Hollywood Stars Who Owe Uncle Sam Big Bucks in Back Taxes
{{#rendered}} {{/rendered}}Take heart, America. Even celebrities pay taxes on April 15.
Well, sometimes.
Nicolas Cage’s bookkeeping got a bit muddled, and now he has to shell out $13.3 million to the federal government.
{{#rendered}} {{/rendered}}Joe Francis, founder of “Girls Gone Wild,” forgot, too. His tab? $29.4 million -- or roughly 5 million margaritas.
Sinbad the Comedian? A very unfunny $8.15 million, which doesn't even include interest and legal fees.
Other celebs who owe the taxman big bucks are Pamela Anderson ($1.7 million), the rapper Nas ($3.4 million), singer Dionne Warwick ($2.2 million) and actor Terrence Howard ($1.1 million). (Click here to see some of the celebs on the IRS’ hit list)
{{#rendered}} {{/rendered}}And as debt varies from celebrity to celebrity, so do their reasons for not paying up.
Certified public accountant and tax attorney Peter Pappas said the reasons for celebrity tax negligence run the gamut, ranging from a lack of financial knowledge, to the use of bad tax shelters, to true fraud.
“It’s hard to pinpoint any one specific cause, because there are many causes,” said Pappas, founder of Pappas and Associates, P.A. and a tax blogger. But whatever their excuse, the IRS cracks down on celebrities to make an example of them for citizens of all tax brackets, he said.
{{#rendered}} {{/rendered}}“Because [celebrities] are high profile, the IRS gets more bang for their buck,” said Pappas. “Several people came [to Pappas’s firm] because of Wesley Snipes…It definitely has an impact.”
In 2008, action star Snipes, who had been charged with tax evasion, was convicted of three misdemeanors and received a three-year sentence for his refusal to file tax returns, which is a criminal offense. He is out on bail and is appealing his conviction.
But Snipes’ example failed to encourage some stars to make things square with Uncle Sam.
{{#rendered}} {{/rendered}}Francis owes payment on a $29,393,681.45 IRS tax lien for failing to file personal income taxes from 2001 to 2003. A previous run-in with the IRS in 2007 landed him in jail, and he was required to pay $250,000 in restitution and a $10,000 fine for filing a false return.
Even in the most high profile criminal tax cases, the IRS’s pursuit of offenders like Francis and Snipes requires over a year of preparation. With the IRS’s yearly loss of over $300 million in unpaid taxes, only 338 criminal investigations were launched in 2009 to recover the lost tax dollars. Of these, only 149 ended in conviction, with a 77 percent incarceration rate.
The criminal cases are hard to pursue because the defendant’s intent to defraud the government must be proven, said Alan J. Straus, a tax attorney and chairman of a committee on IRS relations for the New York State Society of Certified Public Accountants.
{{#rendered}} {{/rendered}}“It is very difficult to prove intent,” said Straus. “Unless the IRS can prove intent, they will go after you for civil negligence.”
In 2009, the IRS filed a civil suit against Sinbad, who allegedly failed to pay taxes from1998 to 2006. According to court documents, Sinbad, whose given name is Michael Adkins, owed the IRS over $8.15 million plus interest and legal fees, which the Uncle Sam is still trying to collect –and has threatened to foreclose on his home.
Even outside trial court, tax liens can weigh heavily on the stars.
{{#rendered}} {{/rendered}}Cage’s accumulated tax liens for 2002, 2003, 2004, 2007 and 2008 total $13,330,372.83, according to Los Angeles County court documents, as reported by TMZ. Cage claims his financial woes are the work of an irresponsible financial manager, and he says he now has sounder guidance.
Pappas said cases like Cage’s result from a lack of financial knowledge and from trusting other people to manage his money who may have given him bad financial advice.
“People like Nicolas Cage don’t have a financial background and trust other people with money,” said Pappas. “[Cage’s adviser] gave [Cage] the wrong advice.”
{{#rendered}} {{/rendered}}In Hollywood, a good accountant is as important as a good stylist, especially in such emergencies. Carol Savoie, audit director of the international accounting firm Deloitte, LLP, said some foreign entertainers get tangled in the web of national and state-to-state tax code. “If a foreign person performed here in previous years and didn’t pay tax…their passport is flagged, they go to jail and Deloitte gets a call from their attorney,” she said.
Deloitte can bill tax-addled stars anywhere from a few thousand dollars to a few hundred thousand dollars to help settle their scores, depending on the magnitude of their tax predicament, said Savoie.
These Hollywood elite are the IRS’ “low-hanging fruit,” said Savoie, because information about their finances and travels are publicly available on the Internet.
{{#rendered}} {{/rendered}}“With the Internet, they know where you are and start looking,” said Savoie. “[Celebrities] are a huge source of revenue for the IRS.”
Clearly, fame and fortune has a cost, and -- postmarked no later than April 15 -- it's payable to the IRS.