Too often, rappers view large advances as if they were endless streams of income. They spend extravagantly on luxury cars, jewelry, and sizable entourages, neglecting to reserve anything for taxes or savings. In an on-air conversation with The Breakfast Club in August 2019, T-Pain shared with Charlamagne Tha God that he once had approximately $40 million in his account but squandered it on poor real-estate investments, cars, and houses. His financial situation became so dire that he had to borrow money to buy his children Burger King.
MC Hammer earned around $33 million, according to Forbes, but by 1996, he was compelled to declare bankruptcy. He employed 200 people, owned 17 luxury cars, and traveled via private jet. In 1991, Hammer established Oaktown Stable, and the Seattle Times reported that the family possessed 18 thoroughbreds and constructed a $30 million mansion. When he tallied his obligations, his debts amounted to $13.7 million, illustrating how swiftly money can disappear when financial mistakes persist.
If you’re curious about how Hammer managed to employ 200 people, it’s important to recognize that a newly-minted star often inherits an entourage. This group can include managers, booking agents, publicists, accountants, security personnel, stylists, and even childhood friends who suddenly become responsible for “day-to-day” matters. While the intention is for each individual to protect the artist, in reality, an oversized crew can deplete finances faster than the rapper can generate income. By the time royalty statements are issued, the artist may realize that loyalty without vigilance can lead to financial ruin.
Predatory label deals
Predatory “recoup first” clauses can prevent a rapper from releasing new music while the label takes all the earnings. Young Buck from Nashville experienced this firsthand. When G-Unit Records and Interscope froze his catalog due to a royalty dispute, his income ceased, but tour costs, security fees, and mortgage payments continued to accrue. With the IRS threatening to auction his studio equipment, he filed for Chapter 13 in August 2010 and even planned to sue 50 Cent and G-Unit for $5 million in withheld royalties. The following year, The Wall Street Journal disclosed that 50 Cent attempted to claim Buck’s master recordings in bankruptcy court, effectively paying himself first before any other creditors. This maneuver, a classic example of “self-recoupment,” left Young Buck without any means to live.
This issue is not exclusive to emerging stars, as even selling over 10 million copies couldn’t rescue TLC from a bad contract. The 1994 hit album “CrazySexyCool” went multi-platinum, yet the group — including rapper Lisa “Left Eye” Lopes — earned only 60 cents per record sold, as reported by the Los Angeles Times in 1996. This was because LaFace, Arista, and Pebbitone charged every tour bus, video shoot, and wardrobe expense against their recoup ledger. When the label declined to renegotiate, TLC had no option but to file for Chapter 11 in July 1995, labeling the deal “unconscionable.” Even a year later, at the 1996 Grammys — where they won two awards — they were still technically bankrupt.
The IRS factor
No one enjoys an IRS audit, especially a rapper with millions in unpaid taxes. In July 2013, DMX (Earl Simmons) sought bankruptcy protection in Manhattan, reporting less than $50,000 in assets against nearly $10 million in debt, as noted by the Wall Street Journal. Most of his debt stemmed from unpaid child support, but prosecutors later exposed a more extensive tax predicament. In July 2017, a 14-count federal indictment accused him of concealing millions and evading $1.7 million in taxes owed to the IRS. According to the Justice Department, he attempted to redirect appearance checks without proper withholding and hid cash under friends’ names. He eventually pleaded guilty and served a year in federal prison. Even after release, he was burdened with substantial restitution payments that left him financially strained until his passing.
Lil’ Kim also confronted overwhelming unpaid taxes. In June 2018, as reported by The Blast, she filed for Chapter 13 bankruptcy, listing approximately $2.57 million in assets and $4.08 million in debts — $1.85 million of which was owed to the IRS dating back to 2004. The bankruptcy filing halted a foreclosure on her New Jersey mansion and outlined a five-year repayment strategy. When the case trustee raised objections, Kim needed to negotiate directly with the IRS. By 2019, the court dismissed her Chapter 13 case, but she spent another four years resolving federal liens. In 2023, she finally settled her remaining tax obligations.
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