DMX's Celebrity Tax Woes: Aint No Sunshine When IRS Calls
Posted on Mar 31, 2018
DMX was charged last year with tax evasion for failing to pay about $1.7 MM in back taxes. He faced 44 years in prison on the 14-count indictment. On March 29, 2018, DMX plead guilty and was sentenced to 1-Year in prison for his plea of guilty on a single count of tax fraud.
DMX went before senior Manhattan U.S. District Court Judge Jed S. Rakoff in the Southern District of New York this past Thursday. Judge Rakoff is widely considered one of the most respected federal criminal judges in the nation. DMX tried to appeal to the Judge's sympathies by having his attorney play his song "Slippin" in the courtroom. Attorney Stacey Richman said she played the song to show the "journey of his humanity... in his own words."
The Judge appeared to be swayed. He called DMX "a good man," and said that "in many ways he's his own worst enemy."
But what was DMX charged for? Prosecutors said that DMX went "out of his way" to evade taxes, and that while he was earning millions of dollars a year on recording and performance revenues between 2002 and 2005, he reported little tax. Tactics he employed were: 1) opening bank accounts in other people's names; 2) paying personal expenses in cash with no records; and 3) avoiding having a personal bank account, using nominee accounts in his managers' names instead.
Prosecutors argued that despite ample time to come into compliance, DMX's conduct grew worse with time. When collection activity started in 2005, he responded by upping the ante. Rather than getting his financial house in order, he removed withholding on checks from TV appearances to ensure tax wasn't paid, arranged for cash payments of performance/appearance fees to managers, and generally attempted to do all business in cash. Then, from 2010-2015 DMX added insult to injury by not filing any tax returns despite earning over $2.3 million during this period.
Lessons learned: Removing withholding is a no-no for anyone and is considered a badge of fraud or sign of intent to evade taxes. Not filing tax returns when you already owe is guaranteed to draw IRS scrutiny when your file lands on a Revenue Officer's desk. The better route is to file all tax returns, always maintain some withholding on any W-2 or 1099 income with the payroll provider, and to keep separate streams of income separate with different bank accounts & credit cards, and to never do any deals in cash.