Rihanna may be one of the most talked-about celebrities on the planet right now but even that doesn’t make her immune from bad business decisions. The singer, who came in fourth on Forbes’ list of the 100 most powerful celebrities (settling in just behind Jennifer Lopez, Oprah, and Justin Bieber and just ahead of Lady Gaga), reportedly earned $53 million last year. She claimed, however, in a lawsuit filed last week against accounting firm Berdon LLP together with accountants Michael Mitnick and Peter Gounis, that she has actually sustained tens of million dollars in losses over the past few years as the result of bad bookkeeping and “gross mismanagement.”
The singer, whose real name is Robyn Rihanna Fenty, alleges that her “Last Girl on Earth” tour which featured opening acts Ke$ha and rapper Nicki Minaj lost money on paper despite healthy ticket sales. The losses are related, she claims, to her accountants’ practice of taking a hefty commission on revenues (reportedly nearly a quarter of sales) as payment for their services. That practice, which was described as “exorbitant and excessive”, as well as the failure to keep proper documentation, allegedly resulted in an audit with the Internal Revenue Service (IRS).
The cost of defending the tax audit has apparently been significant. The audit is ongoing and there’s no word yet on the total tax or legal bills as a result of the examination. I think it’s safe to say that it’s substantial enough to raise some eyebrows – and some tempers – considering the timing of the lawsuit.
Rihanna isn’t the first celebrity to blame her tax woes on poor fiscal management. Last year, Sharon Osbourne found herself in hot water with the IRS, which she attributed to depending heavily on tax advisors that weren’t, well, advising. She said at the time, “The last couple of years, I have really been concentrating on myself – because I think I love myself a little bit too much – and not taking care of business.”
As I’ve written before, this is something that I, unfortunately, see a lot of in my own practice: taxpayers who trust their bankers, accountants, lawyers, bookkeepers, financial advisors, (fill in the blank with your own story here) and find that trust misplaced for all manner of reasons. Sometimes it’s bad advice. Sometimes it’s a misunderstanding. Sometimes it’s inaction. The truth is that mistakes happen – from the rich and famous to the little guy – and it’s not always the case that it’s the taxpayer to blame.
My best advice? Find tax professionals that you trust. But don’t hand over your records and walk away: you’re still ultimately responsible for what gets reported on your tax returns. You do, after all, sign your tax returns upon penalty of perjury.
And I get that Rihanna doesn’t want to spend hours going through her records any more than my clients do. Most business owners start businesses because they want to sing/dance/paint/run a coffee shop/be a doctor/fill in the blank – you know, actually run a business– not sift through financial statements for hours on end. And I’m not suggesting that it should be otherwise.
At the end of the day, however, it’s your name and your integrity on the line. So choose folks that you trust and pay attention. It’s not foolproof, certainly, but it’s a good start. Then, to quote Rihanna, you can simply “Do Ya, Do Ya, Do Ya Thang.”
