UFC Legend Gets Pinned by IRS

Remember the scrawny little guy from Brazil who smoked a veritable army of giants and had everyone scratching their heads as to how such a thing was possible? (In the event you don't remember, watch this!) Well, Royce Gracie is now a UFC Hall of Famer who's scheduled to come out of an almost nine-year MMA layoff/retirement on Feb. 19 for a trilogy fight with his old archrival Ken Shamrock in Gracie's Bellator promotional debut.

While that fight will be upon us soon enough, few are aware that Gracie is smack dab in the middle of another fight against an even tougher, more battle-tested opponent who can't be grappled into submission: The IRS.(Boo!)

Gracie's tax problems appear to have begun in 2012 when he and his wife each received an IRS administrative summons "seeking information about their foreign bank and foreign investment activities." It is unclear exactly how the Gracies first appeared on the IRS's radar, but an investigation began and the IRS needed additional documents for tax years 2007 through 2011 in order to evaluate, among other things, their liability for civil penalties.

According to the government, the Gracies met with the IRS on Apr. 3, 2014 but did not produce most of the required records, leading to a motion to hold them in contempt.

On April Fools' Day 2015, the IRS sent the Gracies a completely serious Notice of Deficiency claiming they owe $657,114 in back taxes and $492,835.25 in penalties for Civil Fraud based on IRC 6663a.

Fight fans are probably wondering if Royce Gracie's tax situation is the reason he agreed to come out of retirement to fight Ken Shamrock in Bellator's main event next month. On one hand, based on the documentation of this case, Gracie doesn't appear to be hurting for money. On the other hand, a good amount of the documented funds were allegedly used on real estate purchases and renovations. While this counts towards Gracie's wealth, it isn't very liquid.

If Gracie's attorneys prepared him for a likely settlement or possible undesirable trial outcome, he may have need for more liquid funds in the near future and fighting Ken Shamrock could be just the ticket.

Whatever the final outcome, there's one big lesson here: Mess with the IRS at your own 75% penalty peril.