Royce Gracie has had several ongoing tax fraud cases with the IRS for years now, but he’s finally reached a settlement with them according to a recent report by Forbes. Three different lawsuits were filed against the commissioner of the IRS contesting tax deficiency and fraud determinations against Gracie and Khonkhor Enterprises, a corporate entity related to him. The cases surround the period of 2007-2012, with Gracie and his then-wife being accused by the IRS of fraudulently evading the payment of over $657,000 in federal taxes during that time.
Originally they also had a 75% penalty for alleged fraud added to the amount and as such, the total tax bill that Royce Gracie was facing was around $1.15 million according to the IRS. The IRS made several accusations against him, firstly that he maintained foreign bank accounts to “hide money that (Royce Gracie) earned internationally,” he hid corporate income as “personal loans,” and he provided a fake loan document to state that funds used for the purchase of a personal residence were borrowed “when in fact they had wired the funds from their foreign accounts,” and other claims as well. During the that period of 2007-2012, Royce Gracie had 55 Royce Gracie Jiu-Jitsu networks all around the world and his wife was a doctor of podiatric medicine but they reported annual tax liabilities to the IRS that ranged from $0 to $3,925.
In addition to the issue with his personal taxes, the IRS also issued two Notices of Deficiency regarding his company, Khonkhor Enterprises. A 2013 deficiency notice alleged inappropriate expense deductions and unexplained bank deposits. The second deficiency notice issued in 2015 disallowed over $475,000 in claimed business expenses and imposed a 75% fraud penalty on the corrected tax liability. Royce Gracie disputed the claims made by the IRS in U.S. Tax Court, where his personal and corporate cases were consolidated and scheduled for trial in June, 2019. After several extensions and continuances in the case, it finally came to a close on March 31st, 2023.
Both Royce Gracie and the IRS came to a settlement and the judge agreed, meaning that Gracie’s personal tax liability for 2007-2012 was reduced from $657,114 to $355,086. On top of that, the original 75% fraud penalty was lowered to 30%, which meant that the total he owed came to $461,611.80. All fraud penalties in relation to the corporation appear to have been dropped and Gracie agreed to a tax deficiency of $85,146 and a 20% accuracy-related understatement penalty. The grand total of both the personal and corporate cases levied against Royce Gracie totaled $563,787, after all of the adjustments are made. While this was obviously significantly less than what the IRS originally pursued, it’s still a pretty large amount of money.