US taxman after Pacquiao

By: Francis T.J. Ochoa - 11 years ago

(First of a series)

The taxman has Pacman against the ropes amid fears that he might be going broke, given his lavish lifestyle and propensity to dole out cash to friends, political supporters, hangers-on and even random strangers.

Sarangani Rep. Manny Pacquiao was 14th on the list of highest-paid athletes last year, with estimated earnings of $34 million, according to Forbes magazine.

He was considered the wealthiest member of the House of Representatives, based on his statement of assets, liabilities and net worth (SALN). He reported a net worth of P1.77 billion in 2012, up from P1.13 billion in 2010.

But Pacquiao said he had to borrow more than P1 million so he could deliver aid to victims of Supertyphoon “Yolanda” in Leyte and Samar provinces late last month.

In the United States, the Internal Revenue Service (IRS) has issued a levy on Pacquiao’s US bank accounts in an effort to recoup more than $18 million in alleged tax liabilities from 2006 to 2010, documents obtained by the Inquirer showed.

US notice of tax lien

The IRS levy came after Pacquiao was issued a separate “notice of federal tax lien” in the amount of $18,313,669. The notice was issued by the Glendale office of the IRS in Los Angeles, California, on Nov. 22.

Pacquiao did not answer phone calls and text messages when reached by Inquirer Mindanao on Thursday.

Pacquiao’s former accountant, Michael Joseph Cabuhat, said the levy could jeopardize his planned bout in Las Vegas in April because the IRS could block ticket sales and similar activities related to the prize fight.

“Any compensation under your name will be taken out because there is an order of levy. So if the fight is next year, it will earn. The IRS may levy the earnings right away,” said Cabuhat, chief financial officer of VisionQwest, a California-based accountancy firm hired by Pacquiao in 2010 but was eventually fired the following year.

“They have to make an arrangement to settle this or at least take care of it through an installment agreement or negotiation or compromise. Otherwise, the April fight is in danger,” Cabuhat said.

‘Lifted’

But Pacquiao’s camp, through his Philippine lawyer Tranquil Salvador, on Wednesday insisted that the “IRS liens on his properties and bank accounts” were “vacated” (lifted) late last week.

“We have been told that the IRS liens on his properties and bank accounts were vacated on Dec. 20,” Pacquiao’s “team” told the Inquirer in an e-mail sent through Salvador.

“It means he has satisfied the requirements of the US law,” Salvador added in a text message.

On its official website, the IRS differentiated between a “lien” and a “levy.”

“A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in,” the IRS said.

The IRS described a federal tax lien as “the government’s legal claim against your property when you neglect or fail to pay a tax debt.”

“The lien protects the government’s interest in all your property, including real estate, personal property and financial assets,” it said.

‘Flawed’ reports

Pacquiao’s camp said stories about his alleged tax problems in the United States were full of errors.

“Representative Pacquiao’s US attorneys have previously commented that the recent stories regarding his problems with the IRS are seriously flawed and tainted with errors, and that he remains committed to working with the IRS to resolve any outstanding issues,” Pacquiao’s camp said in the e-mail.

Unless the alleged tax liabilities are settled, Cabuhat said the IRS could “barricade” the April clash, meaning it could step in and claim proceeds from the fight. He claimed that the IRS “almost did it” for another Pacquiao bout before VisionQwest came in.

Bank issued IRS levy

In a letter dated Nov. 27, one bank informed “Emmanuel D. Pacquiao,” one of boxing’s biggest draws, that it had been “served with an IRS levy in the amount of $18,564,663.6 naming you as debtor.”

As a result, the bank said it was putting the balance of his two accounts on hold for “21 days,” warning that it would be sent to the IRS unless the levy was lifted by next month.

“Unless we receive a Release of Levy from the IRS before 1/10/2014, we are required to hold these funds for 21 days, after which they will be remitted to the IRS,” Pacquiao, boxing’s only eight-division titleholder, was told.

As of Nov. 27, each of the bank accounts contained a balance of less than $100.

17 accounts, US properties

During the brief period that VisionQwest worked for Pacquiao, Cabuhat said the boxer was known to have 17 accounts in four banks.

Pacquiao is said to own properties in the United States—a five-bedroom house on Plymouth Boulevard in Los Angeles, a 10-unit apartment and another house in Orange County.

Cabuhat, whose company was dumped by Pacquiao in 2011, said the best option was for the boxer to settle with the IRS.

“If I [were] Manny Pacquiao and I am charged $18.3 million, I [would] pay it right now or make an installment agreement rather than ignore it because the IRS could come back and seek higher tax liabilities,” he said.

The IRS said “paying your tax debt—in full—is the best way to get rid of a federal tax lien.” It “releases your lien within 30 days after you have paid your tax debt.”

The writing was on the wall as early as 2010, the year VisionQwest was hired by Team Pacquiao to clean up his financial mess.

Michael Lodge, the firm’s president and CEO, said VisionQwest was tasked with “represent[ing] Manny Pacquiao and MP Promotions Inc. on a tax audit for 2006 and 2007, which then led to 2008 and 2009.”

Cabuhat said the agreement included a review of Pacquiao’s bout and endorsement contracts.

The company was also tapped “to organize his financial data and create an automated financial system to record everything.”

