Tax Law

Did The Creator Of Barbie Engage In Tax Evasion?

Barbie, who has held over 200 careers -- including beekeeper, matador, Starfleet security officer, jillaroo, cat burglar, photojournalist, lawyer, judge, police officer, chief sustainability officer, and lute player -- has never been an accountant.

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(Image via Mattel, Inc.)

In last year’s hit movie “Barbie,” there is a scene where Barbie meets her creator Ruth Handler. Handler tells Barbie that she was Mattel until the IRS got to her. The creator of Barbie is not a supermodel, but instead a “five-foot nothing with a double mastectomy and tax-evasion issues.”

While the movie is fictional, Ruth Handler is a real person. Not only did she create Barbie, she and her husband co-founded Mattel, which became a successful multimillion-dollar company. While the public may use the term “tax evasion” broadly to include even legal tax minimization strategies, tax evasion is a federal crime and a conviction can result in fines and jail time. One might suspect that Handler was involved in an elaborate tax scheme.

But numerous biographies of Handler never mention her being convicted or even charged with tax evasion. Furthermore, she has not even been suspected of engaging in tax fraud.

Instead, in 1978, a federal grand jury indicted her and other Mattel officers for making false statements to the Securities and Exchange Commission. This was due to an SEC investigation after Mattel reported operating losses while also  claiming that the company was recovering and growing. Handler resigned as president of Mattel in 1973.

Handler pleaded no contest. She was fined $57,000 and was ordered to perform 2,500 hours of community service.

While the IRS was probably not involved in Handler’s SEC investigation, it could have been. Sometimes, federal agencies conduct joint investigations or provide support. The criminal investigation division of the IRS has substantial financial expertise that can be useful for white collar criminal investigations.  

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Another reason why the IRS assists in a financial crime investigation is because, in most cases, the perpetrators are not paying taxes on their ill-gotten gains. Criminals usually do not report their illegal income because they do not know it is taxable and think that their tax returns can be used against them. Most tax preparers will not prepare tax returns with illegal income because they fear that they will be an accessory to their client’s actions.

As a result of these joint investigations, tax-related criminal charges are often added to white collar criminal indictments. And in many of these cases, these defendants can be convicted.

For example, last November, the Department of Justice in the Eastern District of Pennsylvania announced that a man has been convicted of tax evasion in connection with a securities fraud scheme. The defendant engaged in a multiyear fraud which resulted in the theft of $40 million. The money was used to fund his lavish lifestyle. And no taxes were paid from this money. The case was investigated by the criminal investigation division of the IRS, and also involved the FBI, the U.S. Postal Inspection Service, and the SEC.

So it appears that Handler’s tax woes mentioned in the movie are as real as Barbieland. While the writers may have included tax evasion in the movie for comedic effect, for tax professionals, it is a very specific term which is anything but funny.

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Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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