On Friday, 9 November 1990, the cloud that had been hanging over him and his family for over five years finally burst, unleashing a torrential storm. The Internal Revenue Service seized properties in five states to satisfy a $6.5m tax debt that he owed, which through a series of penalties had risen to $16.7m. It was a momentous day, still talked about darkly by those who witnessed it at Pedernales Country Club: the lines of black cars slipping ominously onto the property; helicopters hovering overhead; agents with pistols and men and women in suits clutching clipboards, demanding to know where all the real riches were being hidden amongst the everyday detritus of lives lived without fuss.
Larry Trader: I’ll never forget that day. They came storming in. There were rumours to that effect, but Willie’s sort of headstrong and the worst thing you can try to do is intimidate him. We had a feeling but we never knew it would happen. Then that Friday they came in and put chains and locks everywhere.
As Trader suggests, nobody could say they hadn’t been warned. Nelson’s complicated financial mess had two central causes: the reign of negligence overseen by Neil Reshen in the mid-70s; and an even more calamitous tax shelter scheme Nelson entered into on the advice of the accountancy giant Price-Waterhouse in 1980. The reason he was unable to deal with the financial fallout from these events was more straightforward: his tremendous generosity over the years and continuing vast expenditure, combined with a laissez-faire attitude to responsible finance in the face of declining record sales and concert profits. In a nutshell, he was close to broke.
It was a conspiracy of inevitability he knew was on the horizon and yet refused to acknowledge. The Nelson empire – from Pedernales to the Honeysuckle Rose – ran on a system of benign neglect. Nothing was confronted, everything delayed. No one wanted to be the harbinger of negative news, even if the consequences of denial were dire. He was surrounded by people in whose best interests it was to avoid presenting him with a clear view of reality, and he certainly wasn’t inclined to go looking for it himself. The mantra of positivity and ‘living in the moment’ was all very well, but it could not be applied successfully to everything in life, especially money, but he simply didn’t see the world in that way. While he ploughed cash into doomed white elephants like the Outlaw Music Channel, there were no trust funds or protected investments for his children; no real intelligent thought put into the way his money could be used for his long-term security. That’s not to say that people didn’t try, but that kind of talk bored him and went against the grain. It had always been that way. As Eddie Wilson said: ‘Cover your own ass and then pass the rest around.’ Except he had spread it around so much and so often that he had left himself exposed.
Nelson had been presented with countless opportunities to face up to his tax issues over the years, yet nothing satisfactory had been done until it was much too late. That his problems stretched back as far as the late 60s was hardly surprising. He had been fingered for non-payment of taxes in 1967, 1968 and 1969, and into the 70s he was still being hit with penalties, but the sums involved were relatively small, reflecting the days when his salary was collected nightly in cash with a gun for back-up. The real problems arose when Nelson started earning decent money.
In November 1978 the IRS filed a $71,991.75 lien against him and Connie, effectively claiming first right to their property in Colorado in lieu of unpaid taxes in the last quarter of 1977 and the second quarter of 1978. Soon, it transpired the problem was far more extensive. The period particularly under dispute was 1975 to 1978. It was later discovered that all Nelson’s financial records for those years had been destroyed, and the IRS were especially concerned about discrepancies between the huge attendances at the Fourth of July picnics in 1975 and 1976 and the relatively small profits declared to the taxman during this time. If they had known the madness that swirled around these events they would have had a better understanding of how Nelson’s operation worked and of how difficult it was to get an accurate handle on his incomings and especially his outgoings, but that was not their problem. They just wanted more money.
When Neil Reshen left Nelson’s pay in 1978 their dispute centred on the tax issue. Reshen has consistently denied that it was his job to pay Nelson’s taxes. His employer disagreed and blamed him for the mess he was in. By 1985, the mistakes and negligence of the 70s had left Nelson with an IRS Notice of Deficiency totalling $2.2m: this related to the years between 1975 and 1978 and comprised a debt on undeclared income to the tune of $1.4m plus penalties of $730,597. The figure was contested in the US tax court in Washington but Nelson’s legal team lost.
