Judge rules Trip Hawkins liable for $20m taxes

EA co-founder and current Digital Chocolate CEO, Trip Hawkins, has lost the latest round in his battle against liability for federal and state taxes to the tune of over $20 million.

Last week a US judge upheld a previous bankruptcy court ruling which means that Hawkins' Chapter 11 filing in 2006 will not protect him from having to pay the outstanding debts.

According to Forbes, the judge outlined his belief that Hawkins "continued to spend money extravagantly with knowledge of his tax liabilities," and that he "planned to defeat his taxes via bankruptcy and continue living the lifestyle to which he had grown accustomed."

The problems stem from the failure of the 3DO business in which he invested significant sums, and Hawkins claimed $56 million in capital losses between 1996 and 2000. The 3DO venture collapsed in 2003, and Hawkins subsequently launched Digital Chocolate.

But while personal bankruptcy would normally enable a person to write off tax debts, Judge Jeffrey White pointed to a clause which removes that option if an individual "wilfully attempted in any manner to evade or defeat such tax."

According to the ruling, Hawkins' claim in a family court case - an attempt to reduce child support payments to his previous wife - involved some discussion of using personal bankruptcy to reduce tax obligations, while subsequent excess spending was also examined.

The judge wrote that Hawkins "continued to make unnecessary and unreasonable expenditures despite this knowledge of his finances," citing monthly expenses in 2005 of $94,900 and the purchase of a $70,000 fourth car - despite the household only containing two drivers.

Hawkins had argued against the bankruptcy court ruling by claiming that Chapter 11 protection from tax obligations could only be taken away if there was evidence of fraud - but the judge disagreed with his position, noting that "large discretionary payments" made in full knowledge of his situation were enough.