Nicolas Cage in tax trouble again

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When it comes to income taxes, Nicolas Cage can’t catch a break. Less than a year ago he was celebrating what he called a “win” in a fight with the IRS.   They wanted $1.8 million in back taxes, penalties, and interest. Thanks to a bold defense, he ended up paying about one-third, or $660,000.  But… they may have celebrated too soon. Eleven months later, he’s treading water again. This time, the IRS wants $6.2 million to settle the debt.

The current tax kafuffle involves Cage’s income for 2007 when he starred in two pictures.  “Ghost Rider” and “Grindhouse” are being called flops, but flops or not, Cage earned $12 million for each film. Details are skimpy, but the IRS contends the actor failed to pay taxes on that $24 million. On July 14, 2009 they filed a tax lien against him in the Orleans District Court in Louisiana, for $6,257,005. Now Cage is scrambling to sell his homes in New Orleans and in Hollywood to raise the cash and get the taxman off his back… again.  Just last month Cage dropped the asking price for his California home from $35 million to a mere $17.5 million. He also owns homes in several other areas, including New York, the United Kingdom, and the Bahamas.

 Last year’s fight with the IRS centered around his tax liability for 2002-2004. The issues were multiple, including the fact that, while the IRS says Cage was paid $18.5 million for his role in the movie "National Treasure", he reported only $17 million.   In addition, the IRS accused Cage of  inappropriately writing off  $3.3 million in personal expenses as business deductions. These expenses included travel, gifts, limos, and his Gulfstream 1159a turbojet. To make matters worse, Cage’s company, Saturn Productions, also came under fire. Items Saturn wrote off as business expenses were reclassified as income to Cage, doubling his trouble.   The result was that Saturn got an additional tax bill of $988,000 and Cage himself got a revised tax bill adding $814,000 for salary and constructive dividends from Saturn.

During the dispute, Samuel J. Levin, Cage’s business manager, told reporters at that those  expenses were “customary” in the entertainment industry.  Cage’s accountants wrote off hair care, make-up, clothing, manicurists, personal trainers, and bodyguards.  The IRS responded by stating in tax documents related to the case",The inherently personal nature of the expense and the personal benefit far outweigh any potential business benefit."

Cage’s attorneys laid most of the blame on those who prepared Cage’s tax returns for the three years in question, but they also argued that the IRS double-counted some of the disallowed expenses.   In spring of 2008, the actor filed documents in the U.S. Tax Court – under his birth name of Nicolas Coppola – contesting the validity of the two new tax bills and penalties for both.

In the end, Cage’s tax debt was reduced from $1.8 million to $660,000, causing him and his attorneys to hail the verdict as a big win.   Unfortunately for Cage, the attention paid to his prior tax issues may have given the IRS a heads-up to turn up the scrutiny on his subsequent tax returns.  Compared to the amount in dispute today -- $6.2 million on his 2007 income – he is no doubt thinking that the $1.8 million the IRS wanted last time is sounding more and more like a bargain.  

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