Famous Fridays: Nicolas Cage, Spending A Fortune In Sixty Seconds

Posted on May 23, 2014 by admin

Regardless of your opinions on his talent as an actor, Nicolas Cage amassed a fortune for his consistent roles in movies since 1981. Cage won an Oscar for his performance in Leaving Las Vegas, but he may be best known for his roles in adventure movies Con Air, Face/Off, Gone in Sixty Seconds, Lord of War, and Ghost Rider. He earned more than $150 million from acting between 1996 and 2011, and found a way to spend almost all of it.

Cage accumulated 15 personal homes between 2000 and 2007 ranging from a castle in England to a Bel Air mansion that was taken off the market when nobody could meet Cage’s $35 million asking price. He also spent $7 million on a private island in the Bahamas, purchased 4 yachts, and a $30 million private jet. His car collection would have made Memphis Raines proud with nine Rolls Royces, 30 motorcycles, a $500,000 Lamborghini, and a $1 million Ferrari Enzo.

He earned $40 million and was the fifth-highest paid actor by Forbes in 2009, but on the whole it was a bad year financially for Cage. Even this income wasn’t enough to sustain Cage’s lifestyle. His Bel-Air mansion was foreclosed upon by each of the six lenders supplying six mortgages totaling nearly $20 million. The IRS placed a lien on his New Orleans home to collect over $13 million in unpaid taxes and penalties for tax years from 2002-2007. A large part of the bill stemmed from using a company he owned to write off $3.3 million in personal expenses including costs for limos, meals, gifts, travel, and his private jet. Among other things, the IRS adjusted his taxable income from $430,000 to $1.9 million in 2003 and from $17 million to $18.5 million in 2004. The IRS reduced the expenses for his private jet by over $500,000 in several other tax years.

He fired and sued his business advisor and began making headway on his back taxes by selling some of his properties, a dinosaur skull worth over $250,000 and Action Comics #1 for $2.16 million. In 2012, Cage made a payment of over $6.2 million to the IRS cutting his debt in half. His marketability as an actor and the rumored National Treasure 3, should put Cage well on his way to paying off the IRS.

Famous Fridays: Pete Rose, Gambling Winnings Are Income Too

Posted on January 31, 2014 by admin

Pete Rose has faced his fair share of criticism for his gambling problems. He was banned from Major League Baseball for betting on games while he was a manager. He also underreported income from gambling, personal appearances, autograph signings, and memorabilia sales between 1984-1987.

During his playing career, Rose earned the nickname “Charlie Hustle” for his fierce competitiveness. He finished his major league career as the all-time hits leader with 4,256. Rose also won three World Series, including two as a member of the Big Red Machine, three batting titles, one MVP, and made 17 All-Star appearances. He managed the Cincinnati Reds from 1984 until 1989, when the 225-page Dowd Report was released to MLB Commissioner Bart Giamatti.

The infamous Dowd Report contained banking records, betting records, and witness testimony indicating that Rose bet on baseball while managing the Reds. Rose originally denied the allegations, but agreed to a ban from Major League Baseball in 1989. Rose is still banned from Major League Baseball and has admitted on betting on games he managed.

Shortly after his ban from baseball, Rose was charged with failure to report over $350,000 in income from memorabilia sales, autograph signings, personal appearances, and gambling winnings from 1984 through 1987. In 1990, Rose pled guilty to two felony charges of filing false tax returns. As part of the plea agreement, prosecutors agreed not to charge Rose with the more serious crime of tax evasion. He was sentenced to five months in prison and fined $50,000.

Rose continues to make money with appearances and memorabilia sales, presumably reporting all of it as income on his tax returns.

Famous Fridays: Wesley Snipes, A Lesson in Listening to Bad Advice

Posted on January 10, 2014 by admin

Wesley Snipes was at the center of one of the most publicized tax trials of the last twenty years. Snipes got his start on the small screen with appearances on Miami Vice and in Michael Jackson’s “Bad” music video. His star rose quickly after he appeared as Willie Mays Hayes in the baseball spoof, Major League. He was probably best known for playing the comic book action hero Blade.

Snipes was indicted in 2006 for tax fraud and failure to file returns. His tax problems traced back to the advice of his accountants/tax advisors, Eddie Ray Kahn and Douglas Rosile, who came up with an argument that most of Snipes’ income was exempt from tax. Kahn and Rosile claimed that U.S. citizens could only be taxed on income earned from certain foreign-based activities and not on money made in the U.S. They relied upon a facetious argument which cited IRC § 861 to exclude income earned in the United States by U.S. citizens. This well worn tax protester argument wasn’t new to the courts having been struck down by the Tax Court as early as 1993. See, Solomon v. Commissioner, TC Memo. 1993-509.

