A San Francisco federal judge has rejected the effort of EA founder Trip Hawkins to use personal bankruptcy to cancel more than $20 million of federal and California state tax obligations stemming from, according to this Forbes report, “abusive tax shelters he used to shield vast profits from Electronic Arts, the pioneering video gaming firm he founded nearly three decades ago.”
Judge Jeffrey S White upheld an earlier bankruptcy-court ruling this week, saying Hawkins knew he was insolvent after the Internal Revenue Service disallowed his tax shelters but “continued to spend money extravagantly with knowledge of his tax liabilities” to the IRS and the California Franchise Tax Board.
“Hawkins planned to defeat his taxes via bankruptcy and continue living the lifestyle to which he had grown accustomed,” the judge declared.
Cited evidence included purchase of a $70,000 car–the fourth vehicle in a two-driver household.
Hawkins, now the CEO of mobile game firm Digital Chocolate, filed for bankruptcy alongside his wife in 2006, claiming assets of $5 million compared to liabilities of $28 million, the majority of which is tax debt.
At the time, the couple obtained a general discharge of their debts, but the US tax agencies successfully avoided the cleansing under a provision of bankruptcy law that prohibits discharge of tax debts if the debtor “willfully attempted in any manner to evade or defeat such tax.”
The outstanding tax liability is not clear from court filings but appears to be between $20 million and $25 million.
In 2006 the IRS rejected Hawkins’ proposal of an offer-in-compromise settlement of his tax obligations for $8 million.
Hawkins co-founded EA in 1982, before going on to run 3DO in 1991. At his wealthiest, Hawkins was estimated to be worth more than $100 million, mainly in EA stock.
Read the full thing on Forbes. It’s not pretty.