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Rapper DMX Pleads Not Guilty to Tax Fraud

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    Earl Simmons, better known by his rap name “DMX,” has been recently charged with tax evasion for allegedly withholding up to $1.7 million from the IRS over the last seven years. Simmons was arrested Thursday, July 13th and is now facing 14 tax-related charges. These include six counts of evasion of payment of income tax liability, six counts of failure to file a U.S. individual income tax return, one count of evasion of payment of income taxes, and one count of corruptly endeavoring to obstruct and impede the due administration of the IRS. Though Simmons has pleaded not guilty to these offenses, if convicted he would be facing up to 44 years in federal prison.


    Tax Evasion v. Tax Avoidance:  What’s the Difference?

    Tax evasion is an increasingly common offense faced by celebrities and non-celebrities alike. Evasion is a crime in almost all developed countries.  Tax Evasion is defined under 18 U.S.C. § 7201 and entails taxpayers deliberately misrepresenting their true income to lead tax authorities to believe that their tax liability is less than it actually should be. This is not to be confused with tax avoidance—an entirely legal use of tax laws to reduce one’s tax burden, generally accomplished by claiming permissible deductions and credits, entity structuring and legal tax planning. We will discuss this more in detail below, but suffice it to say that Simmons’ behavior appears to fall squarely into the “evasion of payment” category. Acting U.S. Attorney Joon H. Kim claims that Simmons avoided paying taxes he owed the IRS by failing to disclose his personal bank accounts to IRS collection personnel, creating bank accounts in others’ names and paying his expenses with cash.

    According to the Department of Justice’s press release, Simmons deposited hundreds of thousands of dollars of royalty income into the bank accounts of his managers, who then used it to pay his expenses or dispersed the funds to him in cash. While taping the reality television show “Celebrity Couples Therapy,” the rapper refused to continue filming the remainder of the show unless he was issued a check without withholding taxes. The “X Gon’ Give It To Ya” singer also went as far as to file a false affidavit in U.S. Bankruptcy Court that listed his income as “unknown” for 2011 and 2012.

    California’s Underground Economy

    Unlike Simmons, whose behavior is most likely undeniably willful, many of Americans have probably participated in tax evasion without even knowing it. If you’ve ever had a garage sale, babysat for a friend or received cash payments for providing tutoring or yard work services, you were legally required to report that income to the IRS. Individuals who routinely earn income “off the books” and “under the table” are participating in something known as the “underground economy.” The underground economy is estimated to account for approximately $2 trillion per year in transactions and is estimated to be responsible for $500 billion dollars in lost revenue to the IRS annually. California’s underground economy is estimated to be the largest in the U.S.  Off the books workers avoid paying their share of income taxes as well as Social Security and Medicare taxes, but not without consequence. Those who fail to pay enough Social Security/FICA taxes may be ineligible for benefits when they reach retirement age.


    Tax Evasion:  A Victimless Crime?

    Liquor stores, small retail shops, and other cash-intensive businesses also contribute significantly to the underground economy. It is common for these business owners to pocket cash payments from customers to avoid paying sales tax or income tax. Many offer incentives and discounts to their customers who pay by cash. These individuals and businesses might be tempted to think that they are merely cutting themselves a break, but their actions serve to increase the burden on those who conform to the rules. Workers and businesses who report their entire income take on the added liability of making up for the deficit caused by under-reporting taxpayers. Ultimately, due to the exploitation of labor that accompanies this type of tax fraud, the damage caused by the underground economy extends well beyond the initial tax evader.

    It is important to keep in mind that all types of tax evasion, from celebrities with offshore bank accounts to bartenders who fail to keep accurate tip logs, are examples of potentially criminal activity. Under-reporting your income could leave you facing serious federal criminal tax charges. As evidenced by Simmons’ substantial back taxes and potential prison sentence, tax crimes also carry serious penalties.

    Contact an Experienced California Tax Defense Attorney

    Tax evasion can take a variety of forms and need not be elaborate or sinister to be prosecuted. Taxpayers are required to report anything that could be considered income, from whatever source derived, to the IRS. Any deliberate attempts to understate one’s income or refuse to file are forms of tax fraud or evasion. Even acts of negligence on the part of the taxpayer can yield serious penalties.


    An experienced tax attorney is invaluable to taxpayers facing an audit or criminal tax investigation.  Moreover, a tax attorney can provide all the guidance you need to comply with state and federal tax law requirements. No matter the severity of your situation, the Los Angeles tax attorneys and CPAs at The Tax Law Offices of David W. Klasing have the aggressive advocates you need to create an ideal tax minimization strategy. Individuals and small to middle market businesses alike can benefit from the extensive experience of our tax attorneys, CPAs, and EAs.  Call the Tax Law Offices of David W. Klasing at (800)-681-1295 today or contact us online for a reduced-rate consultation.

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