Although he was making music long before, Ruben Studdard’s win during the second season of American Idol (in spring 2003) made him a star. He later won a Grammy award and is billed as being a pop, R&B, and gospel singer.
His music has solidly performed, even if he himself has not recorded a lot of chart-toppers since American Idol. He still remains one of the better-known winners of the hit show, although the runner up from that season (Clay Aiken) occasionally overshadows Studdard.
Ruben Studdard tax problems
As the winner of American Idol, he won a one million dollar recording contract, one of the key elements in his rise to fame. However, it seems that he neglected to correctly file a claim on that money, and possibly on other income as well. As a result, this recording star owes back taxes totaling over $200,000! It is said here that he owes over $171,000 to the IRS and over $21,000 to the Alabama Department of Revenue.
Tough Lessons to Learn
A lesson to anyone who begins earning more income, or who receives a large sum of money, is to hire a tax professional to help you correctly file your tax returns and pay your taxes.
Unfortunately it’s too late for Ruben Studdard. The IRS is after him, and his tax problems will be more difficult and expensive problem to resolve. Another lesson we can learn here is that even if you already have an IRS problem, it’s better to begin dealing with the problem as soon as you can.
Every day I work with people who face tremendous tax problems: They owe taxes and are exploring what options they have to deal with it. It’s something I do every day so I was surprised to read an article that said the IRS is becoming “soft” on tax liens. You can read the article yourself here but I’ll summarize it for you:
The IRS can legally file tax liens any time a taxpayer owes money and has not fully paid it off. There are usually only limited circumstances when the IRS won’t file tax liens, including when the tax debt is for a small amount, or perhaps when the tax liability is for a deceased person who died without any assets, or when the taxpayer is in an active bankruptcy.
In the old days, the IRS would often not file a tax lien, but today, with the federal government needing revenue so badly, IRS collection folks are much more likely to file a tax lien and to to file it faster.
Of course this makes sense for the IRS: If someone owes tax money the IRS wants paid, and filing a tax lien is a a way to put pressure on the taxpayer. A tax lien also helps the IRS protect their position and increasing the odds that they will eventually get paid. Nowadays they try to file the lien as soon as they are legally allowed to do so.
We all know the IRS is a very large bureaucracy, and they make mistakes all the time, so it wasn’t a great surprise that when the IRS recently “audited” themselves that they discovered there were 210 files at two field offices that never had any contact or follow-up and accounted for a potential $6.4 million in collectible taxes. Basically, 210 files were just sitting there, being ignored. In addition to that, tax officers closed over 2,700 files and called them “uncollectable” but never gave a reason. In total, between 2002 and 2008, it was discovered that $1.4 billion in delinquent taxes were shelved rather than followed up on.
Are they getting lazy at the IRS offices? How are IRS officers deciding which files to pursue and which ones to ignore? How can we as taxpayers ever know if we are receiving fair treatment if we are hit with a tax lien while someone else who gets shelved?
The most likely answer is that there are so many “taxpayers” who are delinquent in paying their taxes or in filing their tax returns that the IRS doesn’t have the resources to deal with them all.
The IRS hasn’t gotten soft, in fact they’ve gotten much more aggressive, and busier. If you owe back taxes, you should still sleep with one eye open because the tax man will eventually come looking for you.
About Arnold Schwarzenegger
Arnold Schwarzenegger rose to fame as an Austrian body-builder, then a B-list movie actor, and finally a headlining star. No one goes to see an “Arnie” movie because of his acting ability but we all pay a lot of money to see his movies anyway. As the result of movie earnings, plus other business endeavors, Schwarzenegger’s net worth is measured in the hundreds of millions.
Of course, this story wouldn’t be complete without the step from acting to politics and now Arnold is the governor of California, a state that is teetering on the verge of financial collapse.
Californians can rest assured that their government officials will pay their federal taxes, as long as they are continuously reminded by the IRS.
Arnold Schwarzenegger tax problems
On May 11, 2009, the IRS filed a $79,000 tax lien against Arnold Schwarzenegger. (Source: The Los Angeles Times). While this is more than many people make in a year, Arnold’s people quickly dismissed it as an error and said the governor paid his tax debt right away.
About Conrad Murray
Some celebrities are famous for their skill in acting or singing, but not Conrad Murray. Murray is famous for being the doctor to The King of Pop, Michael Jackson, and is now embattled with legal problems for the alleged role he played in Jackson’s death.
It is said that Conrad Murray has a history of owing people money: According to the Huffington Post, Murray’s medical practice owed thousands of dollars in fines and judgments and overdue fees on loans and credit cards. To top of the “nice guy” image, he also owes thousands in child support and even had a fine of nearly $1,000 for driving with an expired license plate and no proof of insurance.
