First Person: Top 4 Celebrity Income Tax Messes

As a CPA, some of my clients think they have it rough this tax season, but income tax woes extend even to some of the most famous celebrities in the world. Sometimes, large incomes attract large tax headaches. Here are the celebrities most likely to fear a knock at their door from the tax man.

Wesley Snipes

If the IRS wants anything more from actor Wesley Snipes, it will have to knock on the front door of the Federal Correctional Institution McKean in Pennsylvania. The 48-year-old Snipes is serving 2-1/2 years for three counts of failure to file income tax returns. He was acquitted of the more serious felony charge of attempting to defraud the government.

Snipes hired a group of tax preparers who follow the belief that it is illegal to tax U.S. citizens on U.S.-source income. Snipes under-reported his income in 1996 and 1997 by over $11 million and simply did not file returns from 1999-2004. Snipes was convicted of the lesser charges. Snipes is expected to be released in July 2013 - just in time to start tax planning for that year. His income is likely to be significantly less until then so tax preparation should be easier.

Willie Nelson

When you are a world-famous country singer, it makes sense to hire professional tax accountants. Unfortunately for Willie Nelson, that plan didn't work out so well. In the early 1980s, the accounting firm Price Waterhouse set up a tax shelter scheme that was ultimately ruled illegal by the IRS and left Nelson with a tax liability of more than $32 million.

Nelson's tax lawyers negotiated the tax down to $16 million in a settlement agreement but Nelson was unable to comply. In 1990, the IRS seized all of Nelson's assets (except for his beloved guitar, Trigger) and put his ranch up for auction. Fortunately for the country singer, the house was purchased by a group of farmers and fans who returned the ranch to Nelson.

In 1991, Nelson released an album of previously-unreleased recordings entitled Who Will Buy My Memories? under agreement with the IRS that meant that they received most of the revenues in settlement of the debt. By 1993, Willie Nelson was able to settle up with the IRS. He sued Price Waterhouse and settled out of court.

Nicholas Cage

A more recent celebrity clash with Uncle Sam came in 2009 with the surprising revelation that the IRS had filed in excess of $6.6 million in tax liens against Nicholas Cage's property and that Cage was suing his former business manager for causing massive financial losses.

According to the IRS, Cage failed to claim around $24 million in income he received for two movies made in 2007. While the movies bombed financially at the box office, Cage was paid $12 million for each. The new tax liens followed on the heels of Cage's settlement with the IRS for trying to claim $3.3 million in non-deductible personal expenses. Cage settled that matter for $660,000. This time, however, he was not so fortunate. Several of his extensive real estate holdings were already in foreclosure and he quickly put the rest up for sale to pay the tax bill. This IRS tussle is still ongoing as is the lawsuit against his former business manager.

Duane "Dog" Chapman

Dog Chapman is famous for his television show, "Dog the Bounty Hunter," and for his role in the 2003 Mexican capture of accused rapist Andrew Luster. That event landed Chapman in hot water of his own when Mexican authorities had him arrested for illegal bounty hunting. The charges were subsequently dropped.

Chapman has not been so lucky with the IRS. He has made a second career of being audited and has had tax liens placed on his property dating back to 1993. The most recent tax lien, filed in 2009 alleges that Chapman owes Uncle Sam over $2 million and still owes taxes for the 2006 and 2007 tax years. His lawyer states that Chapman is working on getting and staying caught up on both old and current taxes.

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