Reality stars being charged with tax evasion is always surprising, because not only does the whole television audience see you making money, but the government does, too. The first notable instance was the first winner of the CBS reality show Survivor, Richard Hatch, who was accused of not paying taxes on his million dollar prize and was later found guilty of filing a false tax return (among other crimes) for the year he won the competition.
Another reality star, Michael Sorrentino (aka “The Situation”), formerly of MTV’s Jersey Shore, now finds himself in a similar situation. Yesterday, Mr. Sorrentino and his brother, Marc Sorrentino, were indicted by a federal grand jury in New Jersey for filing false tax returns for 2010 and 2012, as well as conspiracy to defraud the United States. “The Situation” was also charged with failure to file a tax return for 2011. The Sorrentinos allegedly failed to report over $8.9 million earned through promotional and other activities, including publishing a comic book (featuring The Situation as a superhero, of course), owning a vodka company, and endorsing products such as vitamins and sunglasses. (See Indictment here). The Situation also allegedly improperly claimed deductions for business expenses that were really for personal use, including “personal grooming expenses.” U.S. Attorney Paul J. Fishman released this statement yesterday:
According to the indictment, Michael and Marc Sorrentino filed false tax returns that incorrectly reported millions made from promotions and appearances. The brothers allegedly also claimed costly clothes and cars as business expenses and funneled company money into personal accounts. The law is absolutely clear: telling the truth to the IRS is not optional.
(See Press Release here). Telling the truth to your accountant is not optional, either. According to the Indictment, the Sorrentino brothers allegedly provided their (unnamed) accounting firm with false information. In addition, the Indictment alleges that after the accounting firm received a grand jury subpoena for its QuickBooks software that contained the Sorrentinos’ books and records for 2012, entries in the software were “altered” whereby certain taxable payments were “reclassified” as non-taxable payments. It is not clear from the Indictment who directed that those changes be made, but the IRS obviously discovered the “reclassifications” during the criminal investigation, and the act of altering corporate book and records to cover up a crime almost certainly influenced the decision to prosecute in this case.