Making Sense of Manny Pacquiao’s Tax Problems and Possible Jail Time

Manny Pacquiao’s recent butting of heads with Philippine tax officials has left a lot of people understandably confused. The general thought process is: How could a guy, who is currently at the apex of his career earnings, possibly be dealing with tax woes?

Isn’t that reserved for athletes who retire and eventually run out of money?

Not exactly.

Having tax problems is something that current celebrities and athletes deal with all the time. It’s not the same thing as having money problems. Because current athletes and, in a broader sense, current celebrities have so many varying streams of income and places where they are investing, sloppy accounting and poor planning often lands them into hot water with tax officials. And that’s to say nothing of the fancy tricks high-salary accountants try to pull out and later have to justify when the inevitable audit comes.

It’s even completely normal and reasonable for rich athletes and celebrities to eventually be forced by the government to pay a penalty as it relates to their taxes. It’s painful for those guys’ bottom lines, obviously, but it’s not really anything to be embarrassed or ashamed about. Again, it’s not the same thing as money problems.

Pacquiao’s situation is sort of different from what you often see athletes and celebrities going through, though.

The Bureau of Internal Revenue (BIR) has been on the Filipino champion’s tail for a while now. Midway through 2011, the BIR sent the Filipino champion a Letter of Authority which essentially mandated him to bring forth his relevant documents to a.) back up listed earnings and b.) show corresponding tax payments for the prior year. This sort of request is standard operating procedure. In American audits it’s generally even worse. The authorities demand information for way more than one year if you’re audited by the IRS.

That the BIR wanted Pacquiao’s documents is not a problem in itself. Pacquiao not delivering those documents and essentially playing keep away over the last half a year, though, is a problem. And that’s why last week the agency filed contempt charges against the fighter – because he’s continually avoided dealing with its people despite requests for cooperation.

Once again, on its face, none of this means that anyone involved has money issues.

The trouble is, Pacquiao's delayed reaction to this BIR’s probe looks mildly suspicious even to the most unbiased of onlookers. And there were the comments made by the BIR chief Kim Henares on Thursday (via ABS-CBN News):

Henares said Pacquiao's tax payments dropped from over P100 million in 2008 to only P7 million in 2009.

She said Atty. Rozil Lozares of BIR District 18 sued Pacquiao for violation of Article 266 of the National Internal Revenue Code because the boxing champ continued to ignore the BIR's requests for his contracts.

"We haven't reached to the point that he is evading taxes. We are asking him for copies of his contracts to different companies, which he has not given or has refused to give," she said.

The BIR wants to investigate 33 tax records, including Pacquiao’s annual income tax return in 2010, his book of accounts, list of assets, as well as his earnings from his fights against Antonio Margarito and Joshua Clottey.

The agency also asked Pacquiao to produce 29 copies of his contracts for endorsements, including endorsements with Ricoa, Pagcor, and PLDT.

According to ESPN, if prosecutors decide that there is now enough evidence to bring a case against Pacquiao in court, he could face two years in jail if convicted. That makes this matter very serious.

The other thing that sort of makes this whole situation different than your typical out-of-the-blue celebrity tax issue is Pacquiao’s history of purported financial and tax issues. Don’t forget, late last year an accounting firm sued the champ after he supposedly failed to properly compensate them for getting him out of some complex money jam.

And then there was Pacquiao's trainer, Freddie Roach, saying this last year (via Brin-Jonathan Butler):

One thing that caught me by surprise was when Freddie Roach touched on Manny's political run back in the Philippines. "He's broke because of that and all the people he flies around to his fights. He goes through money like you wouldn't believe. He can't say no."

Academy Award winning director Leon Gast, now filming a documentary on Pacquiao after finding such success with Muhammad Ali in When We Were Kings, confirms Manny's inability to say no to anyone.

"His heart is too big," Gast said to me back in Manhattan last week. "He has to hire people just to say "no" for him. You wouldn't believe all the people who come asking. But he can't say no."

Couple that with Pacquiao’s shockingly low presumed net worth and the rumors about him not getting a great deal from Bob Arum and you see why someone would be inclined to raise an eyebrow at this situation.

All in all, at this point in time, we don’t know anything for certain. Maybe Pacquiao’s current tiff with the BIR is completely and totally a byproduct of miscommunication. Perhaps this is just the latest problem in a long line of similar problems that never amounted to anything.

But maybe it isn’t. And if it isn’t, this could be a distraction that stays with Pacquiao for a long time. One that seriously impacts the way he handles himself, the future fights he picks, and the mindset he has going into each one of those fights.

This is definitely a situation worth monitoring.

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