The end of the United States tax year has been and gone, so it is surprising to some that there are still a large number of celebrities who are believed to still owe the Internal Revenue Service (IRS) a great deal of money. But are the IRS oblivious to this? Are the celebrities in the US entirely under the radar?
Because there is a considerable amount of money still owed at such a late date by celebrities, it may seem easy to jump to the conclusion that the answer is most definitely ‘yes’. However there have been many highly publicized cases of celebrities being singled out for owing large sums of money, usually due to them not taking enough responsibility for their own tax preparation. One such example is former NFL athlete Warren Sapp, who in April of this year filed for bankruptcy due to his past failure to pay tax catching up with him. The bankruptcy documents indicate that Sapp owes $942,000 in taxes to the IRS which date back to 2006, which he is now unable to pay. Cases like this indicate that celebrities are not free to evade the tax they owe to the IRS. However it is extremely hard for celebrities such as Sapp to pay back money that they owe when they do not have any money to give – usually because they are past their heyday and no longer have a steady income.
The IRS have made it extremely clear that celebrities are far from under the radar. Back in 2007 an Issue Management Team was formed with the specific goal of retrieving unpaid income tax returns from athletes and entertainers within the United States. This has coincided with the laws regarding tax and the IRS becoming stricter and stricter. A bill currently going through the US House of Representatives will allow the federal government to revoke passports of US citizens who the IRS can prove owe them taxes. Also actions have been taken against celebrities who still have unpaid tax returns. Wesley Snipes, a well known movie star who is believed to owe the IRS a staggering $17 million in back taxes, and Rapper Ja Rule are both serving prison sentences due to unpaid taxes.
Unpaid tax returns are of high public concern due to the importance of tax money to the US treasury. Taxes provide income to all levels of government in order for them to be able to provide vital services. Examples of the services they provide are things such as highways, police and hospitals, which benefit all citizens in the US. Without this income, such public services suffer greatly. The problem with celebrities not paying tax is that there is a public perception that they have a great deal of disposable income, so by not paying tax they are portrayed in the media as immensely greedy.
However there are other reasons that celebrities may not pay their income tax, which all need to be considered. One issue is that celebrities tend to have a hard time keeping on top of their finances. This is because unlike the average American citizen who gets paid either weekly or monthly, celebrities tend to get paid in lump sums and often to have to manage this income throughout the year. Because of this issue celebrities often hire financial advisers, but if non-reputable firms or individuals are hired, the trust may not pay off and their finances may become increasingly complex. Actors Nicolas Cage and Wesley Snipes both laid the blame for their financial troubles upon the financial experts they hired.
Another issues is that unlike the average American employee, taxes are not automatically deducted from their wages. This means that the payment of income tax may be delayed, which is when the problems begin to arise. Many years of unpaid tax eventually add up to an incredibly large bill, which the celebrity may not be able to ever repay. To solve this problem, many have suggested that the IRS should put more pressure on celebrities to ensure that they file their income tax returns at the end of each tax year. Another issue of note is to ensure that celebrities hire reputable firms to deal with their finances and any ensuing legal issues, instead of relying on people who they know without the relevant expertise.
Celebrities are far from under the radar of the IRS, but certain situations such as bankruptcy resulting from delayed payment may give this impression. Celebrities status often makes it impossible to avoid issues to do with tax due to the constant media attention which they receive. Before jumping to a hasty conclusion about celebrity greed and their tax evasion, the differences between public and celebrity taxes have to be considered and understood.
3 Ways Increasing Taxes on the Wealthy Could Affect Job Growth by David Veibl. David is a guest author for the CPA blog of WallaceAPC, a tax preparation company in Los Angeles with top quality tax consulting services.