10 Celebrity Tax Evaders

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Martha Stewart in New York City after her 2004 sentence hearing

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Introduction to 10 Celebrity Tax Evaders

Tax evasion challenges the idea that any publicity is good publicity. Sure, an IRS indictment is a quick way for a celebrity face to get splashed across media outlets from the Enquirer to the New York Times, but with more than a 90 percent conviction rate [source: IRS], when the taxman takes a celeb to trial, that celeb might as well say goodbye to the home, the car, the private jet -- it's like a county song. (Just ask Willie Nelson.)

"Actually, the reasons celebrities get in trouble with the IRS are the same reasons you and I get in trouble," says Brian Compton, president of the company Tax Resolution Services. "They fail to file returns, or they file returns that are significantly false." But the reason celebs get prosecuted may be a bit different. "The IRS loves to make examples of celebrities, putting their heads on the proverbial pike as a warning to the rest of us: Pay your taxes!" says "Tax Lady" Roni Deutch, expert in celebrity tax troubles.

But no matter the reason, this death of a thousand paper cuts comes in three flavors: the oblivious (Nic Cage: I'm just an entertainer!), the nefarious (Heidi Fleiss: What extra income?) and the couldn't-prove-anything-else (Al Capone: Really? Tax evasion?). And the resolution comes in two flavors: civil and criminal.

Criminal is easy (and relatively rare) -- the celeb goes to jail. But if celebs can't pay back taxes in a civil case through bank accounts or liquidating assets, resolution can get creative. The IRS took a percentage of the gate of Mike Tyson's prizefights. Willie Nelson went on a pay-the-taxman tour. And Wesley Snipes' acting fees went straight to the government until his debt was paid.

But you ain't seen nothing yet! Following is a list of some of the most famous celebrity tax evaders.

In 2007, Leona Helmsley passed away at her Connecticut home at the age of 87.

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10. Leona Helmsley

Leona Helmsley has never been known for her sweet disposition. When she learned that the Woodlawn Cemetery in the Bronx, where her late husband and son are laid to rest, made plans to construct a low-cost, 2,000-person mausoleum on the site, she sued for $150 million, claiming the building would disrupt the serenity and peace she was promised for her family's eternal resting place. She cut two grandchildren out of her will, but left $12 million to her dog, a Maltese named Trouble. And even the dog was mean. A former housekeeper is quoted in the NY Daily News saying, "One time she bit me [the dog, not Helmsley], she was chewing on my fingers, and Leona said 'Good for you, Trouble, she deserved it!'" [source: NY Daily News].

But nothing beats the Queen of Mean's 1989 quote, printed in the New York Times, in which Helmsley said, "We don't pay taxes. Only the little people pay taxes." [source: New York Times]. Leona did 19 months plus two months house arrest on a 16-year sentence.

After her release from prison, Martha Stewart quickly put her empire back together.

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9. Martha Stewart

Following Helmsley with Stewart might seems like visiting a koala after the grizzly, but Stewart has something Helmsley doesn't: a high-profile felony conviction for something in addition to tax evasion. Sure, Stewart failed to pay taxes on her New York home to the sum of $220,000, claiming that because she didn't spend much time there, she shouldn't owe taxes on it (similar to claiming you don't owe taxes on your stock portfolio because you don't check it very often)[source: Woman's Day].

But the financial feather in Stewart's judicial cap that Helmsley lacks is lying to federal investigators. Stewart claimed that she had a deal with the pharmaceutical company ImClone Systems to sell her shares of stock if the price ever dropped below $60. In fact, she had no such deal, and she sold 4,000 shares of ImClone stock worth $228,000 the day before the company announced its promising anti-cancer drug was not approved by the FDA [source: Washington Post].

Was it insider trading? The feds couldn't prove it. But they could prove that Stewart lied during the investigation. After 18 months in jail (at the same lock-up as Helsmley, coincidentally) and a forced rebuilding of her entire brand image, Stewart's $220,000 bill for back taxes looks like a parking ticket.

Famous American gangster Al Capone, shown here in 1930, lived from 1899 to 1947.

