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By 29 March 2011 | Categories: news

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According to Forbes, Electronic Arts founder Trip Hawkins is in deep trouble with the American IRS (internal revenue service) over outstanding tax payments amounting to over $20 million.

US District Judge Jeffrey S. White last week upheld an earlier bankruptcy-court ruling, saying Hawkins was fully aware of his situation yet continued spending lavishly. The judge stated that Hawkins, “continued to spend money extravagantly with knowledge of his tax liabilities.”

“Hawkins planned to defeat his taxes via bankruptcy and continue living the lifestyle to which he had grown accustomed,” the judge said.

Court records indicated that in 2005, Hawkins claimed monthly expenses totalling some $94 900 (more than R653 000). These costs included undefined “other expenses” to the value of $40 550 per month. Hawkins and his wife also purchased a Cadillac Escalade worth $70 000 in October 2004, the fourth car in the two-driver household.

The EA founder's tax troubles stems from him using intricate offshore tax shelters to shield vast profits from Electronic Arts back in the 1990s. The bulk of this income is believed to have come from selling his substantial stock in EA, which he founded in 1982.

In 1994 Hawkins started selling his shares in EA, generating large amounts of capital, in part to invest in his failed 3DO console company. Court records show that accounting firm KPMG convinced him that he could avoid taxes by employing complicated strategies that created the appearance of large capital losses, without him actually losing any real money.

These schemes, known as FLIP and OPIS shelters, involved the use of offshore corporations and investments in offshore companies to generate an artificially high tax basis. From 1996 to 2000 Hawkins went on to claim $56 million in business losses through the tax shelters. The IRS began cracking down on these shelters in 2001 though, resulting in Hawkins standing accountable today.

The 57-year-old is currently the chief executive of Digital Chocolate, a game developer which focuses on mobile and social network games.  

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