Will Taxes SAVE This "Celebrity"?

We're all used to seeing the high and mighty brought down by taxes. Actor Wesley Snipes is currently sitting in federal prison for failing to pay tax on millions of dollars of movie income. Representative Charlie Rangel was censured by the House of Representatives, in part for failing to report $75,000 of rental income on his villa in the Dominican Republic. Even Florida mom Casey Anthony, on trial for the murder of her daughter Caylee, faces a $68,520 IRS lien, apparently for failure to pay tax on money paid by ABC for family photos and video. (Maybe she thought paying her lawyer was more important than paying her taxes?)

Would it surprise you, then, to learn that one of our highest-profile scoundrels is counting on the IRS to help get him out of trouble?

Few Americans have fallen further from grace than John Edwards. We knew him first as a successful trial lawyer, a model family man with a wife courageously battling cancer, a United States Senator, and even a credible candidate for President. But when the National Enquirer, of all sources, blew the whistle on his affair with campaign videographer Rielle Hunter — then later fingered him as the father of Hunter's child — Edwards' golden world came crashing down.

Then things got really bad. On June 3, federal prosecutors indicted Edwards on six counts related to payments made to his former campaign aide and mistress. They allege that Edwards solicited $925,000 from two wealthy donors to cover up the affair and pregnancy. The prosecutors argue that the gifts were actually used for campaign purposes because, if the public knew of the affair, the campaign would have been over. As such, they contend, the gifts were subject to campaign finance laws that limit contributions to $2,300 per person and require public reporting.

Edwards' first donor, reclusive billionaire Rachel "Bunny" Mellon, gave $725,000 in the form of seven checks. Those checks were made payable to an interior decorator friend, and falsely indicated they were payment for items of furniture, such as "chairs," "antique Charleston table," and "book case." The checks were then forwarded to Edwards' former aide Andrew Young, endorsed by Young's wife in her maiden name, and deposited in the Youngs' personal accounts. (Mellon's attorney, the unfortunately-named Alexander Forger, insists Mellon had no idea the money was going to support Hunter.)

Edwards' second donor, his former campaign finance chair Fred Baron, allegedly paid several travel and lodging expenses for Hunter and the Youngs. These included a $29,259.85 charter flight from Fort Lauderdale to Aspen (!), a $25,283.50 tab at the Four Seasons Hotel in Santa Barbara (!!), and a $58,667 rental payment for a house in Santa Barbara (!!!). Not a bad lifestyle, right? Looks like "candidate's mistress" and "bagman" are still cushy gigs, even in today's recessionary economy.

Here's the tax twist. Mellon treated the $725,000 she gave as a personal gift, and even filed a gift tax return reporting it! Mellon is heir to the Mellon banking and the Listerine mouthwash fortunes, with fully-staffed homes in Virginia, Antigua, Paris, New York, Washington, Nantucket, and Cape Cod. Given her general wealth, she probably paid the maximum $326,250 tax on that gift. Edwards is certainly counting on that tax return to argue that the gifts were legal.

What do you think? Does Mellon's gift tax return legitimize her gift? Or is the tax payment just a part of a broader cover up?

Here at Scholl & Company we focus on proactive tax-planning. Everything we do is court-tested and IRS-approved. Our strategies will never make headlines. And we think that's a good thing!

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