Rap artist DMX entered a guilty plea in a tax fraud case that put him in jeopardy for a long prison sentence. Under the plea arrangement, his maximum prison term cannot exceed five years. It was a smart move, says tax lawyer Rob Wood. He discusses the plea in his Forbes article, “DMX Tax Fraud Guilty Plea Cut 44 Year Prison Exposure To 5 Years.”
Wood notes that DMX (real name Earl Simmons) had been charged with tax fraud in a fourteen-count indictment. Had he been found guilty on all counts, he could have been sentenced to as much as forty-four years in prison. By pleading guilty to only one count, he has cut his prison exposure to five years. He will be sentenced in March 2018. Wood suggests that the actual sentence will be substantially less than five years.
Of course, the extensive charges of tax fraud resulted from things that DMX did. Wood points out that a key element of any tax fraud case is “willful” misconduct. DMX engaged in a series of evasive maneuvers “that it would be really difficult to say were unintentional.” Willful misconduct is not the same thing as a stupid mistake, Wood says. An example might be getting a large consulting fee but forgetting to report it because the client didn’t send you a Form 1099.
DMX engaged in evasive conduct, Wood says, by getting frequently paid in cash. Another maneuver is to require as a condition of providing services that the payment be made to a third party rather than to oneself. Another allegation against DMX is that he refused to accept one check in payment for services because it had taxes deducted. He insisted on receiving a check with no taxes deducted. When there is a series of allegations like this, they tend to suggest willful avoidance of taxes. Wood suggests that DMX’s tax lawyers told him that he would probably lose in a trial.
As to the world of non-celebrity taxpayers, Wood says that the IRS seems to make a point of going after high-profile people who are seen to be enjoying lavish lifestyles but not paying taxes. However, non-celebrities may find themselves in trouble with the IRS as well. One common mistake Wood sees is where a taxpayer who makes one mistake tries to cover it up. That’s the sort of thing that will get the attention of an IRS auditor making a routine audit of a taxpayer. Cover-ups may lead to fraud charges.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.