Conrad Murray tax problem
The Huffington Post also reported that Murray owed back taxes so we went hunting for them and found a tax lien of over $23,000 owing in back taxes in 1993, 1996, and 2003.
About Anna Kournikova
Anna Kournikova was born in the Soviet Union in 1981 and started playing tennis when she was just 5 years old. Her prowess on the court caught the attention of professional tennis scouts and she had a career breakthrough in her early teens. 1998 through 2000 were peak years for Anna Kournikova where she ranked well in numerous matches. Unfortunately, injuries started to build and by 2003 she withdrew from the highly competitive sport, although she still plays exhibition games from time to time. She continues to be one of the top-searched celebrities online today. (Source: Wikipedia)
During her career, she earned over $3 million in prizes but if there’s anything we know about celebrities, the real money is in endorsements. Even though she has stopped playing at the level she once played, the media attention she receives, partly due to a fairly active modeling career, has helped to keep her in the spotlight. We can be certain that she has earned millions more in endorsement fees (and generated a healthy income tax bill) in the years since she played professionally.
Anna Kournikova Tax problems
For a wealthy tennis star whose life off the court seems to generate as much headlines as her life on the court, it’s not a surprise that Anna Kournikova faced some tax problems last year. According to Detroit News, she owed $6,381 in back taxes to the IRS. For someone as successful as Anna Kournikova, this is likely an innocent error on her tax return, perhaps the result of a mistyped number or a miscommunication between her CPA and one of her many financial assistants.
The IRS wants taxpayers to pay their outstanding taxes. If those taxes aren’t paid, the IRS has a growing arsenal of actions it can take, from garnishing wages to seizing assets.
That’s right, the IRS can and will seize your assets in lieu of your tax payments. Now, don’t think of them as a giant pawnshop where you can get your favorite chair or your mother’s wedding ring back once you’ve paid. The IRS will put your stuff up for auction! Airplanes, boats, vehicles, homes, property, the list goes on and on. (Check out the IRS Auction Site… if you don’t see something you like today, new items are listed regularly, all “donated” by tax payers who are unable to pay their taxes).
Now, more than ever, people with tax problems need to take an active approach to fighting the IRS to clear up their tax issues and their good name. Leaving your tax problem and hoping it will go away could mean that you’ll get a knock at your door and they’ll be asking for the clothes on your back (figuratively speaking)! Wishing that the IRS won’t come after you isn’t much of a game plan, and it isn’t going to work. If you have tax problems, they’re looking for you so they can look through your stuff like a kid with a catalog at Christmas.
In poker, the term “grinder” refers to a player who spends their days playing poker. Grinders treat poker like a business, sitting down for 8 hours to play, grinding it out like everyone else might grind out their work at a day job.
Michael Mizrachi’s nickname is “The Grinder” and he does exactly that, “working” at poker in a way that others might work at picking up garbage or running a cash register. And, like the rest of us, he has taxes to pay.
Unfortunately for Mr. Mizrachi, the IRS has recently put a lien on his home for $340,000 in unpaid taxes.
Over the course of his poker-playing career, the young Mizrachi has earned a whopping $6.9 million but, though poor money management and accounting practices, he owes $339,711, and he is facing foreclosure.
For many taxpayers, especially younger ones who begin to make a lot of money quickly in business, sports, Hollywood, or poker, taxes come as a nasty shock. People expect to pay taxes but making a lot of money can bump you up into a higher tax bracket very quickly, resulting in taxes owed that are far greater than you expected. It’s even more difficult to estimate the amount of tax you will owe when you don’t make a regular wage but rather earn your money in fits and starts (as a poker player might win a few times a year or a movie star might earn a few checks a year). Lots of my self-employed clients have this problem.
In Mizrachi’s case, it’s not simply a matter of putting in overtime or asking the boss for a raise. If he plans to continue “running his poker business”, he needs to play… And he needs to win… And he must develop the discipline to pay his taxes – on time.
This is a cautionary tale for those who want to play professional poker, professional sports, get into acting, or be a normal self-employed person: With every single paycheck, estimate the amount of taxes you owe and set that money aside (or pay quarterly) to avoid tax problems down the road.
Last year’s so-called “Great Recession” wreaked havoc on a number of economic fronts and its effects are still being felt today during tax time.
Here’s the situation, as reported by the WCF Courier and summarized here for your convenience: Last year, people had jobs and income but not all of them had sufficient taxes taken out of their paychecks. This year, some of those people don’t have jobs. The problem? They earned taxable income but now have no income to pay their back taxes.
That’s a difficult situation to be in. On the one hand, I understand the desire that these taxpayers had initially to avoid the constant pay-reducing reminder of income tax by delaying their tax payments. On the other hand, it is a bit like gambling in the sense that they are accepting the risk that they will have an income to pay the tax debt at a later time.