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8. Al Capone

Did you think that Native American reservations and the embassies of foreign countries were the only non-U.S. territories in mainland United States? Think again. From his ascension to mob boss in 1925 until his conviction for tax evasion in 1931, Al Capone ran the Chicago suburb of Cicero as his own private kingdom. And Capone ruled the kingdom with one personal commandment: plausible deniability in the eyes of the law. For example, when mob associates posed as cops and machine-gunned seven members of a competing gang in what became known as the Valentine's Day Massacre, Capone was (conveniently) in Florida.

Though he got nailed a couple times for rinky-dink charges like contempt of court and possession of a concealed weapon (he once famously said, "You can get much further with a kind word and a gun than you can with a kind word alone."), it was the taxman that finally brought down the mighty Capone. Though he paid taxes on only a paltry legit yearly income, he lived like the king he was.

Where did the money come from and why hadn't he paid taxes on it?

When the federal government asked this question, it landed Capone in the slammer for 11 years, of which he served seven and a half. Though only 40 years old at the time of his release, Capone's brain was riddled with syphilis and he never returned to Chicago.

Willie Nelson, show here in Ohio in 2003, went on tour to pay back some of the taxes he owed.

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7. Willie Nelson

By the mid 1980s, Willie Nelson was no stranger to charity events. He had established the Farm Aid concerts in 1985 and can be heard singing the second verse of "We Are The World" with Dionne Warwick and Al Jarreau. But it was in the early 1990s that the multiplatinum singer found himself putting out the hat for a cause a little more personal: himself.

In 1990, the IRS presented The Red-Headed Stranger (aka the Ambassador to Weedville, aka Shotgun Willie) with a $16.7 million bill for back taxes [source: CNN]. It turns out that while Nelson had been on the road again, his accountants hadn't paid his taxes for many, many years.

Nelson released an album titled "The IRS Tapes: Who Will Buy My Memories?" and auctioned off most of the possessions the IRS didn't sell for him (many of which his friends bought and later returned).

U.S. Secretary of the Treasury Tim Geithner speaks at a November 2010 meeting of The Wall Street Journal CEO Council.

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6. Tim Geithner

The United States Secretary of the Treasury is the top dog of American fiscal policy, a cabinet-level position, and fifth in line for the Presidency. He or she can do neat things like manufacture money. The appointment of a Treasury Secretary is dependent on Senate confirmation.

It was during Tim Geithner's confirmation hearing that the spotlight hit his own tax record. It turned out that nominee Geithner had failed to pay payroll taxes on monies he received from the World Monetary Fund for the four years starting in 2001 [source: Wall Street Journal]. Geithner claimed it was a simple mistake. However, the Wall Street Journal points out that perhaps the most embarrassing piece of the debacle was Geithner's actions upon discovering the slip-up: He paid back taxes on two of the four years. The statute of limitations for the first two years had expired before the skeleton fell from the closet.

Despite some admittedly sloppy personal bookkeeping, followed by amends that met the letter if not the spirit of the law, Geithner was confirmed and took office in January 2009.

O.J. Simpson, shown here at his famous 1994 trial, was eventually sent to prison on other charges.

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5. O.J. Simpson

In the Hollywood state, celebrities are frequently defined by lists: A list, B list, etc. O.J. Simpson has been on a couple of these lists. For example, the USC all-time leading rushers list. And, maybe, for a brief period while riding in the passenger seat of a white Ford Bronco in 1994, an informal most-wanted list. Later he made another list: a California scroll of the state's most delinquent taxpayers. Simpson owed $1.4 million in back taxes.

But Simpson, unlike so many on this list, had very good tax advice in the lead-up to this revelation. Almost all his money was squirreled away in pensions and in bank accounts in countries that don't tend to open their vaults to the IRS. He had also borrowed heavily against all his assets, so any creditors looking to liquidate his houses, cars, etc., found little free cash in them [source: AllBusiness].

In any case, Simpson's further legal troubles have overshadowed his tax troubles, and collection of the $1.4 million will have to wait until he's released from Nevada's Lovelock Detention Center, where he's serving time for kidnapping and armed robbery.