This was all worrying enough, but there was another, even more concerning tax issue gathering pace at the same time. In 1979 Nelson and Mark Rothbaum – in an attempt at taking greater care of business after Reshen’s departure – met with representatives of the accountancy giant Price-Waterhouse. The firm urged Nelson to defer paying his taxes by investing in First Western Government Securities. Nelson invested $30,000 in 1980 and $165,000 the following year. Later, Price-Waterhouse recommended that Nelson move his money into cattle and cattle feed. These were perfectly legitimate tax deferment schemes: buy cattle and feed, deduct the cost of the feed as a business expense and then sell the cattle, making enough money to both pay your taxes and make a profit. That was the idea. In reality, it was poor advice and cost Nelson over $1m. It also meant that the money he had invested to pay his tax bills simply wasn’t there.
Connie Nelson: We were in Lake Tahoe when the guy from Price-Waterhouse brought the tax deal to Willie. It was to put some money in cattle feeding down in Texas, and the money made from that would go not only to pay your taxes, but you would make money on it too. This guy said there was no way it could fail. Of course it did fail and all the money that was put into it that would normally have gone to taxes was all gone. It made it look like Willie just didn’t pay his taxes. It was Price-Waterhouse, so how could you not agree! If this guy said it was a good idea, well, it’s got to be a good idea.
The upshot was that in 1988 Nelson and his now-estranged wife were slapped with a Notice of Deficiency for the years 1980, 1981 and 1982, the period where the Price-Waterhouse scheme was running – and failing. This time it was really serious: he owed nearly $5m, not including interest and penalties, which were escalating daily. By the spring of 1990 the long, drawn-out process was nearing its endgame: for the combined follies of financial mismanagement and bad investments in the years between 1975 and 1982, he and Connie – it was always a shared tax bill – owed an astonishing $32 million to the taxman, for the official citations of negligence; failure to file a tax return; and failure to pay taxes. Nelson never argued over the fact that he owed money on back taxes, but he balked at the astronomical sum.
Willie Nelson: I’m not trying to skip out. The only argument I have with them is the penalties and interest, which at this point are growing at like $5,000 a day. I would like to negotiate that a little bit. But other than that I admit I owe them the money. I guess I could file for bankruptcy and eliminate the debt but that’s way down on the list of things I want to do. Since 1983 I’ve paid them $8m in taxes, so it’s not as though I’m a tax dodger.1
He worked hard to find a compromise: he employed prominent New York attorney Jay Goldberg to fight his corner. Goldberg negotiated with the IRS and on 6 June 1990 managed to reduce the sum owed to $6.5m, plus a further $9m in penalties and interest to be held over. A charge of civil fraud was not pursued. Effectively, Nelson had three months from that point to make a substantial contribution towards paying the $6m bill – a half or even a third of that sum would have sufficed initially – and he would have blocked any further immediate action and bought himself some time.
Finding $2m in ninety days shouldn’t really have been a big ask. Looking in from the outside Nelson was a superstar, continually raking in the money from his tours, still pulling in royalties from his many records. However, the reality of his situation was somewhat different. His touring income had shrunk from $10m
in 1986 to $3.3m in 1990. His record sales had plummeted, a victim of the changing times, lack of quality control and general over-exposure; by 1990, his annual royalties hovered around the $400,000 mark. It sounded like a lot of money but it was not, in all honesty, anywhere near enough to support his lifestyle and his prevailing circumstances.
Lana Nelson: He had more expenses going out than he had coming in. We’ve been living hand-to-mouth for the last couple of years. He didn’t have 6 million. He didn’t have 1 million. He probably didn’t have 30,000.2 He was going through a divorce; he was still supporting all of his kids, not to mention his partner Annie D’Angelo, Lukas and his seventh and final child Jacob Micah, born on 25 April 1990. He owed Columbia around $3m in advances that hadn’t been recouped, so he was making no money from his record sales. Then, of course, and most significantly, there was the huge, rolling, money-swallowing machinery of his extended family and the system that kept them all on the road and in jobs and homes. On top of that, the money he handed out to hangers-on, strangers and friends was frequently unaccounted for. Charity is normally tax deductible, but not when it is given freely at every turn. He did not, after all, ask for receipts. The bill for all those hand-outs was bound to arrive someday, and now he was paying the tab.
