From O.J. to Dick Morris: Taxes Go Unpaid

April 15, 2008 — -- Real estate developer Jack Blumenfeld went bankrupt in 1991, leaving millions of dollars in unpaid taxes and loans.

Today, New Jersey lists him as the state's sixth-biggest tax delinquent, owing $1.1 million. An Internal Revenue Service tax lien says Blumenfeld owes more than $1.6 million in federal taxes.

Where is Blumenfeld today?

The 81-year-old developer lives in the same oceanfront home near Atlantic City where he's lived since his glory days. He has asked local authorities for permission to build a two-story addition and swimming pool to the 5,400-square-foot home, now valued at $1.8 million, according to local tax records.

Blumenfeld says he's broke; the house is owned by a management company run by his son. Every month, he says, the IRS takes $200 out of his Social Security check.

The IRS estimates that 21% of federal individual income taxes go unpaid each year — about $300 billion last year. States lost about $60 billion in such taxes, $6.5 billion in California alone.

As Tuesday's tax deadline approaches, Americans are settling accounts on $1.5 trillion in federal and state income taxes for 2007.

But what about those who don't pay? Who are they? Do they get away with it?

USA TODAY examined the cases of several hundred major tax delinquents — those who owe $100,000 or more — to analyze who they are, why they haven't paid and whether the money is collectible. Among them are celebrities, investment bankers, lawyers, doctors, embezzlers, car dealers and many seemingly successful business people who continue to operate publicly as if all is well.

The IRS declined to provide a list of the federal government's largest tax delinquents, citing privacy rules. However, the names and the amounts owed are scattered across the nation in 4,100 courthouses and town halls, where tax liens are filed. The IRS files more than 600,000 tax liens every year.

USA TODAY examined the federal tax liens filed in several wealthy ZIP codes, including those for Beverly Hills and Malibu, Calif., and Greenwich, Conn.

Hundreds of seemingly wealthy people — company presidents, former soap opera stars, top-selling real estate agents — live in multimillion-dollar homes yet have huge tax problems.

"What amazes me is how many people put themselves forward as pillars of the community and great philanthropists, yet they don't pay their taxes," Georgia Revenue Commissioner Bart Graham says.

For some, the trouble starts with divorce or gambling or a business mistake. For others, it's a love of money and hatred of taxes.

Graham was an Atlanta banker before becoming Georgia's chief tax collector.

He knows some tax debtors personally and is familiar with their lifestyles, homes, second homes and other assets. "People will do almost anything to make sure friends don't see a change in lifestyle, and that 'anything' includes not paying taxes," he says.

Why don't rich people pay?

"They realize they owe taxes," says Dennis Brager, a Los Angeles tax lawyer. "It's just that from their perspective, they have more pressing obligations."

Tax delinquents often blame the government for part or all of their problems. Penalties and interest on unpaid taxes are so punitive, they say, that it's almost impossible to dig out of a hole.

William Livingston, an immigration attorney who specializes in mail-order brides, says a $20,000 tax problem from 20 years ago has swelled to nearly $300,000 owed to California today.

"There's no reasoning with these people," the San Dimas, Calif., resident says of state tax collectors.

His business — bringing brides here from Russia and Ukraine — is struggling. His own mail-order marriage didn't work out, so he's a single parent living in a small apartment with a son, he says.