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Willie Nelson Bankruptcy

Nelson’s tax troubles are almost as legendary as his career. After a lengthy investigation, Nelson was hit with a staggering multi-million tax bill. It was one of the largest individual federal income tax bills ever generated by the IRS at the time. The debt, which was figured to be $16.7 million together with interest and penalty, was negotiated to a mere $6 million by Nelson’s lawyer, Jay Goldberg. There was just one big problem: Nelson didn’t have the money to pay off the negotiated debt. So he didn’t.

 

On November 9, 1990, the feds raided Nelson’s home, taking everything he owned. Everything that is, except, Trigger. Trigger was Nelson’s favorite guitar which he had his daughter, Lana, take out of his home in anticipation of the raid. “As long as I got my guitar,” Willie Nelson said, “I’ll be fine.”

It turns out he was right. Nelson did lose nearly everything (except Trigger) in the raid, including his Pedernales Country Club and Recording Studio; his Dripping Springs ranch; twenty other properties in four states; and most of his instruments, recordings and memorabilia. But it wasn’t all bad: friends and fans came to the rescue, with fundraisers and efforts to buy back his property – including his home – for him.

 

How did Nelson get into all of this trouble in the first place? In 1984, the IRS began examining Nelson’s returns. Most interesting to the IRS was a substantial deduction for tax shelter investments. The deduction was disallowed and Nelson was assessed $6 million taxes and $10 million in interest and underpayment penalties for six years. The actual shelter which Nelson claimed was promoted by his former accounting firm, Price Waterhouse, was eventually found to be illegal (for the record, Nelson sued Price Waterhouse for $45 million for their role in his financial woes and did reach an undisclosed settlement). He was hit for another tax bill shortly thereafterwhich he appealed but the Tax Court ruled for the IRS.

 

By 1990, the tax debt had nearly doubled as penalties and interest continued to accrue. Nelson wasn’t making significant payments and the IRS had enough. They seized his property with intentions of putting it all up for auction. However, the IRS did have a last minute change of heart on some items, allowing posters, musical instruments, gold and platinum records and other sentimental items to be bought for a mere $7,000 by theWillie Nelson and Friends Showcase.

When the auctions didn’t make a dent in Nelson’s bill, the two sides reached a rather unusual compromise: Nelson would release a compilation album and would share the proceeds with IRS. The album, called The IRS Tapes: Who’ll Buy My Memories?, was written completely by Nelson and recorded with – what else – Nelson’s trusty guitar, Trigger. It was the first (and maybe only) record album ever released under a strict revenue-sharing agreement IRS. The album, which could be purchased by dialing (800) IRS-TAPE, retailed for $19.95. Of that, about half ($9.95) went to the telemarketing company promoting the album, $1.60 covered other album-related expenses and $2.49 went to Sony Records. Nelson received $6 from the sale of each album: $3 went to IRS to pay off his existing debt, $1 went into a fund to pay for Nelson’s lawsuit against Price Waterhouse (Nelson’s attorney successfully argued that the proceeds of that suit might be used to pay off the tax debt) and $2 went to pay for the tax that would be generated from the sale of the album (we can’t forget about that!).

The album wasn’t a huge success. The telemarketing sales ploy wasn’t wildly successful but sales eventually picked up once the album hit the stores. Under the agreement, the collection had to sell at least four million copies to pay down the debt. That didn’t happen. The IRS only collected $3.6 million from the sales of the album. However, by that time, Nelson had settled his lawsuit with Price Waterhouse and with other projects in the works, Nelson was able to pay off his debt completely in a few years.

An IRS spokesperson said about the deal at the time:

We try to work with taxpayers… And if we have to come up with some creative payment plan, that’s what we’re going to do, because it’s in everyone’s best interest.

And it did. As for Nelson? Nearly twenty years later, he’s as successful as ever. Last year, he released an album of original songs, covers (including songs originally recorded by Coldplayand Pearl Jam) and duets with such varied artists as Sheryl Crow, Snoop Dogg and old friend Merle Haggard; the album, called Heroes, spent four weeks near the top of the charts. And just last week, Nelson released another album, Let’s Face the Music and Dance, to strong reviews.

Nelson remained philosophical about his trials, saying, “There are more serious problems in life than financial ones, and I’ve had a lot of those. I’ve been broke before, and will be again.”

 

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