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Rapper 50 Cent Failed Math Problem on Missed Election

Posted on Aug. 31, 2022

A rapper’s former business consultants might have negligently failed to tell him about a bankruptcy tax election, but he didn’t have enough proof of how his tax liability would have changed to hold the consultants liable, according to a bankruptcy court.

Curtis James Jackson III, known professionally as 50 Cent, showed that his former business consulting firm improperly paid itself from his bankruptcy estate, Judge Ann M. Nevins of the U.S. Bankruptcy Court for the District of Connecticut concluded in her August 29 opinion in In re Jackson. But Jackson failed to prove that the firm caused him to pay extra taxes or improperly accepted payment from one of his non-bankrupt businesses, she said.

Jackson raised three claims against his former consultants, GSO Business Management LLC, arising out of administration of a bankruptcy filed shortly before he replaced that firm with Boulevard Management Inc. GSO counterclaimed against Boulevard, and while Nevin previously denied Boulevard’s motion for summary judgment, she still found that GSO’s claim for indemnification failed because Jackson’s tax claim failed.

Facing two major court judgments — including one in favor of the ex-girlfriend of a rap rival — Jackson filed a chapter 11 bankruptcy case in July 2015. At the time, GSO was drawing a $30,000 monthly fee for its work. The parties had to tweak the arrangement for GSO to continue as his financial advisers and accountants during the bankruptcy.

According to Nevins, “things did not go well for unknown reasons.” In October 2015 Jackson decided to switch from GSO to Boulevard, effective November 1. At the time, GSO was working on his 2014 tax return and hadn’t even considered his 2015 filing.

Jackson had the option of making a section 1398 election to bifurcate his 2015 tax year into pre- and post-bankruptcy short tax years. That election would have been due in mid-November 2015. However, neither GSO nor Boulevard raised the possibility with Jackson, so he didn’t make the election.

Math Problems

Jackson claimed he paid $174,000 in taxes for 2015 and that he could have zeroed that liability out if he’d made the section 1398 election. He argued that he’d have been able to use a net operating loss against all of his tax liability for that year.

Nevins found Jackson easily established the first two requirements for a professional malpractice claim — that is, that GSO owed him a duty and failed to live up to it.

“GSO admits it owed Mr. Jackson a duty and acted as a fiduciary,” Nevins noted. An October 13, 2015, letter might have ended GSO’s duty to Jackson, but the firm still failed to tell him about the election and deadline for making it before then, she said.

However, Jackson failed to prove causation and damages — the remaining, interconnected elements of proving malpractice.

Jackson barely presented any evidence that GSO’s failure caused him to pay $174,000 in taxes more than he otherwise might have, according to Nevins. He relied only on a simple statement from one of Boulevard’s partners, Todd Bozick, who “testified without elaboration that if GSO had made the IRS section 1398 election, Mr. Jackson would not have had any 2015 tax liability,” Nevins wrote.

But Bozick wasn’t an expert and didn’t have experience with section 1398, according to Nevins. He also didn’t state the factual underpinning of his opinion and didn’t testify about any analysis he’d conducted to reach it, she added.

Instead, Bozick testified about what Boulevard’s tax director — who didn’t testify — said. “Mr. Bozick’s unsupported opinion is not competent evidence of damages, and his testimony is not credible that if the election had been made, Mr. Jackson’s tax liability for a 2015 short-year would have been zero,” Nevins wrote.

The only other evidence in the trial supported the conclusion that in 2018, Jackson was still using the NOL he claimed to have missed out on because of the failure to make the election, after his bankruptcy plan had been confirmed and he’d received his discharge, Nevins said.

“Two simple questions remain: Was it more or less beneficial for Mr. Jackson to use existing net operating loss carryovers against income in the period January 1, 2015 through July 12, 2015?” Nevins wrote. “And, was it more or less beneficial for Mr. Jackson’s bankruptcy estate to use existing net operating loss carryovers against calendar year 2015 income, with any residual net operating loss carryovers revesting in Mr. Jackson upon the Effective Date of the Plan?”

Nevins continued: “This is a math problem, but the plaintiff failed to provide the court with the numbers.” While Jackson might be right that it’s generally better to save money earlier, that sweeping statement isn’t enough for an award of damages, she concluded.

“The deficiency in the evidence leaves the court unable to calculate Mr. Jackson’s damages with any degree of certainty. Accordingly, Mr. Jackson’s negligence claim against GSO must fail,” Nevins determined. Without damages to indemnify, GSO has no claim against Boulevard, she wrote.

In In re Jackson, No. 17-02068 (D. Conn. Bankr. 2022), Jackson was represented by Baratta, Baratta & Aidala LLP and Zeisler & Zeisler PC. GSO Business Management was represented by Freeman Mathis & Gary LLP and Barclay Damon LLP. Boulevard Management Inc. was represented by Morrison Mahoney LLP.

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