Celebrities really are just like us. However, their missteps live under the spotlight of public scrutiny. Although they live in the public eye, they are just as responsible to live by the same rules and regulations the rest of us do.
As Benjamin Franklin once said, “in this world, nothing can be said to be certain, except death and taxes.” This list shows that some celebrities chose to learn the hard way that they’re not above the law.
Here are the top celebrity tax cheats who have been caught committing tax evasion, and how they did it.
In March 2013, actor Stephen Baldwin pleaded guilty to not paying New York state income taxes in 2008, 2009, and 2010. This totaled up to $400,000 in back taxes. Baldwin claimed that he had not purposely avoided paying taxes, but he had received bad advice from his lawyers and accountants that landed him in hot water. He was able to avoid jail time by agreeing to pay back the owed debt within one year, which he successfully managed.
IRS filed both a $6.2 million tax lien against Nicolas Cage in July 2009 and a $6.7 million tax lien in December 2009. Reportedly, he had previously blown over $150 million on luxury cars, mansions, a yacht, a private plane, and even a pyramid tombstone. Cage paid off the $6.2 million in 2012 and has continued taking on new film roles to pay off his debts.
Rapper DMX, whose real name is Earl Simmons, pleaded guilty to a single count of tax fraud after withholding $1.7 million in taxes over a five-year period. He initially pleaded not guilty and claimed that the “people in charge” of him were responsible for his tax fraud between 2010 and 2015. However, five months after being arrested for the charges, he admitted, “I’m responsible… I failed to file taxes.”
Teresa and Joe Giudice
The Giudices were indicted on 39 counts of fraud and tax charges in July 2013. One of the many charges was directed against Joe for failing to file tax returns from 2004 to 2008. During this period, he was suspected to have earned $1 million.
Additional charges resulted when Teresa lied under oath to withhold her full salary from the hit Bravo reality show The Real Housewives of New Jersey, in addition to other various business ventures. Joe similarly lied under oath in denial of failing to file his tax returns. After an initial attempt to plead not guilty, they changed their plea to guilty in March 2014.
All in all, Teresa pleaded guilty to four counts and Joe pleaded guilty to five counts—including not filing his tax returns. In October 2015, Teresa was sentenced to 15 months in prison and Joe to 41 months in prison in addition to being ordered to pay $414,588 in restitution. The judge allowed the couple to offset their sentences so their four young daughters would have a parent at home.
Legendary country singer Willie Nelson faced $32 million in back taxes from IRS in 1990. With the help of his lawyer, his debt was reduced to only $17 million, which unfortunately, he still was unable to pay. As a result, IRS seized almost all of his assets to auction off and pay off his debt.
The government agency also allowed him to record his album Who’ll Buy My Memories? (The IRS Tapes) to raise funds to repay his debt. He eventually managed to pay off the last of his debt in 1993.
Mike ‘The Situation’ Sorrentino
In January 2018, the Jersey Shore star pleaded guilty to tax evasion. Sorrentino was found guilty of failing to pay taxes from 2010 to 2012 on nearly $9 million of income. In October 2018, he was sentenced to eight months in prison which he began serving in January of 2019.
In July 2013, the singer and rapper served three months in prison after failing to pay over $1 million in taxes. She pleaded guilty to $1.8 million in tax evasion from 2005 to 2007. She pleaded that she had intended to pay her taxes but her break from music left her unable to do so. In May 2013, her attorney claimed that she had paid $970,000 in penalties and unpaid bills before her prison sentence.
The Girls Gone Wild founder pleaded guilty to tax evasion in 2009. Francis withheld $500,000 in interest income in addition to bribing jail workers, supposedly in exchange for food. He was ordered to pay $250,000 in restitution and was sentenced to 301 days already served and one year of probation.
H. Ty Warner
In October 2013, the Beanie Babies creator pleaded guilty to one account of tax evasion. It was found that between 1996 to 2007, Warner withheld $24.4 million in interest income, which equated to $5.6 million in taxes. Additionally, he did not file annual “FBAR” reports to the U.S. Treasury on his foreign accounts.
His plea deal consisted of his agreement to pay $16 million in back taxes in addition to a $53.5 million penalty. Luckily, Warner was able to avoid the suggested jail time of 46 to 57 months. Instead, he served two years of probation and was ordered to complete 500 hours of community service.
Survivor winner Richard Hatch was sentenced to 51 months in prison in May 2006 after a jury found him guilty of tax evasion and failing to report over $1 million of earnings in 2001. In October 2009, he was released from jail and transitioned to supervised release.
In 2011, Hatch was sent back to jail after failing to refile his 2000 and 2001 taxes. Hatch served an additional nine months and was released in December 2011.
Cincinnati Reds baseball star and then later manager, Pete Rose, was found guilty of filing false income tax returns in 1990. During the investigation of his false tax reports, Rose was found guilty of betting on baseball games and failed to report earnings from personal appearances and memorabilia. As a result, Rose is now banned from the MLB. In his trial, the court sentenced him to a fine of $50,000 and five months in prison.
A few years later in 2003, Pete struck out with IRS when they placed a civil charge of $154,000 for failure to pay taxes correctly.
In 2001, Martha Stewart sold her shares of ImClone Systems right before their value sank. She avoided losing over $40,000 by selling the shares. The Securities and Exchange Commission (SEC) indicted Stewart for insider trading, and she was found guilty in 2004.
The star of Martha Stewart Living claims her broker, Peter Baconovic of Merrill Lynch, advised her to sell her stocks when she did—which still constitutes as insider trading.
The celebrity was sentenced to five months in prison and two years of supervised release for conspiracy, obstruction of agency proceedings, and false statements to federal investigators. Additionally, she owed a $30,000 fine.
This infamous Chicago Mob Boss underwent a three-year investigation of his finances and bookkeepers in the late 1920s. In 1931, he pleaded guilty to five counts of income tax evasion. In the court order, the judge sentenced him to pay over $200,000 plus interest in back taxes. In today’s dollars, that would equate to over $3 million in back taxes.
Part of his sentence included 11 years in prison, part of which was spent in Alcatraz.
A Final Word
One thing we’ve noticed about all of our clients is that they hope the government won’t notice when they make (sizeable) errors on their tax returns.
Tax issues can be very serious, regardless of your business size. If your business owes back taxes, you cannot afford your current tax bill, or you are facing another legal tax matter, don’t risk a fate like these celebrities.
Contact Milikowsky Tax Law for expert legal support. Our experienced team of tax attorneys will defend you in a battle against IRS and protect your assets during your most challenging tax law concerns.
For more information on tax law for small businesses owners, read our article here.