by Brian Mahany
Not since the ill-fated prosecution* of actor Wesley Snipes has the IRS mounted such an assault on the Hollywood elite. Pamela Anderson, Lindsay Lohan and actor Stephen Baldwin have all been in the news in recent weeks because of unpaid taxes. Baldwin was arrested while Anderson and Lohan are still in the civil stages.
According to recent press reports, Anderson owes $370,000 to both the IRS and the State of California. Tax officials have filed liens against her for the unpaid taxes. Lohan reportedly owes $233,000 and recently had her bank accounts seized. Lest you think the problem is isolated to just those folks, actor Steven Seagal appeared on California’s tax delinquent list owing $348,000 and singer Dionne Warwick showed up on the same list owing $2.5 million.
When entertainers and sports figures don’t pay their taxes, the story becomes overnight news. Unfortunately for many Americans, millions of other folks also owe the IRS and their respective state tax agencies.
Failure to pay taxes almost always results in additional interest and penalties being assessed. At some point, the government can impose a tax lien making it difficult to sell property and ruining one’s credit. Wage levies, seizures of bank accounts and even loss of one’s business or home can follow.
Many folks don’t know that “willful failure to pay” taxes is also a crime. Of course, the IRS can’t force you to pay money that you don’t have (only the U.S. Treasury can simply print more money when it needs it). To put someone in jail over unpaid taxes, the IRS must prove you had the ability to pay and simply ignored your obligation to do so.
Failure to pay is a misdemeanor under the federal criminal code and under the laws of most states. It can land you in prison for 12 months, however. If you deliberately hide your money from Uncle Sam by putting it offshore or in the name of a nominee party, however, expect to be indicted for tax evasion. That’s a felony and can earn you a much longer stay.
Most folks think of evasion as not properly filling out your tax return but the criminal code recognizes both evasion of assessment and evasion of payment.
Anderson and Li-Lo have little to do with this post except that they are serious tax delinquents and mere mention of their names gets folks to read these stories. That’s important as educating clients is a principal part of our practice.
The longer a problem goes unresolved, the harder (and more expensive) it is to later fix. Ignoring the IRS will not make your tax debt disappear. Depending on how old the debt has been on the books, it may be possible to simply discharge the debt in bankruptcy, however. By coming forward, you may find yourself eligible for an IRS payment plans or even reduce an offer in compromise which could lower your bill considerably. (Be wary of those late night informercials, however. Does anyone remember those ads with Roni Deutch telling people it is possible to sometimes make your tax debt go away for just $20! — She ultimately lost her law license and the California attorney general brought contempt proceedings against her and sought to have her incarcerated.)
Keeping the lines of communication open with the IRS is better than ignoring the problem. If the IRS gets no feedback, they may ultimately make a referral for criminal prosecution. Back in my government service days, I recall a search warrant at a taxpayers home. There in the home we found literally sent dozens of computer generated warning letters asking the taxpayer to speak with a revenue officer, all were neatly stacked but unopened. Being in total denial, the taxpayer was simply too afraid of the bad news they contained – unfortunately his “wake up” call came when criminal charges were filed. It never has to end that way.
If you have significant unpaid taxes, tax liens, unreported taxes, unfiled returns and / or unreported offshore accounts, please contact us. The tax lawyers at Mahany & Ertl have helped individuals and businesses with a wide variety of tax compliance issues. From representation before the U.S. Tax Court, audit defense, offers in compromise and participation in the current Offshore Voluntary Disclosure Program tax amnesty (“OVDI”), we can help.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. Services available worldwide.
*[Ed. Note – the author participated in the defense of actor Wesley Snipes during his 2008 criminal tax trial in Ocala, Florida. Although convicted of a few of the misdemeanor charges, Snipes was acquitted on all of the serious felony counts.]