Celebrity tax troubles are a fun way to learn about how the IRS targets people for back taxes. Pursuit of average ordinary citizens for income tax liability follows the same avenue as nabbing the rich and famous. Lessons learned from celebrity tax woes provide valuable clues for suitable actions of enrolled agents on behalf of their clients.
Sometimes the technical matters covered in enrolled agent continuing education courses are required to address issues involving back taxes. Such cases involve preparing corrected or new tax forms to accurately calculate tax on previously unreported income after allowing for qualified deductions. Informed taxpayers know that representation by someone who has passed the enrolled agent exam also includes professional service to negotiate for more time to respond to the IRS.
However, there are situations where a taxpayer can have such extensive problems with the IRS that more drastic relief measures are required. Here’s a brief tax class on IRS collection actions that occurred in extreme celebrity cases.
Former baseball star and admitted steroid user, Jose Canseco, was reported in 2010 to owe the IRS more than $320,000 in back taxes. In January of that year, the IRS filed a lien for $121,209 against Canseco’s home in Los Angeles. In addition, Canseco appears to have neglected paying state income tax owed to California. The state filed tax liens in 2008 and 2009 totaling $198,986.
Maybe Canseco should have used an enrolled agent to prepare his federal and state income tax returns. A tax professional with that designation could have helped him when he couldn’t pay the tax liability owed. When delinquent tax debt is ignored, the IRS files liens to collect the unpaid taxes. A lien freezes the taxpayer’s property and prohibits purchase of new assets. Enrolled agents should inform the public to retain a tax professional before the egregious action of a tax lien is imposed.
Before Reggie Bush was an star in the National Football League, he won the 2005 Heisman Trophy as the top college player when he attended the University of Southern California. The year after Bush left USC, the National Collegiate Athletic Association investigated allegations that Bush had improperly received $300,000 of gifts from a sports agent during his years in college.
At the conclusion of the NCAA investigation, USC was slapped with forfeiture of past games the team won along with future sanctions that striped the school of 30 football scholarships for new students. Bush had to return his Heisman Trophy. Compounding the problem is that the IRS alleges that the Bush was the recipient of performance gifts. If correct, that’s $300,000 of unreported taxable income. With mounting penalties and interest, the IRS is attempting to collect $200,000 from Bush.
The lessons learned are that ignoring tax issues with the IRS results in sweeping collection measures and rapidly accumulating penalties.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.