OnlyFans content creators have recently been contacted in connection with a criminal tax investigation, according to multiple sources within the tax community. “Over the last several days, pairs of IRS Special Agents across the country descended on the homes and offices of OnlyFans personalities and their tax return preparers, delivering grand jury subpoenas,” John Colvin, a Seattle tax defense attorney told me.
Special agents are members of the IRS Criminal Investigation division, which for more than a century has gone after tax fraud and other financial crimes. (Recently, for example, it has been involved in the seizure of billions of hacked crypto.) Grand jury subpoenas mean the Department of Justice is involved.
Traffic to OnlyFans, a subscription-based social media platform that often includes adults-only content, exploded with the pandemic. OnlyFans reportedly grossed over $2.3 billion in 2020 alone. Its content creators have been increasingly well-known for their eye-popping accumulation of wealth. It is no surprise, then, that the IRS and the Department of Justice, Tax Division, has some questions for some of the highest grossing of the 1.6 million content creators.
OnlyFans declined to comment. The IRS and DOJ typically do not comment about ongoing investigations.
What is the OnlyFans Investigation About?
According to Colvin, “There is quite a bit of publicly available information about the revenue generated by performers, and the government appears to have targeted some of the higher-grossing acts. Whether there are any problems on the performers’ tax return filings—or indeed whether there are any commonalities—remains to be seen.” Colvin and other sources are correct—many OnlyFans creators are known for their eye-popping income and ostentatious displays of wealth. It is likely one of the disputes between creators and the IRS will be whether and to what extent those displays of wealth are ordinary and necessary parts of earning income on the platform. Is such a dispute really a criminal matter? That remains to be seen.
Criminal tax violations require an intentional violation of a known legal duty. In other words, the taxpayer has to know the law and break it on purpose. The old adage, ignorance of the law is no excuse, does not apply in criminal tax cases.
In general, for United States taxpayers, gross income means all income, whatever the source derived. But for those taxpayers who are self-employed or operate a business, a deduction is allowed for expenses that are ordinary and necessary. And reasonable travel expenses that are not “lavish or extravagant under the circumstances” may also be deductible.
Disagreements between the IRS and taxpayers about whether some form of benefit constitutes income, or whether some expense is a deductible expense, abound in the civil tax context. Whether this criminal tax investigation is focused on the amount of income reported, the expenses deducted, or something else, however, remains to be seen.
OnlyFans Terms of Service requires content creators to confirm that they “have reported and will report in the future the receipt of all payments made” from OnlyFans. And OnlyFans reserves the right to close a creator’s account if they learn a creator has failed to pay tax on OnlyFan’s income.
What Happens Next?
As the investigation continues, content creators and their CPAs will be required to respond to any subpoenas that have been served. More on that below, but in general, subpoenas can require either the production of documents, an appearance before a grand jury, or both.
OnlyFans content creators and the CPAs who received subpoenas should retain tax defense counsel, as soon as possible. Ideally, the creators and their CPAs will retain separate counsel. Why? Because they may have different stories to tell. It is possible that the creators will say, “My CPA is the one who told me to deduct this,” while the CPA may say, “I told my client deducting this might be risky.”
It is important to retain counsel who is experienced in this kind of work as soon as possible. I’m always better positioned to defend my clients when engaged quickly. When I learn a client has been contacted by the government, the first thing I want to know is how long the interaction lasted. If anyone who was served ended up sitting on the couch and talking to agents for two hours, we need to debrief as quickly as possible, before memories fade. What did the government ask about? What were the responses? These are the critically important elements that can make or break how a defense is shaped.
Something else to remember: just because the government has served a subpoena doesn’t mean these content creators did anything wrong. In general, someone who is served a subpoena will fall into one of three categories:
A witness is someone who has information that is germane to the investigation. The government is not seeking to prosecute witnesses but needs information that the witness has. A witness can be asked for documents, interviews, testimony, or some combination of all three.
A target is a person or entity that the government believes has committed a crime and is investigating. A witness can be asked for documents, interviews, testimony, or some combination of all three. However, targets who are individuals (unlike corporations) have important Fifth Amendment rights to assert in order to protect themselves against incrimination.
A subject is someone who has information that is germane to the investigation and is not a witness. The subject is not the target of the investigation, but as the investigation continues, may have as good of a chance of becoming a target and being prosecuted as they have to be a witness.
What to do if the government shows up at your door
The sweeping nature of this investigation calls for a basic understanding of the do’s and don’ts of what to do when government agents show up at your door. In general, government agents will come early in the morning, and if they are serving multiple people, they try to do it all at the same time so the people who are connected can’t warn each other. They can show up at your front door, your car door, or your office.
In general, in the life of an IRS examination, there are three likely scenarios in which an IRS agent may attempt to speak with someone personally outside of an agreed-upon IRS interview.
Service of an administrative summons is sometimes done in person, or it can also be done by mail. If you are approached by an agent serving the summons, I advise clients to accept the document and close the door. Advise the agent you will contact your attorney and your attorney will be in touch.
Service of a trial or Grand Jury Subpoena is typically done in person. If you are approached by an agent serving a subpoena, I advise clients to accept the document and close the door. Advise the agent you will contact your attorney and your attorney will be in touch.
Service and execution of a search warrant is always done in person. If you are present when a government agency executes a search warrant, you may not prevent them from taking files or property that is permitted to be seized pursuant to the warrant. If you are approached by an agent executing a search warrant, you should examine the document and make sure it says “search warrant.” If it does, advise the agent you will contact your attorney and your attorney will be in touch. We also recommend clients leave and tell everyone else to leave while a warrant is being executed to avoid the temptation to speak with agents.
I represent clients in tax matters, which are unique in that an investigation can turn from civil to criminal. It can be very hard to remember what to do in a stressful situation, so we provide our clients with an index card with language asserting important rights printed on it. If you don’t have an attorney or such a card, you should try to remember that, in general, no one is obligated to speak with law enforcement.