There is a long list of celebrities who have blamed their tax problems on the bad advice of unscrupulous individuals. Unfortunately, these celebrities whose tax problems are highlighted in the media are merely a microcosm of a greater issue that reaches individuals across the country: the prevalence of untrustworthy tax professionals.
The former IRS agent and tax preparer discussed in the last blog post was an example of this unfortunate problem, but it is Kenneth Star who is a famous and striking example of a trustworthy tax professional gone awry. An article in the New York Times chronicles “The Decline and Fall of a Tax Professional,” is an example of what can occur when trust is put in a scheming individual who does not have your financial health in mind.
“Who wants to think about money when you’ve got your art?”—the Times claims that this was Starr’s line. Deemed Hollywood’s “money man,” Mr. Starr’s Ponzi scheme reached dazzling celebrity clients, including Martin Scorcese and Al Pacino. His Hampton’s clients recount how Starr told them they were much too busy and important to occupy themselves with dealing with money. Starr would reportedly give some of his clients a yearly allotment, treating them as children while paying their obligations and making investments on their behalf.
Mr. Starr’s personality—soft, pleasing, optimistic—kept clients from questioning him or seeing through his financial jargon to the truth of the situation. He would encourage their dreams; he helped them fund their fantasies with their allowances, allowing them to live happily complacent and blissfully unaware.
He was even able to slyly trick big investment firms like Blackstone. Starr had all the right friends—Barbara Walters, Diane Sawyer, Mick Nichols—to give him the credibility required to infiltrate the upper echelons of the New York society’s financial world. It wasn’t until Mr. Starr’s deceit came to light that the co-founder of Blackstone, Pete Peterson, began to wonder what was happening to the money that Mr. Starr was supposed to be distributing from return flow, or the profit he was receiving on behalf of the aggregator funds he had invested using his clients’ money.
The unraveling of his scheme began with a catalytic moment involving Sylvester Stallone. Mr. Stallone sued Mr. Starr for $10 million dollars after they disagreed over financial shares in Planet Hollywood. It was this settlement that would begin the decline.
His personal life was in shambles, as he was already on his third marriage. As a result, he began to act more desperately with his more vulnerable victims, using them to finance his deteriorating lifestyle. One such vulnerable individual was the late Joan Stanton, who would later file a civil suit against him that would ultimately lead to the Ponzi scheme indictment.
There are many who would say they would have never guessed Mr. Starr was out to commit financial crimes, but there are also those who would say that the signs were there, if only people were observant enough to recognize them.
To assist you in recognizing these signs, there are a few simple steps you can take to prevent yourself from falling victim to a tax scheme:
· Check the credentials of the tax professional you are considering. Keep in mind that only attorneys, CPAs, and enrolled agents have the ability to represent individuals in all IRS matters—such as audits, collections, and appeals. Tax professionals who do not fall into those three categories can only represent taxpayers in audits of tax returns they themselves have prepared. While Mr. Starr had all the appropriate credentials, there are those who advertise their services who do not. Beware of those individuals.
· When receiving advertisements for tax help, always do your research. Make sure you choose the tax assistance firm that provides you with the information and services they promise.
· When speaking to a representative, make sure he or she knows what the issue is and can give you an idea of how to they will help you. Again, it cannot hurt to do your own brief research, so as not to come into a situation blind. If they can’t give you answers to the simplest questions, they probably can’t help you navigate the complexities of the IRS.
· Beware of firms that promise quick, easy, and fantastic resolutions for all situations. Guaranteeing such resolutions is not always realistic. Look for a firm that is frank with you, laying out the possible outcomes, minus the rose-colored glasses. The optimism of Kenneth Starr blinded many people to the reality of the situation. Don’t let that be what happens to you.
· Keep in mind that contracts you sign are binding, and not to be taken lightly. Making an informed decision after doing the appropriate research is absolutely essential. It is also important to keep in mind that the IRS has an eye on you. If there is something awry with your returns, they will catch it and hold you responsible. Alan Scorsese and Al Pacino had this very problem, as tax liens were filed against them when it came to light that they owed on money mismanaged by Starr. Although you may eventually be able to prove that these issues were the result of mismanagement, it is better to save yourself the hassle and find a tax professional that won’t get you in trouble with the IRS.
· And finally, although it may seem cliché, trust your gut. If after you have done your research and spoken to the firm‘s representatives, you still have questions, take that into consideration. You want to feel as though you can trust the tax professional who is working on such a sensitive issue for you.
When you are looking for someone to represent you, keep these key points in mind. It could mean the difference between becoming a victim of fraud or a contented taxpayer.
Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212