On its website, VisionQwest Accountancy Group is described as a firm that provides “full international tax services as it relates to entertainment and sports clients [who] need representation in the United States on special tax issues.”

Alleged irregularities

But what was supposed to be a three-year engagement was cut short after VisionQwest uncovered alleged irregularities in Pacquiao’s finances and asked that they be fixed soon.

Asked why Pacquiao fired VisionQwest, his camp said in the e-mail: “Representative Pacquiao has the right to engage professional advisers of his own choosing and he can terminate their services if he no longer wishes to continue such professional relationship for whatever reason.

“It is public knowledge that Representative Pacquiao and VisionQwest parted ways on less than amicable terms and the manner by which VisionQwest handled the story publicly through media only reinforces the correctness of Representative Pacquiao’s decision to terminate their services in 2011.”

In a June 30, 2011, letter addressed to Pacquiao, Lodge raised a number of issues, warning in particular about Michael Koncz’s role as the boxer’s adviser.

“After a careful review of tax documents provided to us from Michael Koncz for 2006, 2007 and other years I feel that the documents that were in handwritten form, e-mails and written notes have been clearly misstated on revenue and expenses of Manny Pacquiao and MP Promotions USA Inc.,” Lodge wrote.

‘Recycled’ issues

In the e-mail, Pacquiao’s camp said the issue raised against Koncz was among the “recycled issues that have been discussed by VisionQwest through the media over the past couple of years in an effort to discredit [promoter] Bob Arum and Mike Koncz.”

“To date, Representative Pacquiao continues to trust his team of advisers,” his camp said.

Lodge alleged that Koncz misstated the tax returns and that there was no reliability in the tax data provided to the IRS.

“Mr. Koncz has now placed our client in a possible tax liability based on his false documentation and that now VisionQwest Accountancy Group must justify through our own gathered and documented records a new tax position to the [IRS],” he said.

Lodge went as far as advising Pacquiao to get rid of Koncz. The Inquirer tried but failed to contact Koncz.

“I would request that Mr. Koncz be removed from his role immediately and that no further business that affects Manny Pacquiao or MP Promotions USA Inc. be done by Mike Koncz,” he said. “This is hereby stated so that our client may be protected from tax or legal liabilities.”

Services terminated

Pacquiao later terminated the services of VisionQwest, which then sued its erstwhile client for $649,017 in purported loan. Cabuhat said the case was settled in 2012, with Pacquiao paying an undisclosed amount.

In a 2011 report on The Ring Magazine’s website, Koncz was quoted as vowing that Pacquiao’s camp would “vigorously defend [itself against] these false allegations contained in the lawsuit.”

Koncz alleged that VisionQwest “has breached a number of confidentiality laws contained within their own contract and made a number of slanderous statements against Manny Pacquiao and myself alleging that I’m misappropriating money and stealing money, which is totally bulls**t.”

He said VisionQwest “spent more time focusing on trying to handle Manny’s endorsements and then subsequently trying to be fight promoters by putting together the fights, that they lost their focus and never worked on our taxes.”

“They didn’t inform Manny [about] the true standing of our taxes, which subsequently has been done by our new accounting firm.”

In the “Notice of Federal Tax Lien,” the IRS listed Pacquiao’s alleged tax liabilities over five years: $1,160,324 (2006), $2,035,992 (2007), $2,862,437 (2008), $8,022,916 (2009), and $4,231,999 (2010).

Pacquiao earlier denied owing the IRS such amounts, insisting that the allegation was “no doubt a demolition job against me.”

$25M in ’09, excluding PPV

The year 2009 was a banner year for Pacquiao in terms of earnings.

He fought twice—a second round knock out of Briton Ricky Hatton and a 12th round TKO of Puerto Rican star Miguel Cotto—and pocketed a combined $25 million, excluding pay-per-view (PPV) shares, based on his reported purses.

$40M earnings in 2008

The year before, his combined purses in three fights, as reported in media, were estimated at nearly $20 million. His bout with Mexican-American superstar Oscar De La Hoya alone earned him a reported purse of $11 million and a PPV share worth $20 million.

Back home, the Bureau of Internal Revenue (BIR) is also going after Pacquiao for his alleged failure to pay taxes for his fight earnings in the United States in 2008 and 2009. He was assessed a tax liability of P2.2 billion, including penalties.

Gag order, meeting with Kim

A court has issued a gag order to the BIR and Pacquiao regarding the tax issue, but two independent sources told the Inquirer that the boxer had sat down with Revenue Commissioner Kim Henares to discuss his problems.

One tax expert told the Inquirer that Pacquiao’s assessed liability with the BIR was already final, although the boxer could still seek relief through a compromise.

The BIR could supposedly agree to a compromise based on doubtful validity, but Pacquiao would have to provide supporting documents to prove that he had been wrongly assessed.

And the supposed lack of documents has proven to be at the root of Pacquiao’s current tax mess.

The BIR earlier issued a warrant of “distraint” to force Pacquiao to pay up, a move the congressman has questioned in the Court of Tax Appeals.

“There are many crooks in the government whose bank accounts and properties were not subjected to garnishment,” he complained in a previous press conference.

“I had absorbed many blows just to earn money and give pride to the nation, but this is what happened.” With a report from Aquiles Zonio, Inquirer Mindanao