Real Housewives of New Jersey stars Teresa and Joe Giudice made headlines again this month when the Internal Revenue Service (IRS) filed a $551,563 tax lien against the couple. The Giudices are not strangers to tax troubles: after Teresa is released from prison later this year, Joe is slated to serve time. Both took a plea to financial and tax charges against them with Joe pleading guilty to failure to file a federal income tax return.
It seems that reality TV stars like the Guidices are a magnet for trouble. How can real taxpayers stay away from the real tax and financial troubles that seem to plague reality TV stars? Here are ten moves to avoid:
1. Failing to file income tax returns. Mike “The Situation” Sorrentino from MTV’s Jersey Shore and WE’s Marriage Boot Camp answered “not guilty” to charges last year that he avoided paying taxes on $8.9 million. Through his then acting attorney, Richard Sapinski, of Newark, New Jersey, Sorrentino pleaded not guilty to one count of conspiracy to defraud the United States; two counts of filing false tax returns for 2010 through 2012; and one count for allegedly failing to file a tax return for 2011. Defending against the charges also took its toll: Sapinski asked to be removed as Sorrentino’s defense counsel when The Situation could no longer pay his legal bills, telling a federal court, “I really don’t have much left in the bank.”
The willful failure to file a federal income tax return is a generally a misdemeanor under 26 U.S. Code §7203, resulting in a fine of up to $25,000 ($100,000 in the case of a corporation), and up to one year in prison, or both. In some cases, including when the charge is linked to other financial crimes, willful failure to file a return may be considered a felony under 26 U.S. Code §7201 and subject to a fine and up to five years in prison.
Takeaway: While the Internal Revenue Service (IRS) doesn’t generally gun for jail time for your run of the mile failure to file, a penalty may apply if you don’t file by the deadline. The good news is that the failure to file penalty is generally more than the failure to pay penalty: even if you can’t afford to pay your taxes, be sure to file your tax return.
2. Lying to the court. Abby Lee Miller of Lifetime Television’s Dance Moms knows what it’s like to fall on hard times. In 2010, the dance instructor and reality TV star filed an action in bankruptcy court claiming that she was overwhelmed by debt, including property and income taxes. However, prosecutors allege that Miller was renegotiating her contracts while maintaining to the bankruptcy trustee that her income was “not guaranteed” to increase because the show income was “volatile.” Miller eventually admitted that she had not disclosed checks from her TV shows totaling approximately $288,137.57 and subsequently amended her reorganization plan. That wasn’t enough. The Bankruptcy Court expressed continued reservations about whether Miller had been forthcoming regarding her income. Earlier this year, a federal grand jury in Pittsburgh, Pennsylvania, indicted Miller on charges of bankruptcy fraud, concealment of bankruptcy assets, and false bankruptcy declarations.
Lying under oath, including any written testimony, declaration, deposition, or certificate, is considered perjury. Under 18 U.S. Code §1621, if you’re found guilty of perjury, you can be fined and sentenced to up to five years in jail. Even if you’re not charged with perjury, lying to the court never makes the judge happy and can result in additional changes (like fraud).
Takeaway: When you submit documents to a court, you’re asserting that those documents are true to the best of your knowledge. You undermine your case – and set yourself up for trouble – when you’re not truthful. And it can be hard to keep track of multiple lies. Mark Twain once said, “If you tell the truth, you don’t have to remember anything.” It’s true. Bottom line: don’t lie, even a little bit. It makes everything else much easier.
3. Assuming that your advisors are always on your side. In 2011, Ozzy and Sharon Osbourne of MTV’s wildly successful The Osbournes, were hit with a $1.7 million tax lien. Sharon explained to fans that her tax issues were the result of mistakes made by someone she paid to manage her financial affairs. She said about her accountant, “He did say he’s to blame, but I’m to blame because I didn’t care enough. I was too involved in myself. I canceled two meetings with him over the last 18 months because I was way too busy. And the bottom line is it stops with me. So I have to face up, be a big woman and realize I’m not Mrs. Wonderful.”
Sharon’s experience is all too common. In my practice, I see a number of taxpayers who trust their bankers/accountants/lawyers/ bookkeepers/financial advisors/fill-in-the-blank far too much. Sometimes they rely on bad advice. Sometimes there’s a misunderstanding. Sometimes the advisors fail to take action or explain to the taxpayer what the next steps might be.
Takeaway: While it’s certainly true that you should be able to trust those you hire to do the job you’re paying them to do, it’s a mistake to simply hand over the financial keys and walk away. When you sign a tax return, a check or a mortgage application, it’s your signature that matters, not your advisor’s. Read the fine print. Ask questions. And if you don’t understand, ask again. Keep a diary of important dates and make sure that you don’t miss any – even if your advisor slips up. Remember, it’s your financial future at stake.