Throughout the second half of 1990 the Nelson organisation scrambled around in pursuit of funds. In July he put the ranch at Evergreen, Colorado up for sale for $3m, but it failed to sell. He could have sold his land and his houses in Austin and elsewhere to raise the cash but he was unwilling to do so, not least because it would mean uprooting all the people who lived there and who depended on him. He could also have declared himself bankrupt, but that didn’t strike him as a particularly attractive option either.
He did agree to sell Willie Nelson Music, his publishing company, for $2.27m in August, finding himself back in the position of having to offload his songs to get by: the sums and stakes were much higher than they had been back in the late 50s, but the principle was the same. As a further indignity, none of the money from the sale went to the cause. Instead, it was earmarked to cover outstanding bank loans while Paul English, as 20 per cent shareholder, received $360,000. Some suggested English should have given up his share, but even if he had offered the cash to Nelson it would not have been accepted. He spurned charity, rejecting the idea of turning the Fourth of July picnic into a fundraiser.
Central to his reluctance to pay the bill right away or make any drastic, life-altering moves was the belief that – although he undoubtedly owed the IRS substantial amounts of money – none of this was really his fault. To that effect, in August he launched a $45m lawsuit against Price-Waterhouse, claiming that the firm did not investigate his investments despite him paying $1m to them in fees, and furthermore that the tax shelter had been recommended and suggested to him by Price-Waterhouse, which contravened acceptable practice. The argument would rumble through the courts for the next four years.
In the meantime, the IRS deadline of 6 September came and went without any significant payment being made, with the result that $16.7m in liens was placed on his personal property. From that point on it was only a matter of time before the IRS finally lost patience and came calling for their money. As well as the estate at Pedernales – the golf club, the recording studio, the condos where his friends lived, his Western town over the road and his fishing camp – his unsold property in Colorado was seized on 9 November, alongside his mother’s old home in Yakima, Washington and property in Hawaii and Alabama. In San Diego Connie, who on paper was liable for half the unpaid tax, had been unable to buy a house for years because of the debt hanging over her: she rented until the early 90s. The band were also affected, as much of their equipment was stored in the country club. Now it was behind padlocked doors.
Nelson wasn’t in Texas when the IRS came. He was in his manager’s house in Hawaii. He had already ensured ‘Trigger’ was taken care of, which was his main concern. The guitar had come to define his entire career: battered, eccentric; neither one thing nor the other; traditional yet unconventional. It was a talisman, a tool and a symbol of where he had come from. Without it, he claimed he would give up. With it, he could do anything. Everything else was up for grabs: gold discs, photographs, personal effects, bandanas, shorts, golf clubs, all his master tapes, light fittings, even wallpaper. It was all unceremoniously hauled away and itemised, ready for auction. The IRS didn’t spot the cannabis plants growing behind some of the condos, but that was about all they missed.
Johnny Bush: The IRS came down and took everything that wasn’t nailed to the floor. I mean everything in that studio: the glass out of the control booths. Everything. If his guitar hadn’t been on that bus and that bus hadn’t have been on a lease, they’d have got that too. They took it all. He had his clothes and his guitar and that’s about all he had.
There were desperate attempts made to rescue things. David Zettner recalls receiving a call from Lana Nelson in the afternoon telling him to drive up to the ranch in his car, come straight around the back and not to speak to anyone. She loaded his boot up with tapes and he drove away. The war tales have inevitably become mythologised over the years – everybody has a story from the front line of the Day The IRS Came – but unquestionably possessions were spirited away under cover of darkness. People would gather at the house in the middle of the night and pass furniture over the fence, to be driven away from under the eyes of the government agents. But these were small victories.
