It’s tempting to try to get away with paying less income tax. A shady deduction here or there won’t be noticed, right? You might want to consider the fate of some celebrities and businessmen who were nabbed by the IRS.
They all had millions but were tripped up by trying to keep more than their share under the law. And saving a little in taxes up front cost each of them more in the end.
In the end, penalties and interest add up, making the original tax bill seem cheap in comparison. And for the worst offenders, there’s a stint in prison to endure. From Al Capone infamy to our top choice (you won’t believe what job he held before his conviction), these 10 learned the lesson the hard way—and some learned it repeatedly. We’ve listed them in order from lowest to highest amount of taxes avoided.
(Check out AdvisorOne’s special report home page: 20 Days of Tax Planning Advice for 2013.)
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10. O.J. Simpson
There weren’t many people who were more recognized or beloved by sports fans in the 1970s than Orenthal James Simpson. He leveraged his football stardom and movie-star good looks into a career as commercial pitchman (think of him dashing through airports for Hertz) and in movies and TV shows like “The Naked Gun: From the Files of Police Squad!,” “Roots” and “The Cassandra Crossing.” It all went horribly wrong when he was charged with the murders of his former wife and Ronald Goldman. He was, of course, acquitted of those crimes.
But Simpson ended up being imprisoned in a separate, bizarre scheme involving his claim of trying to retrieve property he says was his. He was convicted of armed robbery and kidnapping and sentenced to 33 years in prison. If that wasn’t enough, the IRS this year put a $515,000 lien on Simpson for failure to pay taxes. That was the third such lien placed on Simpson in a year. The liens covers taxes owed to California and the U.S. for the years 2007-11.
9. Pete Rose
(Amount Evaded: $1.2 million; $1.5 million today)
The troubles of baseball’s all-time hits leader have been well chronicled. His lifetime ban for betting on the sport has kept him out of the Hall of Fame despite his on-the-field credentials. On top of that, he has had the tax man (or men, in this case) after him. In 1990, Rose served five months in prison for tax evasion. In 1998, California sought payment of $151,000 for taxes owed on his home in Sherman Oaks. He paid that debt off in 2003. The next year, the IRS filed a lien against Rose for $973,000 in taxes owed for 1997-2002. The hit king managed to pay that off in 2011.
That didn’t mean he was free and clear of tax woes. Last April, the IRS filed documents seeking payment of $120,000 in taxes for 2009 and 2010.
8. Leona Helmsley
(Amount Evaded: $1.2 million; $2.4 million today)
Before her epic fall, Leona Helmsley might have been remembered for the luxury hotel chain she built after marrying Harry, a real estate tycoon who appointed her president of the 30 or so hotels. She was known for her star turn in commercials for the chain, the queen of the perfect lodgings. But fall she did, becoming a punch line for New York tabloid editors and comedians while earning the nickname “Queen of Mean.”
What did she do to merit that sobriquet? She avoided paying $1.2 million ($2.2 million today) in taxes by paying for renovations on her Greenwich, Conn., home from corporate accounts. At her spectacular 1989 trial on 235 counts of tax evasion, workers at her home testified to her nasty demeanor and her failure to pay contractors. One worker famously testified that Helmsley had uttered this infamous sentence: “We don’t pay taxes, only the little people pay taxes.” Helmsley may have avoided taxes, but she couldn’t avoid prison and a $7.1 million ($13 million today) fine.
She stayed wealthy, though, selling her husband’s business after Harry (who was not tried because of medical incompetency) died in 1997 and much of her real estate at the height of the market in 1998. She died in 2007, leaving $12 million to her dog.
7. Al Capone
(Amount Evaded: $215,000; $2.9 million today)
The king of Chicago’s gang wars of the 1920s was old Scarface himself. A hero to some who benefited from his bootlegging during Prohibition and his charity when the Great Depression hit, Capone was a ruthless gangster who maintained his grip on power with liberal use of the Tommy gun, best reflected in the St. Valentines’ Day Massacre of 1929. Despite the notoriety Capone’s acts garnered, the government was never able to make a case against him stick.
That is, until he faced tax evasion charges for the years 1925-’29. Accused of evading payment of $215,000 (about $2.9 million today) in back taxes, Capone in 1931 received 11 years in prison, more than twice the longest tax fraud sentence ever handed down.
For Scarface, his six-year reign of terror was over. Poor health caused by the ravages of syphilis and other problems led to his release from prison in 1939. Capone lived out his life in a state of diminished mental capacity, finally dying in 1947. And the conviction had a larger effect: income tax payments doubled over the two years following Capone’s conviction.
6. Dennis Kozlowski
(Amount Evaded: $8.3 million; $9.79 million today)