Electronic Arts Founder Stuck With Huge Tax Bill

Electronic Arts Founder Stuck With Huge Tax Bill

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Electronic Arts founder Trip Hawkins is on the hook for more than $20 million in taxes after a judge ruled that he can't get away with using personal bankruptcy to wipe the slate clean.

There was a time when Trip Hawkins was a very wealthy man. In the mid-90s, he boasted a net worth of roughly $100 million, nearly all of it in EA stock. But in 1994 he started selling it off to fund the 3DO, a videogame console that came out in 1993 but never gained traction with the masses, and that's when his troubles began.

The sale of EA shares resulted in a serious capital gains tax bill, which accounting firm KPMG told him he could dodge by using "exotic strategies to create the appearance of large capital losses without the real risk of loss," including the use of "offshore corporations, options and investments in offshore companies like UBS AG to artificially generate a high tax basis." I have no idea what that means but from 1996 to 2000, Hawkins claimed $56 million in capital losses.

The IRS wasn't buying it, though, and in 2001 it challenged the legitimacy of such tax shelters and also began an audit of Hawkins. As if that wasn't bad enough, 3DO finally sputtered to a halt, going bankrupt in 2003. In 2006, Hawkins and his wife filed for personal bankruptcy; their debts were discharged by the court but, thanks to a provision in the law prohibiting the discharge of tax debts in cases where people have "willfully" attempted to evade paying, the IRS and the California Franchise Tax Board both successfully challenged the ruling.

It appears that to a large extent, Hawkins strung himself up on this one. During a 2004 family court filing in which he sought a reduction in child support payments to his first wife because of his worsening finances, Hawkins admitted he was insolvent and talked about using bankruptcy to ease his tax burden. But although he sold off real estate and made some tax payments, he continued to live an extravagant lifestyle.

Judge Jeffrey S. White noted that Hawkins claimed monthly expenses of $94,900 in 2005 and in 2004, ten months after admitting that his tax bill had left him effectively broke, dropped $70,000 on a Cadillac Escalade, the fourth vehicle in two-driver household. The judge rejected Hawkins' argument that proof of fraud was necessary to deny the discharge, saying it was enough for him to continue to make "large discretionary expenditures" while his tax bill continued to loom.

And why, you may wonder, do we care? Because Trip Hawkins is a legend in the industry. He founded Electronic Arts in 1982, putting it on the path to becoming the biggest videogame publisher in the world and pioneering the idea of giving game developers front-and-center credit for their creations. The 3DO was a revolutionary console but failed to catch on, thanks to its ridiculously high price and the arrival of the PlayStation soon after its launch, and even after switching exclusively to software development in 1996 the company couldn't make a go of it. In 2003 Hawkins launched mobile game developer Digital Chocolate and in 2005 he became the eighth person inducted in the Academy of Interactive Arts and Sciences Hall of Fame.

Source: Forbes

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Yeah, he's a celebrity.

Doesn't give him free reign to violate the law.

Perhaps EA should bail him out?

LOL 20 mil! Maybe Madden will give him a loan

STOP! you viloated the law! pay the court your bills or serve your sentance!

sorry, couldnt help it. and funding tons of money for the 3do? was he err, 'special'?

Clearly Mr Hawkins should have uploaded his consciousness to a company server and declared himself a corporation: then he'd be able to claim billions in losses while simultaneously making billions in profit, ala GE. You're thinking too small, dude.

Cheers

Colin

I think that's the Universes way of saying thanks for project 10 dollar.

(Yeah I'm going to be that guy)

The ONE business executive the IRS decides to hold responsible for their taxes and they had to pick Hawkins.

Hey, I'm not feeling too sorry for the rich guy who got caught trying to avoid his tax bill. I just think it's a shame that a guy who's done so much for the industry, for so long, is caught up in this mess.

Well, some rich people think they can be above the law. I mean, come on, living on 90k/month and crying poor? Seriously? I don't even make that much in a year!

Gamer or not, it's always great to see a scumbag millionaire lose it all.

Mess with the IRS get shafted in the azz.
/mechanic nazi
/curmudgeon

Why? He worked for it, he built his dream into a reality. It's arguable that he got bad advice from his accounting firm. So what exactly makes him a scumbag?

Andy Chalk:
Why? He worked for it, he built his dream into a reality. It's arguable that he got bad advice from his accounting firm. So what exactly makes him a scumbag?

It is a razors edge. On the the one hand he as you say built his business from the ground up.

He got bad advice or maybe more precisely not good enough advice and did something that technically made him a bit of a dick (tax shelters, tax law loopholes and that sort of thing). Thats the other hand.

Also filing for personal bankruptcy and then still spending 90k a month. I could MAYBE accept this if it was expenses on a house he could not get rid of but he bought a car?

That is just wrong

A game industry giant got hit. That is sad. However I can't really get worked up about it.

I suppose the worst part of this for me is that in the relatively exclussive group of people like this Hawkins seem like a rather small fish. It would be nice for IRS to get one of the really big fish.

Hey, man, I did my part. I bought two 3DOs. Yes, two. (My first one burned up in a house fire. True story.)

Susan Arendt:
Hey, man, I did my part. I bought two 3DOs. Yes, two. (My first one burned up in a house fire. True story.)

Yikes, house fire? That is something I hope I never face.

OT: the whole tax system needs to be simplified. Less brackets, lower rates but next to no deduction and exceptions. It is better for everyone but the tax professionals who led Mr. Hawkins astray here.

Andy Chalk:
Why? He worked for it, he built his dream into a reality. It's arguable that he got bad advice from his accounting firm. So what exactly makes him a scumbag?

It's the tax shelter stuff, the opportunistic bankruptcies, the sort of stuff millionaires do all the time to avoid paying their share of the tax burden. Taxes are the price we pay to live in a civilized society, and when people refuse to pay their share despite their immense means, they fail as citizens and as decent human beings.

In my opinion. :)

 

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