it was easier to ignore the warnings and deal with it after authorities took his 2008 Lincoln Navigator in payment of his tax debt.
According to CNN.com, Smith faces felony charges of repeated failure to file taxes, and misdemeanor charges of failure to pay taxes. If convicted, Smith could face up to four years in prison.
Watch the video of the news report here.
Sports Figures vs. the Tax Authority
Racecar driver and Dancing With the Stars contestant Helio Castroneves saw a long battle with the IRS that started in 2008 and dragged on into April 2009. Castroneves was accused of hiding millions of dollars in fees for racecar driving and for endorsements in a Dutch tax shelter. The problem, said the IRS, is that Castroneves enjoyed the benefits of the tax shelter, but he never gave up control of the money. If convicted, Castroneves as well as his sister Katiucia, and his attorney Alan Miller, would have all spent years in prison, and the racecar driver would have owed up to $2.3 million in back taxes and associated penalties and interest. At the end of a trial that took nearly six weeks, the jury found Castroneves not guilty. He walked away a free man, just in time to get back behind the wheel of the #3 car for Penske Racing in April’s Toyota Grand Prix race.
Pro golfer, Jim Thorpe found himself stuck in a bunker in early 2009, for unpaid taxes of $1.6 million relating to income of $5.2 million earned in 2002, 2003, and 2004. Thorpe is looking at a $3.2 million fine, and a possible seven year jail term for failing to file income tax returns and three counts of failing to pay taxes. He is also accused of not filing a corporate tax return for his company JLT Inc, in 2003, and not making estimated tax payments for the business, although the complaint says that his accountant advised him to make the payments.
Sixty-year old Thorpe is on the Champions Tour for golfers over 50. His attorney Mark Horowitz told reporters",We look forward to having a trial. We don't think he's willfully violated the law. That's not to say he doesn't owe the tax, but we don't think he's guilty of a crime." Horowitz calls the case against his client "government spin."
In September, Thorpe pleaded guilty and awaits sentencing.
Boxer Floyd Mayweather earned $10 million, plus pay-per-view percentages, when he fought Juan Manuel Marquez, and turned most of it over to the IRS to pay back tax obligations. Per an agreement between the IRS and Mayweather, the tax agency was supposed to have filed a levy with the Nevada Athletic Commission for $5.6 million ($4.7 million in back payment, plus penalties) on income earned in 2007. The levy was never applied because payment was made in full before Mayweather stepped into the ring. Details about the payment are skimpy, but Mayweather’s tax attorney, Jeffrey Morse told reporters, “He does not owe a dime to the IRS.”
Morse refuted the rumor that is circulating which suggests the tax bill was paid by Oscar de la Hoya, leaving Mayweather indebted to de la Hoya instead of the IRS.
"He came out of retirement and showed he's an excellent taxpayer and fighter, and I think there's something good to that,” says Morse.
"This whole thing is getting out of hand, actually", Morse said. "He's a boxer. He has to pay his taxes just like anybody else. The levy was never executed and it never was going to be executed. The fact that it was going to be levied at all was mutually agreed on by the IRS and Floyd.
"I can only say Floyd has been noble in fulfilling his obligation and, unfortunately, not a lot of people are focusing on that."
Other sports figures sparring with the IRS in 2009
Other famous names that tangled with the IRS in 2009
Alexis Stewart, daughter of Martha Stewart, says her accountant made mistakes that cost her $737,047 in taxes and $143,683 in interest. The taxes relate to money earned in 2002, and the errors were caught as part of an audit conducted in 2006.
In April, the Washington Post reported that she is suing her CPA, Michael Mirras, because he "was negligent, careless, violated his professional duties of due care and diligence to plaintiff, failed to exercise reasonable skill as an expert certified public accountant, and was guilty of professional malpractice by incorrectly calculating Ms. Stewart's capital gains."
"She says almost $295,000 in penalties was reduced to $110,000 by negotiation", the Washington Post reported, saying Stewart's lawsuit is asking for $334,000 from Mirras.
Stewart, age 43, is a radio and TV host.
Duane “Dog” Chapman says his tax woes are about timing, not bad behavior. He is the owner of Dakine Bail Bonds in Honolulu, but is more well-known as the star of the Arts & Entertainment reality show",Dog and the Bounty Hunter."
Chapman owes taxes amounting to over $2 million, going back as far as 2002, according to tax liens filed at the Hawaii Bureau of Conveyances filed January 27, 2009. Tax trouble is nothing new for Chapman. The IRS has been hounding him for years over various tax concerns, including tax liens that were filed for income earned in 1993 and 1994, and a previous lien in 2004, all of which are cleared up.
