Famous Fridays: The Tax Education of Lauryn Hill

Posted on February 7, 2014 by admin

Lauryn Hill is a popular hip-hop and soul musician who rose to fame as the lead singer of The Fugees in the mid-1990s. The Fugees’ second album, The Score, sold over six million copies in the U.S. and more than 17 million copies worldwide. The band split up soon thereafter and Hill released a solo album, The Miseducation of Lauryn Hill to even greater acclaim and success. “Miseducation” won five Grammy Awards, spent 81 weeks in the Billboard 200, and topped out at 18 million in worldwide sales.

Following its release, Ms. Hill largely disappeared from the public eye to raise her six children, five of whom she had with Rohan Marley, the son of reggae legend Bob Marley. Despite her low profile, Ms. Hill earned over $1.8 million between 2005 and 2007, mostly from recording and film royalties.

In June 2012, Ms. Hill was charged with tax evasion for failing to file income tax returns for the years 2005 through 2007. She faced a prison sentence of up to three years (one per unfiled return). Ms. Hill pled guilty to the charges and promised to pay back the taxes she owed. During her trial she criticized the over-commercialization of the music industry and cited the safety of herself and her family as reasons for stepping back from her career.

Ms. Hill signed a recording contract with Sony to help pay her tax liabilities of over $900,000 but her sentencing hearing was delayed for two weeks because she had still not paid the back taxes. At sentencing the judge also considered Ms. Hill’s failure to pay her 2008 and 2009 tax liabilities and sentenced her to three months in prison with a $60,000 fine. A day before entering prison, Hill released a long letter addressing racism, slavery and the IRS.

Ms. Hill was released from prison last fall and is currently on tour across the U.S. She will be in Washington, D.C. on February 9 and Atlanta on Feb. 13

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.

Elmore Leonard’s Tax Connection

Posted on August 21, 2013 by admin

The great fiction writer Elmore Leonard passed away yesterday at the age of 87 years old. Mr. Leonard published over 40 novels and numerous short stories in a writing career that spanned five decades. He started as a writer of westerns and became one of the most loved crime novelists of his time. His mastery of dialogue won him praise from reviewers and fellow authors. Martin Amis, Kinky Friedman and Joe Queenan all reviewed Leonard novels for the New York Times.

He was a darling of Tinseltown too. Several of his stories were adapted into film more than once, including “The Big Bounce” and “The 3:10 to Yuma.” There was no trouble finding Hollywood A-Listers to star in his films either. Paul Newman, Gene Hackman, John Travolta, Jennifer Lopez, George Clooney, Russell Crowe, Danny DeVito, and Vince Vaughn are only a handful of the stars who have played characters created by Leonard.

So what’s the tax hook to this homage? There has to be one right? There is.

Leonard’s novel Pagan Babies features “Father” Terry Dunn, who is living in Rwanda to dodge an indictment for Federal tax fraud. As the story moves along we find out that Terry may not be the man of the cloth that he holds himself out to be, and when he returns to his hometown of Detroit he runs in to a few other problems to go along with his tax situation. You’ll have to read the book to find out how it all plays out. Pagan Babies may not be the finest work of Leonard’s career – it did offer popular exposure to the devastating violence that plagued Rwanda for many years – but it gave us an excuse to pay public homage to one of our favorite writers.

Read Elmore Leonard’s 10 Rules of Writing here.