Travolta tangles with tax court

"A Civil Action" may be an apt name for the tussle John Travolta has been involved in with the Internal Revenue Service.

The actor has been embroiled in a dispute that is slowly winding its way through U.S. Tax Court, in which the star is fighting an IRS demand that he pay $1.1 million in back taxes and penalties for the years 1993 through 1995.

It may be a lot of money for most of us, but it's not about to break someone who now makes $20 million or so a picture. Nonetheless, in court papers, Travolta's lawyers argue that the IRS unfairly wants to disallow losses and deductions that Travolta claimed.

Details are sketchy in the court papers, but they show the dispute stems mostly from $2.27 million in losses Travolta claimed from a company called ATLO Inc. In addition, the IRS disallowed more than $50,000 in itemized deductions in 1994 and 1995.

Courtesy of New Line Cinema John Travolta may play an angel, but the IRS demands he pay $1.1 million.

Many top Hollywood stars, directors and producers operate through various corporations for tax reasons. ATLO is a so-called S corporation, a device wealthy people often use for tax advantages. Earnings and losses flow through to the owners.

The tax court documents don't specify the nature of the losses and deductions at issue, but they do say that Travolta claimed losses of $576,014 in 1993, $921,502 in 1994 and $775,466 in 1995 related to ATLO.

The IRS said Travolta's taxable income should have been $2.2 million for both 1993 and 1994, and $4.7 million for 1995.

The dispute dates back to some leaner years in Travolta's career, which was reignited in 1994 with the movie "Pulp Fiction." He is now among Hollywood's top-paid stars. Travolta's recent films include "A Civil Action" and "The General's Daughter."

Tax disputes usually get settled before they become public, unless the taxpayer decides to appeal, as Travolta did.

Neither IRS officials nor Travolta's tax lawyers would comment.

10-13-99