What Mike “The Situation” Sorrentino Can Teach Us About Tax Fraud
His mantra was GTL for “Gym, Tan, Laundry.”, but it just as well could summarize his tax fraud indictment and mean “Gonna Tax Litigate“. Mike Sorrentino starred on MTV’s Jersey Shore, and his situation-causing ab muscles gave him the name “The Situation”. Today, he is in Federal Prison for tax fraud and known as Federal Correctional Institution, Otisville, NY Prisoner No. 66910-050. The Jersey Shore a long way from our San Francisco and Walnut Creek Tax Litigation offices, but the laws and lessons are relevant for us all.
In September 2014, the U.S. Government charged Sorrentino with tax fraud, for allegedly avoiding paying taxes on $8.9 million. According to the US Attorney, Sorrentino and his brother, Marc, established S corporations that paid for personal expenses and failed to report income. You can read their indictment docs here.
The MTV show Jersey Shore was a big hit around 2010, and a guilty pleasure for many of us here in the Bay Area. Snookie, Paulie D, Sitch, and the gang were household names. Even if you didn’t admit to watching, the ratings don’t lie. Let’s check out the situation with The Situation.
Tax fraud is the willful attempt to evade tax law or defraud the IRS. Tax fraud can occur when a person or business intentionally fails to file a true and correct income tax return, willfully fails to pay taxes when due, intentionally fails to report, or hides, income, makes fraudulent or false claims or tax returns, and/or prepares fraudulent tax returns. Trying to avoid paying your taxes is never a good idea, but The Situation gives us lots to learn from.
Prepare True and Correct Returns
Michael Sorrentino and his brother Marc filed false tax returns that incorrectly reported millions of dollars made from promotions and appearances. The brothers understated their gross receipts, even though Mike earned $1,995,757 in one year. Both brothers earned $8.9 million from 2010 to 2012 but did not report all of this correctly and pay the corresponding taxes.
Do Not Deduct Personal Expenses as Business Expenses
The brothers claimed personal expenses, such as high-end vehicles, clothing, personal grooming expenses, and personal distributions, as business expenses. They reportedly used two companies they controlled- MPS Entertainment, LLC and Situation Nation, Inc.
Don’t Forget to File All Tax Returns Required
Mike did not file a personal return in 2011, only a business return. As a result, the IRS suspected tax evasion.
Don’t Think You Can Outsmart the System
Cash Deposits are Traceable. Mike made multiple cash deposits of less than $10,000, sometimes on the same day. Banks are required to report cash deposits exceeding $10,000, including the identity of the person making the deposit. Attempts to circumvent this rule catch the notice of authorities. This type of tax fraud is called “structuring” deposits, also called “smurfing” in bank jargon.
Don’t Leave Everything Up to Your Accountant
It is normal to hire someone to help you with your returns, but be careful not to rely on your tax preparer too much. Eventually, the brothers’ accountant admitted to filing fraudulent returns.
So What is The Situation Now?
On January 19, 2018, Sorrentino pleaded guilty to one count of tax evasion, as part of a plea bargain with prosecutors. Ultimately, Sorrentino received a sentence of 8 months in prison. On January 15, 2019, The Situation surrendered to the Otisville Federal Correctional Institution to begin his eight-month sentence for tax evasion. He is scheduled to be released on September 12, 2019. However, people make mistakes. If you fear such a mistake, the tax lawyers at Mendes Weed, LLP are qualified to assist you.
California Tax Law Specialist
Partner Christina Weed has years of experience helping businesses and individuals with their complex California tax litigation issues. She is a licensed attorney with an LL.M. in Taxation from the University of San Diego and a Bachelor’s Degree in Accountancy. She serves as Chair of the Tax Section of the Contra Costa County Bar Association and is also a member of the Estate Planning Council Diablo Valley and the Tri-Valley Estate Planning Council.
In 2018, Christina became one of the first lawyers to argue a case in front of California’s Office of Tax Appeals.
Christina has been designated a Certified Specialist in Taxation by the State Bar of California.