4. Submitting false financial statements or tax forms. Jeff Zausch, may have dodged big snakes and other dangers on Discovery Channel’s “Naked and Afraid XL” but he couldn’t shake charges of insurance fraud. Zausch pleaded guilty to one felony charge of insurance fraud in September, acknowledging that he had provided a false statement to his insurance company. Following an automobile accident, Zausch upped his insurance with Geico (to full coverage) and filed an accident claim days later. Not only did he file after the fact, changing the date, Zausch said law enforcement did not respond to the accident. Unfortunately for Zausch, an off-duty Idaho State Police officer called in the accident and local law enforcement had responded (whoops!). At sentencing, Zausch was ordered to make restitution, pay a fine and perform community sentence; he also received three years probation.
Making or filing false statements can subject you to a slew of state and federal charges including a violation of 18 U.S.C. §1001(a). Punishments for breaking the false statement law include fines and a jail sentence of up to five years (more if the charge is deemed related to domestic or international terrorism).
Takeaway: You know lying is wrong. In some instances, as here, it constitutes fraud. Lying to the government or a government agency can up the ante: there’s real potential for a prison sentence. In most cases, the standard for making false statements involves willful conduct: anytime that you’re making representations that you know to be untrue, you’re putting yourself at risk.
5. Failing to pay taxes. Vince Herbert, who co-stars alongside wife Tamar Braxton on WE’s Tamar & Vince , is no stranger to Uncle Sam. In 2013, Vincent Herbert was hit with a $3,325,107.70 federal tax lien for the years 2010, 2011 and 2012 downloads as a pdf). In addition, Herbert allegedly owes more than $600,000 to the State of New York. The amounts are perplexing considering that Herbert is rumored to be worth millions: his record company, Streamline Records (an imprint of Interscope Records), has signed such artists as Lady Gaga.
The failure to pay penalty is ½ of 1 percent (.005%) of your unpaid taxes for each month or part of a month after the due date. If you owe a significant amount (usually over $25,000), the IRS may file a tax lien to alert creditors that the government has a legal right to your property; the lien is removed when the debt is paid. If the IRS feels that you’re not making an effort to pay, they may also move to garnish your wages or levy your bank accounts.
Takeaway: If you don’t pay your taxes, generally you get smacked with interest and penalties until it’s paid up. You may also be liened, levied or garnished, resulting in a giant headache. The good news is that IRS is willing to work with you to help you pay your outstanding balance, including working out a payment plan.
6. Overspending to look cool. It’s hard to tell whether The Hills power couple Spencer Pratt and Heidi Montag (nicknamed “Speidi”) were more addicted to their 15 minutes or their love of spending money. The pair spun their The Hills fame into stints on I’m a Celebrity … Get Me Out of Here and the UK’s Celebrity Big Brother; Heidi also appeared on VH-1’s short-lived restaurant competition, Famous Food. Victims of their own success, Pratt confessed that they were practically penniless after their reality TV heyday, saying, “We made and spent at least $10 million.” Where did it all go? Pratt says they blew it on a Hollywood lifestyle. “Every time we’d go out to eat, we’d order $4,000 bottles of wine,” he says. “Heidi was going to the mall and dropping $20,000 to $30,000 a day. We thought we were Jay Z and Beyoncé.” Pratt also claimed to leave big tips: hundreds of dollars a pop for valets and doormen. And don’t forget about the plastic surgery: Montag made news for having ten plastic surgery procedures in one day including a boob job and chin reduction. After all of those expenses, the couple was practically broke.
Takeaway: Even if you have a great job, you can’t count on your income level to always remain the same. Spend sensibly and only take on debt when you know that you can afford it – and that includes in the long run. And since you can’t promise you’ll stay healthy forever, take advantage of any disability policies offered by your workplace and supplement when possible.
7. Hiding (or hoarding) cash. Todd Chrisley, of USA Network’s Chrisley Knows Best, knows that he spends heavily. After bragging that his family “sometimes spend $300,000 or more, just on clothing,” Chrisley was forced to declare bankruptcy in 2012. His petition for bankruptcy stated that he had just over $4.2 million in assets and debts totaling $49.4 million: those debts included $12 million in mortgages and a bill from IRS totaling $595,227.98. Despite those numbers, the spending continued, prompting the court-appointed bankruptcy trustee to investigate whether Chrisley was hiding money. Chrisley’s lawyers denied the charges and the bankruptcy was finally settled this year.