After being released from prison, Heidi Fleiss opened her own laundromat.

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4. Heidi Fleiss

When an independent vendor is paid for services, he, she or it is required to file a 1099-Misc describing any monies earned so the IRS can take its cut. For example, if a man we'll call "John" paid one of Heidi Fleiss' "employees" money for "services," as the business owner or "madam," Ms. Fleiss would be required to report the income to the IRS. But rather than pushing the recommended pencil (as it were), Fleiss laundered her under-the-covers income through her family's bank accounts and paid cash for a $1.6 million Beverly Hills estate [source: New York Times].

After serving three years, Fleiss went public with plans to open a (legal) male-employee, female-customer brothel in Pahrump, Nev., which she called "Heidi Fleiss's Stud Farm."

Legal troubles put the plan on hold, and instead, Fleiss opened a coin-operated laundry.

Tax troubles cost Nicolas Cage a castle and several homes.

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3. Nicolas Cage

Who hasn't deducted expenses for office supplies and then ended up using one of the pens on their home calendar? Deducting personal expenses was the charge against Nicolas Cage in 2007 -- $600,000 worth of them. (Apparently it was more than Bics.)

But in 2009, it got worse -- almost exactly 10 times worse -- when the IRS slapped a $6.2 million back taxes fee on Cage for failure to pay taxes on the $24 million in acting fees he made on the movies "Ghost Rider" and "Grindhouse" [source: Huffington Post]. (Yes, Cage made $24 million on back-to-back flops.)

In his defense, Cage did the legal equivalent of smiling, shrugging and apologizing for his accountants' mistakes, of which he had no knowledge. People magazine quotes Cage accusing his business manager of "lining his own pockets with several million dollars of business management fees, while sending Cage down a path toward financial ruin."

The tax trouble cost Cage a Bavarian castle and homes in Las Vegas, California and New Orleans.

Pete Rose has encountered the IRS on multiple occasions for failure to pay all his taxes.

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2. Pete Rose

Good ol' Charlie Hustle! Or should we pity Charlie Hustle, the everyman singles hitter who holds the record for career hits but was banned from Major League Baseball and denied a sure shot at the Hall of Fame? It turns out that not only did Rose bet on sports (denying he bet on baseball while managing the Reds, despite bookie sheets, phone records, and accusatory statements from friends and associates), but he also failed to report the winnings to the IRS. In 1990, that coupled with failure to report earnings for personal appearances, autographs and the like, landed him five months in jail, a $50,000 fine and 1,000 hours of community service [source: LA Times].

Then, in 2003, it looked like a doubleheader, with Rose back in the IRS dugout due to another failure to pay. But this time the charge remained civil instead of going criminal, and Rose managed to pay the $154,000 lien against him without, for example, selling his million-dollar Los Angeles condo.

The moral of the story: Don't play hardball with the taxman.

Best known for her role as Dorothy Gale, Judy Garland unfortunately spent more than she could pay and ran into serious tax troubles.

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1. Judy Garland

"If happy little bluebirds fly, why, oh why, can't I," sang Judy Garland in a refrain that could be her epitaph. It was a long 15 years for Judy Garland between the "Wizard of Oz" and her 1954 remake of the musical "A Star is Born".

The critics loved the remake, and Garland looked headed for resurgence after personal and professional problems, including a drug habit and multiple husbands. Then the studio cut half an hour of footage so theaters could fit in five or six showings in a day instead of three or four. The cuts were an obvious sellout and the critics revolted, panning the new cut and dooming the film to the circle of Dante's Inferno reserved for big-time flops like "Waterworld" and "All the King's Men".

Unfortunately, Garland had spent as if she was a star again, and when the tax bill came due she simply couldn't pay. She repeated the financial mistake when it looked as if she'd dug her way out of debt with a weekly TV show deemed "the biggest talent deal in TV history," only to have the show cancelled after one season.

Eventually the IRS foreclosed on her home, and Garland spent years traveling from hotel to hotel before dying of an accidental drug overdose in 1969. The children she left behind include actress Liza Minelli.

Lots More Information

Sources

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