A target. That’s how the attorney for “Real Housewives of New Jersey” stars Teresa Giudice and Giuseppe “Joe” Giudice characterized the couple after their indictment on bankruptcy fraud and other charges (Giuseppe faces additional charges for failing to file tax returns). Attorney Henry Klingeman says that the pair is being prosecuted because she’s a celebrity.
I’m guessing he’s half right.
It’s true that the Giudices are in the news because Teresa is a celebrity. The couple appears to crave the spotlight and they’ve had more than their fifteen minutes of fame since “Real Housewives of New Jersey” made its debut on Bravo in 2009. Chances are, you wouldn’t care so much about tax charges involving the Smiths or the Garcias or the Muellers. The reality is that celebrity news draws the spotlight and the Department of Justice, like the Internal Revenue Service, is certainly well aware of this. Of course, they’re going to use it to their advantage: it’s the IRS equivalent of a kitten on the internet. People are interested.
And much in the same way that people want that Jenny Packham dress because Kate Middleton attracted so much attention when she wore it, IRS is hoping that celebrity tax evasion and tax fraud charges will draw attention, too – as a “what not to do.” While the interest lasts, it’s a free spot on Entertainment Tonight for IRS – as well as a steady stream of magazine covers – about the dangers of not complying with our tax laws. IRS benefits from this kind of publicity: it has the potential to frighten everyday taxpayers into compliance. If it could happen to Giuseppe Giudice – or Lauryn Hill or Fat Joe or Willie Nelson – the thought process goes, maybe it could happen to you.
Practically speaking, our tax system is based on the notion that we’re self-governed. Unlike other countries – Germany is a good example – the U.S. does not audit every individual income tax return every year. In fact, while the U.S. processes nearly 140 million tax returns each year, the number of actual returns selected for examination is relatively small: for the last fiscal year, IRS examined just over 1.3 million individual returns, which works out to an audit rate of about 1.3%.
Statistically, you’re more likely to die in a car crash (1 in 83) or from a stroke (1 in 23) than be audited by IRS. (On the plus side, you are less likely to get struck by lightning (1 in 700,000) or get bitten by a poisonous snake (1 in 37,500) – silver lining?)
Of course, like any statistics, the facts and circumstances matter. Some states, because of geography, population density, and the layout of their roads lend themselves to more road-related fatalities (in case you’re wondering, Montana and Louisiana top the list). Similarly, some taxpayers, because of amount and type of income get more scrutiny than others: for example, if you make more than $200,000 per year or you file a Schedule C, your chances of getting selected for audit are a little bit higher. Those bumps are hardly accidents: very few tax returns are selected for random examination. If you’re flagged for examination, it’s likely because there is something on your return that lends itself to a second look.
That’s probably what happened here: something didn’t add up. In this particular case, it appears that something was a lack of filed tax returns – as well as financial disclosures that didn’t make sense on paper when compared to the Giudices’ economic “reality” (assuming that they even know what reality is). The tax returns became an issue because it is alleged that Giuseppe offered up individual income tax returns to support a mortgage application, the same returns that were filed with the Bankruptcy Trustee, even though they were never actually filed with the one entity who would care most: IRS.
And I’m well aware that every bad turn doesn’t end in a federal prosecution: mistakes can be fixed. That is, in fact, how I make my living – by fixing mistakes. You have the opportunity in most cases to make it right and that’s the rule for everybody, celebrity or not. Take fellow “Real Housewives of New Jersey” star Danielle Staub, for example. Staub also filed for Chapter 7 bankruptcy protection and her petition, filed in June 2012, also had some holes. However, when allegations surfaced that Staub might not have disclosed all of her assets, she fixed things, ponying up an additional $35,000 for creditors last month.
The Giudices had more than one chance to fix things, too. Questions had been raised years ago about the initial bankruptcy petition. An amendment was filed in 2010, adding a checking account, several businesses, more vehicles, a boat, and a leased 2005 Maserati Quattroporte; the Giudices went on to file “multiple amendments” to the petition. But it wasn’t enough: after questioning, Giuseppe eventually pleaded the Fifth Amendment at trial. Criminal charges related to the bankruptcy and those missing tax returns followed.
So are the Giudices being prosecuted because Teresa is a celebrity? No. They’re being prosecuted because they allegedly broke the law – 39 times or so.
Is it news because Teresa is a celebrity? Of course it is – that is, until the next big thing comes along.
