Producer to Pay Hefty Back Taxes

One of Hollywood’s biggest spenders now has a hefty tax bill to pay.

Mario Kassar, producer of such extravaganzas as the upcoming “Terminator 3: The Rise of the Machines,” has formally agreed to pay the Internal Revenue Service nearly $45 million to settle tax disputes dating back 14 years in some cases, according to U.S. Tax Court papers.

Kassar will pay $38 million in taxes for the 1988 through 1990 tax years, the documents say, with the remainder of the settlement covering penalties. Kassar’s biggest hit is for the 1989 tax year, for which he will pay $29.7 million in additional taxes and $5.9 million in penalties.

“It was a satisfying resolution for both sides. It took a long time, but we’re happy it’s just done,” said Steven Toscher, Kassar’s tax lawyer.

The settlement ends one of the entertainment industry’s longest and most bitter tax disputes, stemming from an IRS investigation into the byzantine financing structures and liberal executive lending practices of Carolco Pictures, the production company Kassar headed.

The Times reported in December that the tax cases against Kassar and producer Andy Vajna, who was Kassar’s partner at Carolco, were being wrapped up and that federal authorities had abandoned criminal tax investigations against the two men with no charges being filed.

The often-convoluted tax case centered on a web of companies with ties to Carolco, as well as loans and company-paid expenses the IRS said should have been classified as income.

The IRS contended, for example, that Kassar used company loans for art and real estate purchases--in one case even for paying gambling losses--and that the money should have been considered income, court records show. The criminal investigation began unraveling after federal authorities failed to get a conviction against former Carolco President Peter Hoffman on four felony tax charges in 1997.

During the late 1980s and early 1990s, Carolco produced such expensive blockbusters as “Terminator 2: Judgment Day,” “Total Recall,” the “Rambo” series and “Basic Instinct.” But burdened by huge overhead expenses and such money-losing bombs as “Chaplin” and “Cutthroat Island,” Carolco filed for Bankruptcy Court protection in 1995 and has since been liquidated.

Although the amount Kassar is paying is a hefty one, it’s less than the $68.6 million the IRS originally sought from the producer. Because many tax disputes are settled quietly before details become public, it’s unclear where the Kassar settlement stacks up in the annals of Hollywood tax disputes. But Toscher said he believed it would not be a record amount.

An IRS spokeswoman declined to comment, citing agency policies prohibiting comments about individual cases.

As previously reported, Vajna last year agreed to pay more than $6.5 million in back taxes with no penalties. Vajna left Carolco in 1989. He and Kassar have teamed up again with C2 Productions to produce “Terminator 3.”

Toscher said Kassar is relieved to have settled the case with “Terminator 3” starting production.

“This couldn’t come at a better time. With the amount of energy required to launch a production like that, it would have been a major distraction,” Toscher said.