Ignoring IRC § 61, and most of the rest of the Internal Revenue Code, Snipes’ advisors argued that only income derived from “taxable activities” is taxable income. They looked to Treas. Reg. § 1.861-8T(d)(2)(iii) to define taxable activities and maintained that, as a United States citizen, Snipes and other clients were not subject to tax on wages derived from sources within the United States. Snipes and his advisors faced a difficult battle given the large volume of Court cases rejecting the IRC § 861 argument and the identification of the argument as a legally frivolous tax return position under IRC § 6702(a).

Snipes pursued his argument in a big way. Snipes filed tax returns though 1999, when presumably he was approached by Kahn and Rosile. He filed amended tax returns seeking $12 million in refunds on taxes he paid in 1996 and 1997. Claiming he had no wages, Snipes stopped filing altogether from 1999 through 2004 – tallying over $15 million in back taxes.

The Department of Justice already had a line on Snipes advisors, having issued a restraining order against Rosile in 2002 for promoting this scheme. After gathering evidence on Snipes, Rosile, and Kahn, the Department of Justice indicted Snipes in 2006. He pleaded not guilty to all counts.

The case went to trial in 2008 with Snipes facing over 16 years in prison. Confident in their case, the defense team did not call any witnesses and rested after less than an hour. Snipes was found not guilty of felony tax fraud, but was convicted of three misdemeanor counts of failing to file tax returns.

In a gesture of good will, Snipes wrote three checks amounting to $5 million to the U.S. Treasury prior to his sentencing. The payments were accepted, but Snipes was still sentenced to three years in prison – the maximum sentence requested by federal prosecutors. He began serving his sentence in 2010 after his appeal requesting a new trial was denied. Kahn and Rosile were not as fortunate. They were sentenced to 10 and 4.5 years, respectively.

Snipes was released from prison in April 2013 to serve the remainder of his three year sentence under house arrest. It looks like he landed on his feet, as he’ll have a role in the movie Expendables 3 slated for release in 2014. Hopefully, he’ll look to § 61 to report his income moving forward.

Famous Fridays: Al Capone, The Most Famous Tax Evader of Them All

Posted on January 3, 2014 by admin

In the first installment of what we intend to be an ongoing series profiling the tax troubles of the stars and other famous folk, we start with the most famous tax evader of them all.

Alphonse Gabriel “Al” Capone was one of the original American gangsters who rose to power during the 1920’s. Capone was not only recognized for his brutality and willingness to take lives, but also his keen business sense and extreme secrecy in managing his organization. In his rise to power, Capone consolidated much of the gambling, prostitution, liquor, and extortion rackets in Chicago and brought them under his control. He spent tens of millions of dollars on bribes to politicians, prosecutors, police officers, and other city officials. These tactics kept Capone from serving significant jail time, despite being a suspect for numerous murders during his reign.

An extremely cautious man, Capone dealt strictly in cash and kept his business dealings secret. Despite bringing in an estimated $100 million through his various business ventures in 1927, Capone never had a bank account. During their extensive investigation the Treasury Department only found one instance where Capone endorsed a check. In a raid of one of Capone’s gambling establishments, the Treasury Department found a book record showing net profits of $300,000 for 1924, $117,000 for 1925, and $170,000 for the first four months of 1926. During their investigation, Treasury also found a cashier’s check from 1927 amounting to $2,500 endorsed by Al Capone for the profits of the gambling establishment. Treasury used this evidence along with the testimony of one of Capone’s bookkeepers, and other employees testifying to various Capone wire transfers, to show that Capone had several hundred thousand dollars in unreported income.

On June 16, 1931, Al Capone pled guilty to tax evasion and prohibition charges. Much to his lawyer’s dismay, Capone boasted to the press that he struck a deal for a two-and-a-half year prison sentence. However, the presiding judge informed Capone that he was not bound by any deal. Capone changed his plea to not guilty and was convicted on November 24, 1931, sentenced to 11 years in federal prison, fined $50,000 and charged $215,000 in back taxes, plus interest due.

The publicity of Capone’s case caused criminals and legitimate citizens alike to take note and begin to pay the IRS for back taxes. In 1931, more than $1 million in unpaid tax filings were submitted, double the amount of the prior year.

Capone didn’t catch any breaks after his conviction. He contracted syphilis and suffered brain damage and insanity from the infection. Before his death in 1947, doctors concluded that he had the mental capacity of a 12-year-old child.