Suddenly everyone was out of work: the studio was closed, the golf club shut, the film set out of bounds. Even if they had been open there was no money to pay them. Bob Wishoff recalls later having to pool their money to buy petrol for the bus. The haven had finally been breached. The party was over. There were a lot of very worried people pacing around. In many ways, in the long run the IRS bust sorted out the wheat from the chaff and cleared out some of the human detritus that had helped Nelson get into this mess in the first place.
Tim O’Connor: I’m pretty frustrated by the outer layers of bark and moss that have grown around Willie’s tree. And I think it’s burdened the tree. As far as I’m concerned, this is a great shakedown. Everybody should give the man room to breathe for once.3
In Hawaii, Nelson was lying low, trying to keep his cool and planning what to do next, although it was a little late to now start turning his full attention to the matter. He cancelled a scheduled New Year’s Eve appearance and cracked a few classic Willie-isms to the press along the lines of how funny it all was and that everyone should send 25 cents to the IRS and be sure to ask for a receipt. He had been aware that this was coming and so wasn’t panicking or feeling sorry for himself, but he and his advisors were peddling furiously nonetheless.
He began rallying his friends: Darrell Royal, the farmers, lawyers, used-car salesmen and politicians such as Ann Richards who had formed the core of his powerful and protective circle in Texas for two decades. Neil Young advised him to head for the hills. There had been huge swathes of press coverage – some of it negative, most of it wry and broadly affectionate – but in his home state there was an immediate outpouring of goodwill.
Dave Crowe, a used-car salesman from Waco, launched WillieAid, while the Broken Spoke put an enormous pickle jar on the bar saying ‘Where There’s A Willie There’s A Way’ and asked their regulars to shove a few dollars in. On 2 December they organised a dance show and auction. Owner James White sent the proceeds straight to Hawaii, along with all the other correspondence he was receiving in support of the star. Nelson admitted to being overwhelmed by the response, if a little embarrassed by the money.
James White: I was getting donations from all over the country, from prisons, the troops in the Gulf. Real heartwarming letters. They wanted to help him. We had a fundraiser for him and sent him $10,000 and he said, ‘I want to thank you from the bottom of my heart. I’ll be home after Christmas and come up and eat a chicken fried steak, drink a cold beer and do a little pickin’.’ He told me: ‘They can�
�t take the smile off my face and they didn’t take ‘Trigger’ so we’ll be OK. We’ll be all right.’ I never heard him complain much about it.
Nelson spent Christmas in California with Annie’s parents and then returned to Austin – via Abbott and Hillsboro – in the early New Year. He stayed with friends. He was making a TV film, Another Pair Of Aces, with Kris Kristofferson, and as promised the two came in for a jam session at the Broken Spoke, acting as though they hadn’t a care in the world.
Later in the month the auctions began. On 23 January his personal effects went under the hammer: everything from garbage cans, posters, personal photographs and golf carts to gold records and furniture were on the block. The sale raised around $68,000, and already there was evidence of the support network closing in. Jeanne Oakley, of the Willie Nelson and Friends Showcase Museum in Nashville, bought many items for several thousands of dollars. They would all find their way back to Nelson.
There was a huge amount of loyalty in the area: two days later, Pedernales Country Club – including the golf course and recording studio – and the Western town went up for sale and failed to attract a single bid. Aside from anything else, Nelson was good for business: his estate attracted musicians and film stars and people from all walks of life to the area, and the local economy benefited. There is no evidence that there was any intimidation, but word had got around that this was no ordinary sale, while Nelson’s friends ensured that nothing would go smoothly.
Bob Wishoff: We would purposely disrupt the auctions, making bids we had no intention of fulfilling and things like that!
When the country club was re-auctioned in March, Darrell Royal bought it for $117,150 and promptly announced, ‘I’m going to sell it back to Willie any time he wants it. And he wants it bad.’ However, because it was bought at less than the reserve price, the property was reclaimed by the IRS and auctioned a third time in May. This time it was bought by a company outside of the inner circle but another Nelson ally, his nephew Freddy Fletcher, subsequently bought it back privately. It was Nelson’s whenever he needed it, and as early as the summer of 1992, he was leasing Pedernales and using the studio again.
Willie Nelson Page 29