Pacquiao’s tax case: Where there’s smoke, there’s fire

Manny Pacquiao is taking steps to address his tax problems. (Photo by EPA)

The persistent pounding in the media both at home and abroad about “Fighter of the Decade” Manny Pacquiao’s problems with the Bureau of Internal Revenue  and the US Internal Revenue service despite his vehement denials and the more cautious comments of his adviser Michael Koncz and Top Rank promoter Bob Arum, make people reflect on the popular idiom that “where there’s smoke, there’s fire.”

The Free Dictionary loosely interprets  it to mean that if it looks like something is wrong, it probably is.

However, we should be remember that people like to think that where there’s smoke, there’s fire so they will always believe you were involved even if you were not.

Pacquiao’s tax problems are obviously compounded by the overwhelming perception that he has been repeatedly exploited, if not cheated outright, by some members of his team. And despite the millions he has earned through the years, he hasn’t put in place a competent organization that is manned by qualified individuals who could attend to his numerous daily administrative affairs.

But most of all, the focal point is his failure to appoint a competent accountant and bookkeeper, a financial expert and a genuinely qualified tax lawyer.

Koncz may exhibit his intense loyalty to Pacquiao but that won’t resolve his tax problems or the other issues that continue to hound Manny because while loyalty is a  virtue, competence in specific areas demanded of an eight-division world champion’s business dealings and his tax issues is what’s obviously needed if not demanded.

Pacquiao re-energized his career and once again lifted the national spirit with his masterful conquest of Brandon “Bam Bam” Rios in Macau last November 24, but upon his return assailed the BIR headed by Kim Henares who has always strived to do what she is sworn to do. And that is to make sure citizens pay the correct taxes.

Who's handling his taxes?

While Pacquiao may believe that his tax problems with the BIR is a case of political harassment, it seems like an easy way out when the most effective counter would be to provide the certified documents indicating taxes were paid to the IRS allowing him to fall back on the law that disallows double-taxation.

Bob Arum claims he sent the receipts, but the question is to whom? It's fair to assume that he would not send it directly to the BIR but would course it through Pacquiao’s staff, which probably means Koncz who is regularly in touch with Arum or Atty. Franklin “Jeng” Gacal.

Unfortunately for Pacquiao, Gacal suffered a stroke and is partially paralyzed and last we heard he couldn’t communicate, which complicates things for Manny.

Arum has said getting certified documents from the IRS takes time even as they have forwarded a request to expedite the release.

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One thing that struck us is that while Top Rank, we have no doubt, paid the 30 percent slapped on Pacquiao’s purse in every fight, there was at that time a difference in the tax rate in the Philippines covering the tax bracket of Pacquiao. It was 32 percent which means Pacquiao would have to pay the difference on the purse he earned for each fight in the US.

Indications are, that was never even considered let alone attended to by his advisers.

Well-meaning friends, many of them his congressional colleagues sympathetic to his cause, have given him some sound advice.

Speaker Sonny Belmonte advised Pacquiao not to treat his tax problems in a cavalier fashion and advised him to hire a good accountant and a good lawyer. Minority leader Ronnie Zamora, a top-notch lawyer who at one time was President Marcos’ executive secretary, said he had advised Pacquiao “to get himself a good accountant and even better, get himself a better lawyer and the best kind of financial adviser that he could afford.”

Zamora  believes that if Manny heeds his advice, “many of his problems will disappear.”

Pacquiao meets with Henares

Knowing the public adulation and his status in the Philippine political arena as well as Filipinos willingness to compromise, if Pacquiao is able to present the evidence the BIR is asking for, it's more than likely an acceptable compromise could be hammered out.

In fact, Pacquiao made the first – and correct move- to resolve the case with the BIR when he visited Henares and tax enforcement officials behind closed doors on Friday. The meeting in which Pacquiao was accompanied by his lawyers reportedly lasted an hour but neither side issued any statement in the wake of a gag order issued by the Court of Tax Appeals where Pacquiao is contesting the BIR claim.

However, the US situation appears to be a totally different if not far more serious issue despite the seeming confidence expressed by Arum and Koncz that it would be resolved amicably.

US media reported that a notice of Federal Tax Lien dated November 22, 2013 was filed with the Official Recorders Office in Los Angeles,  California in which it said  “as provided by Section 6321, 6322 and 6323  of the Internal Revenue Code we are giving a notice that taxes including interest and penalties have been assessed against Emmanuel D. Pacquiao.”

It said “we have made a demand  for  payment of this liability but it remains   unpaid. Therefore,  there is a lien in favor of the United States on all property and rights to property belonging to this taxpayer for the amount of these taxes and the additional penalties, interest and costs that may accrue.”

The IRS website describes a federal tax lien as the government’s legal claim against your property when you neglect or fail to pay a tax debt. A lien protects the government interest in all your property including real estate, personal property and financial assets. A federal tax lien exists after the  IRS assesses a liability.”

'Everything under control'

In the face of these reports Arum believes there is nothing to be worried about while told Yahoo Philippines “We have everything under control both in the  IRS and BIR and  we have lawyers working on both issues in both countries.”

He confidently said he expects both cases to be settled within the next two weeks.

At the same time both Arum and Koncz revealed they had hired the services of top-notch lawyers and tax experts to handle Pacquiao’s problems with the IRS.

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The Los Angeles Times quoted one of the lawyers, Atty. Steven Toscher who claimed there were “serious errors” in reports that Pacquiao owed the IRS $18.5 million in unpaid taxes and added that Pacquiao's "financial advisors are handling the situation."

Toscher argued that the “disclosure of Manny’s personal tax information is wrong” even as he made it clear  that Pacquiao “is committed to working with the IRS to resolve any outstanding issues.”

Given the troubles he faces with the BIR and the IRS, it does seem that an April 12 fight at the MGM Grand Garden Arena announced by Arum may have to be pushed back given the obvious distraction it has created. That is, unless Pacquiao is forced to go ahead with the fight  just so he could earn a substantial amount just in case he is going to have pay additional taxes both to the BIR and IRS.

Postponing his next fight?

There have been indications that Pacquiao may wish to postpone his next fight until after his wife Jinkee gives birth to their fifth child sometime in May while hints by Pacquiao himself that he was prepared to discuss a megabuck fight with Floyd Mayweather Jr in the second half of next year, during a planned vacation with his family in the US later this month.

Koncz had previously met with Mayweather and exchanged phone numbers and did talk on a few occasions including one in which Mayweather called Pacquiao. The two spoke and Mayweather reportedly offered Pacquiao a flat purse of $40 million, which Manny supposedly turned down and argued instead for a 50-50 split. Mayweather declined Pacquiao's counter-offer, ending the brief negotiations.

Perhaps Koncz, who normally arranges the trips and itinerary of the Pacquiao family, may possibly serve as an advance emissary and set the stage for a possible Pacquiao-Mayweather meeting.

Given Pacquiao’s present tax woes, Mayweather is almost certain to exploit it if in fact they do begin to discuss a fight the world has longed to see.

For the present, Pacquiao’s lawyers and his tax experts need to put out the fire so he does not suffer the smoke inhalation.

Editor's note: The blogger's views do not represent Yahoo! Southeast Asia's position on the topic or issue being discussed in this post.