Takeaway: Here’s a tip: if you’re crying poor but flashing cash, you’re going to raise eyebrows. The IRS and the courts have resources that they can dedicate to investigate claims that taxpayers and debtors might be lying about their finances. If you are and if you get caught, the consequences can be severe (see again #2).
8. Assuming you won’t get caught. When Real Housewives of New Jersey stars Joe and Teresa Giudice allegedly cooked up their mail and wire fraud conspiracy, it was 2001. They continued the fraud, according to prosecutors, for a period of several years, the Giudices reportedly submitted fraudulent mortgage and other loan applications and supporting documents to lenders in order to obtain mortgages and other loans. When the Real Housewives of New Jersey debuted in 2009, the Giudices had the opportunity to straighten up but the feds say they didn’t do that, instead perpetuating their fraud in bankruptcy court – all while presenting a different face to a TV audience. All of that lying eventually caught up to the pair who pleaded guilty to a slew of financial and tax charges: both were sentenced to prison.
Takeaway: Getting away with something – even something small – may make you feel like you can do anything. And you may be tempted to try something even bigger next time. What might start out as a little white lie can snowball into full on fraud. The more mistakes you make, the more likely it is that someone will notice – and you’ll get caught.
9. Showing no remorse. Girls Gone Wild founder and VH-1’s Couple Therapy Season 3 star Joe Francis isn’t known for his likeable personality. In 2013, after being found guilty on five charges (three counts of false imprisonment, one count of dissuading a witness from reporting and one count of assault causing great bodily injury), the former porn king called the jurors in his case “mentally … retarded” and said they “should be euthanized.” That wasn’t his first rodeo: in 2009, Francis skipped out on a hearing for his tax evasion case, claiming that he was sick; he ended up in jail after US District Judge S. James Otero issued a bench warrant for his arrest. He managed to avoid jail time by pleading guilty to misdemeanor counts of filing a false return and bribery (!) and was slapped with a $34 million civil lien by IRS, prompting him to claim that he would be forced to declare bankruptcy. After his tax case, Francis was accused of criminal contempt for disclosing sealed court documents related to his income tax troubles sealed by the court; included in the charges were allegations that he released an interview with a government witness that Francis allegedly turned over to a third party. His legal and financial troubles didn’t slow down after that. Francis was subsequently prosecuted for allegedly passing a bad check to resolve a gambling debt. Shortly thereafter, casino owner Steven Wynn won a $41 million defamation suit against Francis (a judge reduced the damages to $20 million); Wynn’s attorneys had asked for $12 million in damages but a jury awarded him more than $20 million; they later piled on $20 million in punitive damages. Francis caught something of a break when Judge O’Donnell threw out the $20 million punitive damage award which she suggested was “the result of the jury’s dislike of the defendant and/or his businesses.”
Takeaway: It helps to be contrite when you do something wrong. It especially helps when someone – a judge, a jury or an IRS agent – who might be in a position to help you believes that you’re really sorry. If you screw up and you get caught, don’t start out being argumentative and belligerent. Not everyone is likeable but when you’re backed into a corner, it often helps to say you’re sorry. You might be surprised at how far it takes you.
10. Doing the same thing over and over again. In 2009, Dancing With The Stars contestant Lil Kim failed to pay her federal income taxes. Again. According to court documents, Lil Kim was socked with a $86,347.85 lien for failing to pay taxes in 2009. That’s a pretty meager sum in the grand scheme of things and hardly noteworthy on its own except that court documents indicate that Lil Kim owed the IRS money for every tax year from 2002-2009. A representative for the entertainer advised at the time that she was working to resolve the situation. Cut to 2014 when Lil Kim was hit with another lien – this one for $126,725.12 – for failing to pay her taxes in 2010, 2011, 2012 and 2013. This year, Lil Kim announced the launch of her new reality show, The Queen Bee, claiming that the world needs a “black Kardashian.”
Generally, the IRS doesn’t pursue jail time for failure to pay (see #5 above), instead opting for liens, garnishing of wages and levies. In some cases, the IRS may also seize assets like real property (think Willie Nelson) to satisfy tax obligations.
Takeaway: Albert Einstein defined insanity as doing the same thing over and over again and expecting different results. Failing to pay your taxes over and over won’t make the IRS go away. If anything, it could actually increase IRS scrutiny of your returns and your finances. It may also make you ineligible for penalty relief, jeopardize offer and settlement agreements and extend the timing of existing liens. Even if you can’t pay your taxes, don’t ignore them. If you can’t pay anything, contact IRS to see if you might qualify for a break from collections or get started on a payment plan.Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.