It’s part one of a taxgirl double-header! I’m wrapping up my summer of movies and tax with two more features.
The first is Blow, the 2001 movie based on the real-life story of George Jung, Pablo Escobar, Carlos Lehder and the Medellín Cartel. The film’s title comes from a slang term for the drug, cocaine.
I really liked this film – and I didn’t expect to. I’m not all that interested in the drug culture (go figure) and I’m not a huge fan of Penelope Cruz to say the least (I don’t “get” women who are not completely frightened away by Tom Cruise). But it was a fascinating look at this world that I don’t understand and didn’t expect to relate to. I tend to think of those in the drug culture as less than human (fair or not) and Johnny Depp’s portrayal as someone torn between these two worlds was just brilliant – and even made me a little (but just a little) sympathetic.
The Background
We’re introduced to George Jung as a young child boy with his parents Fred (played with appropriate paternal dismissal by the always fab Ray Liotta) and Ermine (Rachel Griffiths). As with many families in the 1960s, George’s father pays the bills and Ermine stays home. Ermine is, however, not content with the world that Fred provides and longs for something more. Unfortunately, she also voices her displeasure at Fred on a pretty regular basis, which makes an impression on young George. Eventually, Fred’s fortunes take a turn for the worst and the family is forced to declare bankruptcy. Lucky for him, a run of the mill bankruptcy generally has no tax consequences. IRC §108 excludes the discharge of debt in bankruptcy from its definition of cancellation of debt income. Debt that is canceled outside of bankruptcy can result in income taxed to the debtor.
Soured at this turn of events, George vows that his own family will never meet a similar fate.
The Opportunity
Eventually, George Jung (played as an adult by the remarkable Johnny Depp) ditches the cold northeast for sunny Southern California. George and his friend “Tuna” (played by Ethan Suplee, now on NBC’s My Name is Earl) get an apartment on the beach – but have no way to pay for it. The drug scene is pretty well established at the beach – it seems that everyone is smoking pot. Tuna convinces George that selling pot is their ticket to riches.
George gets started in the trade by meeting Derek Foreal (played by Paul Reubens – yes, he’s Pee Wee Herman). Derek teaches George and Tuna the tricks of the trade and before long, they are rich. Chances are, they aren’t reporting this income to the IRS but they should: illegal income, such as money from dealing illegal drugs, must be included on federal form 1040, line 21, or on Schedule C or Schedule C-EZ (federal form 1040) if from self-employment activity. [Editor's note: this is, by the way, my favorite provision in the Tax Code!]
When a friend comes west for a vacation, he is impressed by their operations. He complains about the lack of good pot in the northeast and they develop a plan to try their luck in the northeast.
The idea turns out to be sheer genius. They have practically no competition and expand rapidly. Like most businesses, they streamline their services and decide to buy directly from the source: Mexico.
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