Celebrity Tax Cheat Sheet: Tax Controversy Cases in Hollywood

tax written on a checkbook

Americans who purposely and illegally evade taxes are subject to criminal charges and other penalties according to federal law. If found guilty, a tax evader will face serious consequences that can put their financial standing, and even personal lives, in shambles.

For this reason, to avoid a run with the Internal Revenue Service (IRS), one should work with a licensed tax attorney, not just an accountant. If troubles arise, an IRS tax attorney can help you sort out your problem, such as negotiating your back taxes.

According to California-based tax law firm Abajian Law, “Tax controversy can involve civil matters, such as dealing with IRS audits and collection activities or foreign tax issues, or criminal matters, such as handling criminal investigations by the IRS, the state tax authorities or the Justice Department.”

Even celebrities with hotshot tax lawyers and accountants may be caught in a series of tax controversies. Specifically, following a high-profile tax evasion case, they aren’t only put under the IRS microscope, but they are also under public scrutiny. Often, they bring this image for years, which can potentially ruin their careers.

Here are some of the celebrities who have been charged with tax fraud:

Jeffrey “Ja Rule” Atkins

In 2017, Jeffrey Atkins was involved in a scam music festival, which resulted in a $100 million lawsuit, along with his partner and fellow organizer, William McFarland. Years before this, rapper and actor Atkins pleaded guilty to tax fraud when he failed to file income tax returns between 2004 and 2006. The celebrity was ordered to pay $1.1 million in back taxes, on top of penalties and interest.

Martha Stewart

Apart from being a well-received celebrity chef, Martha Stewart is known for being involved in an illegal insider trading, for which she faced prison time. Apart from that, she is notorious for failing to pay taxes on her New York estate. The state of New York ordered her to pay $220,000 in back taxes plus fines, rejecting Stewart’s claim that she didn’t have to pay because she hardly ever spent time in the East Hampton mansion.

Nicolas Cage

Nicolas Cage isn’t only known for his iconic characters in blockbuster Hollywood films. The actor also has a reputation for having led a lavish lifestyle – yachts, castles, islands, and albino king cobras. Maintenance of this kind of life led him to financial troubles and a run with the IRS.

In 2009, the IRS imposed a $6.2 million tax lien on Cage against his assets, which he paid in 2012. However, according to ABC News, the actor admitted to owing the tax office $14 million.

Takeaway for the Ordinary Taxpayers

man filing a tax document

An individual doesn’t need to be earning millions a year to be caught in a web of conflict with the IRS. But, they also don’t need to be committing such an act to learn a lesson or two. Here are some of the takeaways from these high-profile tax evasion cases:

1. A taxpayer should know their obligations. The federal and state governments require a person to pay income taxes. State governments impose sales taxes, while local governments levy property taxes on real estate and vehicles.

2. A taxpayer should work with an accountant or tax lawyer they trust. Taxes are complicated, and it takes a professional to understand how it works fully. To make sure they are not accidentally committing tax fraud, a taxpayer can consult a tax expert, especially during the tax season.

No one should wait for the IRS to remind them about their duties. Americans should know better than purposely avoiding taxes, thinking they could save money. If you’re caught in a complicated tax web (e.g., accidental tax fraud), make sure to work with a tax controversy attorney who will help you recover from this financially draining and emotionally exhausting case.

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