Beanie Sigel and the Celebrity Tax Problem: An Inside Look at Hip-Hop Dodging Uncle Sam
Dr. Dre put it best: “The only two things that scare me are God and the IRS.” For the
average American citizen, filing taxes annually is a necessary evil. Most don’t find the
task daunting either. An employer sends out tax forms, and the employee either files online or has an accountant handle the dirty work. Then there’s either money to be collected or paid. It’s that simple. For the self-employed, it becomes this guessing game of “What gets written off?” in an attempt to retain money earned throughout the respective year.
For celebrities, taxes are a bit different. They’re rarely ever on a traditional payroll, and that guessing game is usually left to their team of accountants or managers. Sure, certain celebrities may find themselves receiving network paychecks with all of the trimmings, but for the most part, 1099 is the magic number.
On Sept. 30, 2010, rapper Beanie Sigel, née Dwight Grant, was served with papers stating he failed to file tax returns and pay taxes between the years of 2003-2005. The matter came to a close this August, when Sigel, 38, was charged with three counts of tax evasion and sentenced to two years in prison — the maximum was three years. Last month, he reported to prison on Sept. 12 to begin serving his sentence.
Any entry level hip-hop head can attest to the fact that Beanie Sigel is no stranger to a jail cell. Even during his tax problems, the This Time creator was charged with gun and drug possession, thereby speeding up his sentencing. However, Beans’ charges this time around present lifelong financial repercussions. And it all could have been prevented.
The Philadelphia native first entered the rap ring on The Roots‘ 1998 tough cut “Adrenaline.” A year later, he showed up on Jay-Z‘s “Do It Again” and “Anything” before dropping his 2000 debut album, The Truth, which was certified gold. While balancing his time between Roc-A-Fella Records and State Property, Beanie Sigel had street rap in a chokehold, as career singles like “Rock the Mic,” “Feel It in the Air,” and the classic assist on Freeway‘s “What We Do,” made the MC a household name.
See The BoomBox’s Exclusive Photos of Beanie Sigel’s In House Visit
Albums like 2001′s The Reason, 2005′s The B. Coming, 2007′s The Solution and 2009′s The Broad St. Bully are all arguable classics, not even including Sigel’s mixtapes and State Property compilations. Sure, he was experiencing success, but behind the scenes, standard business practices were being overlooked.
According to court documents, Beanie Sigel hadn’t filed taxes since 1999, the year he formally entered hip-hop. In fact, there is no clear indicator that Sigel paid taxes at all throughout his career. The BoomBox looks to experts in the entertainment industry to make sense of his tax evasion. In the process, we take a look at court documents that show much of his income during his career.
“I don’t fully know Beanie’s rationale for not filing taxes or filing as sporadically as he did, but I think that people are truly ignorant to a process as simple as filing taxes,” states Chuck Creekmur, CEO and co-founder of AllHipHop.com. “Especially coming from a background with a cash type of lifestyle. Plus, Beanie is just infamously street.”
Maybe Sigel didn’t understand that filing taxes was mandatory, or maybe he just didn’t want to pay. In 2003, court documents reveal that Sigel made over $87,000 in royalties. That figure jumped to over $145,000 in 2004, and close to $394,000 in 2005. Income paid to Sigel, via 1099 form, totaled $250,000 in 2003, over $138,000 in 2004, and a whopping $465,000 in 2005.
Sources of Beanie Sigel’s income include places like ASCAP, Hitco Music Publishing, State Property Licensing, Sony BMG, UMG Recordings, Warner and even Tommy Hilfiger, in 2004. Sigel did have W-2 forms for places like 20th Century Fox, WB Television, Universal City Studios and others, but the income was so nominal that it hardly weighed in his favor. While his expenses during each of those years in question were in excess of $125,000-plus, the money spent in no way compared to the pocketed money that was untaxed.
“It’s hard as an adult to fathom somebody that’s making money — which Beanie was making, a couple million at that time — to not file any taxes,” continues Creekmur, who also had a brush with the tax gods. “I can’t really understand it myself as an adult. My company [AllHipHop] had to deal with the IRS firsthand and it was a real life education on how to deal with them. Therefore, we won’t make those mistakes again.”
New Jersey-based tax and bankruptcy attorney Nicole M. Clarke deals primarily with clients paid through 1099 forms. She’s also represented artists and moguls within hip-hop and other facets of the entertainment industry.
“I think what it comes down to is that it’s a problem with people who are 1099′ed,” Clarke explains. “When you’re a W-2 employee, your employer withholds taxes and you either pay a small portion or get a refund when you file your taxes. When you’re a 1099 employee, you get paid everything up front, and it’s up to you to either pay quarterly or put money aside to pay in April.
“With a lot of people, once you’ve got the money in your hand, it’s hard to do. Especially in times like these where people are living hand-to-mouth. And even for people that seemingly make good money like Beanie Sigel, it’s still a bigger hand to a bigger mouth.”
In entertainment, especially within the hip-hop community, living in excess is the norm, so money is hard to part with. However, even if the money were all spent, filing taxes would have prevented Sigel from a prison sentence.
“Tax evasion is not filing your tax returns. If you simply can’t pay, you can’t go to jail,” she adds. “There’s no debtor’s prison in our country.”
Court documents also indicate that Beanie Sigel refused a home inspection, which only fans the flames of the IRS. Pair that with an existing criminal record, and jail time is inevitable.
This isn’t the first or the most recent incident involving an entertainer’s failure to pay taxes. Recently, Lauryn Hill faced a similar situation where she was charged with three counts of misdemeanor failure to file taxes. In a statement she released in June, via her Tumblr page, she responded to the charges and placed partial blame on her failure to file taxes on celebrity aesthetic. The former Fugees member also highlighted the pressures of fame and maintaining an appearance as some of her reasons.
For these artists, their disregard in paying taxes throughout the course of their career has severe effects in the long run, including prison time and fines. Further, even when the prison term is over, the taxes still have to be paid. In Sigel’s case, he must pay back money owed for every single year since 1999, and that’s not counting additional fees and penalties.
Perhaps Beanie Sigel’s story will serve as a cautionary tale for artists, proving that no one is above the law.
“For the younger rappers and entertainers, I think that they’re bearing witness to this firsthand in the media,” Creekmur says. “They’re understanding what’s out there and what they can do to prevent that from happening.”
It’s an unfortunate circumstance that never had to happen, according to attorney Clarke.
“Bottom line is, they’ll catch you,” Clarke states. “Everybody’s gotta pay Uncle Sam at the end of the day.”
Even Beanie Sigel.
Watch Beanie Sigel’s “The Reunion” Video Feat. State Property