The most recent round of tax payments have been made, says Chapman's accountant, Dennis Duban of Los Angeles, though he admits they were not made on a timely basis. Payments were made at the last minute, and there is usually a six-week time lag between making the payments and getting the liens released. Duban has been trying to work with the IRS to clear up any miscommunication about amounts due. He also acknowledges that his client owes taxes for more recent years.
"We show that he owes taxes for '06 and '07 but '02 to '05 was completely paid", he told reporters. "We're trying to catch up on the old years and to stay current."
Annie Liebovitz is well known in and out of photography circles as an enormously undisputed talent, but that hasn’t kept her from running into serious financial troubles. The last two years have brought two lawsuits which claim she owes more than $700,000 in bills related to her photography services, as well as tax liens for $1.4 million. She may be losing her country home in upstate New York, her properties in Greenwich Village, and the rights to her work.
For Liebovitz, the trouble seems to have started when she inherited various properties from her late companion Susan Sontag. To pay the estate tax and associated cost and “catch up” with her financial obligations, she arranged a $24 million line of credit with Art Capital Group (ACG). When payment, plus interest and fees came due last September, Liebovitz had no way to pay. ACG has filed suit.
Politicians in the tax spotlight in 2009
The year started with a new presidential administration, and a series of Obama nominees with their own tax woes. The most notable had to be Timothy Geithner, who Obama picked to head the tax agency itself.
Soon after being tapped to head the Treasury, Tim Geithner rushed to pay back taxes related to tax years 2001 and 2002. The unpaid taxes arose from the money that Geithner was paid during his years of employment by the International Monetary Fund. No Social Security or Medicare taxes were withheld on those funds, and Geithner paid none, in spite of signing a form acknowledging that he owed the money. When Obama’s vetting team discovered the unpaid tax, Geithner paid it immediately. The Wall Street Journal, referred to Geithner as "the living embodiment of the tax gap."
In spite of numerous protests, he was appointed Secretary of the Treasury under Barack Obama.
Less fortunate was Tom Daschle, nominated by Barack Obama to be the head of Health and Human Services.
Daschle failed to pay taxes on $2 million in consulting fees in 2006 and 2007; and also failed to report the free use of a car and driver from 2005-2007; and claimed inappropriate charitable deductions in the amount of $15,000; among other tax woes.
These lapses, said Daschle’s spokesman, occurred at least partly because of the maternity leave of the clerk who should have handled these matters.
In the light of these tax problems, Daschle withdrew his nomination.
Nancy Killefer was nominated by Obama to fill a new post intended to root out government waste – Chief Performing Officer. Killefer failed to pay taxes for household help and had a small tax lien on her home in 2005. After the revelations about Geithner and Daschle, Killefer withdrew her name from consideration.
Not all of the politicians with tax troubles are Obama nominees.
Al Franken’s 2008 run for Congress against Republican opponent Norm Coleman dragged into 2009 as recounts continued. Franken blamed his CPA for his failure to pay taxes to states, including California, where he earned fees as a comedian. Numerous requests to show proof that he ultimately paid the taxes were not answered. Franken currently serves as U.S. Senator from Minnesota.
Massachusetts Senator and former presidential candidate John Kerry found a tax lien filed against his 2004 campaign for unpaid unemployment taxes in the amount of $819,848.
The problem may lie in the improper filing or missing filing of employment tax reports. Kerry campaign spokeswoman Whitney Smith told reporters that the failure is on the part of the government, not the Senator.
"The IRS merely has a gap in their electronic records of the 2004 campaign's payroll forms. We filed these forms correctly, and we're working with the IRS to provide them any and all needed information to set the record straight."
The IRS position is: “We have made a demand for payment of this liability, but it remains unpaid." In addition, the IRS disputes the claim that the Kerry campaign filed the proper forms at all. “
In early December, we learned that a tax lien for nearly $80,000 was filed against California governor, Arnold Schwarzenegger. That was news to the actor-turned governor and his office, whose representatives say that was the first they’d heard of it. The IRS lien – which was filed with the Los Angeles County Recorder's office – says Schwarzenegger owes $29,047 for tax year 2004 and another $40,016 for 2005.
The governor's spokesman, Aaron McLear, was very clear with reporters, explaining that it was not a matter of Schwarzenegger failing to pay his taxes... it was a "paperwork tracking discrepancy." McLear added, this issue is "completely unrelated to the payment of taxes, which the governor has paid in full and on time."
A code listed on the tax lien signifies the problems arose from information returns, possibly related to payroll taxes, and appears to indicate a reporting error. A California tax attorney contacted by the San Jose Mercury News said that Schwarzenegger may be listed as one of a group of owners of a business that faced some tax issues in the past. In that case, said the attorney, each partner would be listed as a responsible person, which would explain why Schwarzenegger would be unaware of the lien.