What’s the solution? Unless we reduce or eliminate the excessive taxation of American taxpayers, I don’t see an easy solution. And I’m not about to say “well, they should have…” because should-haves don’t solve the problem right now.
Their best option is to file their income tax and pay what they can, even if they can’t pay it all. As the article correctly points out, the penalty for not filing is greater than the penalty for filing and not paying. So it always “pays” to file your tax return, even if you can’t pay.
The next thing they should do immediately after filing? Contact a licensed tax attorney. It is my belief that tax attorneys are the one group of tax professionals best trained to assist you. I believe they’re more aggressive in representing you than a CPA or accountant would be. Tax attorneys aren’t afraid to look at different options which might help you.
Tax attorneys aggressively go to bat for taxpayers who are staring at the open hand of the “tax man” and wondering how they will fill it. We use 100% legal tax resolution strategies, tried and perfected over the years, to help people in difficult tax situations.
No tax case is hopeless, and of course the options will vary from case to case.
If I was pulled over for driving 75 mph in a 55 mph zone, and I received a ticket, most people would say that I deserved the ticket. I would agree.
But what if I was going 75 mph in a zone where the posted speed limit was posted as “the square root of 3025”? The very thought of requiring a calculator in order to drive the limit is laughable.
And wouldn’t it be ironic if I was going 75 mph in a zone where the speed limit was posted as “the square root of 3025” but I was the one who had helped to create that sign? Some might say that I should know better. Others might say that my mistake was a natural consequence of an overly complicated system.
Thankfully, our speed limit signs are clearer than that. But our tax laws are not. They are far more complicated. And the above situation is going on right now with a highly placed politician.
Tim Geithner is the Treasury Secretary under Barak Obama (and most of you know that that Treasury is in charge of a number of things including the IRS).
And guess what Mr. Geithner did: He failed to correctly file his income tax during the years of 2001 and 2004, resulting in more than $40,000 worth of errors. Now, just to be clear, he DID file his income tax. This is not a story about tax evasion. However, he committed two errors, which are fairly common:
He hired a housekeeper and while she was employed by him, her working papers expired.
And, while working with the IMF, he was considered an independent contractor and failed to file self-employment income tax returns.
To Mr. Geithner’s credit, both issues were resolved:
The housekeeper married an American citizen and remains in the US.
But the reason I titled this blog “A telling mistake” and told the speeding story at the beginning was to illustrate the following: Tim Geithner is an educated man who works very close to the pulse of finances – first with the IMF and now with the Treasury (and IRS). And if he makes an error that is common, how much easier is it for the hardworking men and women of the US who are NOT as close to financial decision-making?
It seems like everywhere you look there is a new “syndrome”. There’s road rage – which some of us encounter in our daily commutes. There’s retail rage (or shopping rage), which some of us encounter when we have to wait in line at the grocery store. It feels like people are generating new and creative syndromes with every problem.
In the New York Times article, “Late Filing Syndrome”, the article describes the sad plight of a down-and-out person who has not able to pay their tax bill.
Oh, did I say “sad plight of a down-and-out” person? I meant: educated, six-figure-earning political aide Charles J. O’Byrne. O’Byrne claims that he suffers from a very specific form of depression called – are you ready for this? – “late filing syndrome”. Yeah, you read that correctly.
It seems that, just around tax time every year, he falls into a depression that is so difficult to manage, he is simply unable to file his tax returns. Ironically, this sickness only ever appears at tax time and, in O’Byrne’s case, it appeared 4 years in a row – from 2001 to 2005.
Although it’s not a syndrome he fabricated himself, the American Psychiatric Association doesn’t see it as a psychiatric condition… I guess the Psychiatric Association is just like the rest of us Americans who can see through the bull.
I am all for legally paying less tax. However, I am against using illegal tax evasion methods, and, I don’t believe in fake excuses. O’Byrne has a responsibility to pay (and he has the opportunity to reduce his taxes by simply calling me). Instead, he has the gall to claim this particular problem.
It’s galling because his income is paid for by our tax dollars. What if everyone in the US suddenly was hit with a bout of late filing syndrome? He’d be out of a job.
It’s also galling because it shows that he thinks the rest of us are fools. C’mon… did he really think that we’d take pity on him because he procrastinated on his income taxes too long?
It’s like the old “my dog ate my homework” trick. Or the “I didn’t get your letter.” excuse. Everyone (especially the IRS) can see through those lies!
There’s another syndrome – a far more serious one – that occurs with regularity. It’s equally rare. During a full moon, those bitten by a wolfman will themselves become wolfmen (or wolfwomen). My diagnosis? Equally laughable; equally silly.
A CNN article rightly attacks the “syndrome” for what it is: a made-up excuse by a tax lawyer in an effort to get his client out of trouble.
I’ve got my own syndrome. Let’s call it: “shake-my-head-at-foolish-people” syndrome.
