The Two Newest Celebrity Tax Scandals

Celebrity and New York rap artist Nas has become the newest celebrity to get in trouble with the IRS, just 2 weeks after Method Man another New York music artist joined the list of celebrity tax evaders. The IRS has filed a lien against Nas for $2,584,206.31 in unpaid income taxes. Check out this article on Examiner.com that discusses both Nas’ and Method Man’s problems with the IRS.

The other celebrity in trouble with the taxman is Anna Nicole Smith, who passed away well over 2 years ago. According to TMZ the IRS has filed a $125,112.86 federal tax lien against her estate in Los Angeles earlier this month.

Even More Celebrity Tax Evasion

Just the other day, I posted this entry about three new celebrities who owe taxes either to the IRS or the state of California. Now, according to new reports, another handful of famous taxpayers can be added to the list of celebrities with tax problems.

Steve Austin

Retired wrestler Steve Austin, known as “Stone Cold” Steve Austin to his fans, reportedly owes the State of California over $22,000 in unpaid taxes. The state even filed a lien against his property last month. Austin’s agent could not be reached for comment, so the reason for his tax debt is still unknown.

David Brenner

Famed comedian David Brenner owes the IRS a staggering $68,222 in delinquent taxes. Brenner, who filed for bankruptcy in 2004, does not deny that he owes the taxes, and states that he has already negotiated a payment plan to pay his debts off over time. When asked how he incurred the debt, Brenner jokingly explained, "I lost a bet that President Bush would learn how to pronounce the word 'nuclear,'"

Anna Kournikova

Although her total tax debts are less than the rest of the celebrities on the list, I was especially surprised to see that tennis star Anna Kournikova has tax problems with the state of California. Just last week the filed a $6,381 tax lien against her for unpaid tax debts. When reached, the athlete’s agent could not comment as to where the tax debt came from.

Lea Thompson

Lea Thompson, famous for her role playing Marty McFly’s Mom in the popular “Back to the Future” films probably wishes she could go back to the future and pay her taxes correctly. Earlier in the week it was revealed the actress owes $8,691 in unpaid state taxes.

Lien? Levy? What’s the Difference?

The tax world is full of jargon and enough acronyms to make your eyes cross. Its no wonder so many people are confused about the difference between a tax lien and a levy. I thought it might be helpful to explain.

The term “levy” is used to describe a number of collection methods the IRS employs. Levies actually redirect funds to the IRS as a repayment of a debt. Following are a few different types of levies:

• Wage garnishments actually fall under the levy heading. Wage garnishments redirect a portion of your income directly to the IRS. A garnishment continues until either the debt is repaid, expires, or you successfully negotiate a release. Wages can be a paycheck from your employer, federal payments like Social Security, or if you are an independent contractor, accounts receivable.
• Bank levies are one-time events. The IRS freezes assets in an account up to the amount owed plus interest for 21 days then takes those funds to repay your debt. The 21-day period is supposed to allow for resolving account ownership.
• Property seizures constitute the most extreme use of a levy, allowing the IRS to actually take and sell your property. This could be a car, or a boat, even a house. Again, this is not terribly common and usually only used in extreme cases.

A levy is an active form of collections, and a taxpayer must be sufficiently warned before the IRS will undertake any type of levy. Generally, they mail several notices with one final 30-day notice. This 30-day period is your window to take action to resolve the debt, or make an appeal. I recommend taking action as soon as the first notice arrives. Fighting a levy takes time for even the most experienced tax attorney or CPA.

A lien, on the other hand, is a passive form of collections. Tax liens essentially “lock” your property (whether a car, or a home, even artwork and jewelry) so that should you sell it, the IRS gets first crack at the proceeds. I often hear from clients asking, “when can you get my lien released?” And the honest answer is, when the debt is paid or expired. You cannot argue to have a lien removed; tax liens stay in place until the debt is repaid in full or expires. Even if you enter into a tax debt resolution with the IRS, such as an Installment Agreement, the lien stays put. This is a security measure protecting the IRS’s interest. However, a tax lien should not impact your life or finances, provided you don’t sell your property.