Topics Covered:

1. “Celebrities And Their Tax Problems” – Lauryn Hill, Wesley Snipes, Richard Hatch, Willie Nelson and Chris Tucker.

2. Lien vs. Levy

3. Aggressive Actions Beyond Liens And Levies Taken By California Tax Agencies- Franchise Tax Board (“FTB”), Board Of Equalization (“BOE”) and the Employment Development Department (“EDD”).

4. Questions from our listeners:

a. How long should I keep my tax papers?

b. How long should I worry if I haven’t filed tax returns that I should have filed?

c. If I can’t pay my taxes, should I file my return anyway?

d. Who has access to my IRS file?

Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team. And I am so proud to have with me in the studio today my co-host, Susannah Kahn.

Chit chat with Susannah.

Jeff says, On our weekly radio show we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

So it is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

Being in California we have many celebrities around – and they are not immune from having tax problems and getting into tax trouble. So since I have Susannah on the show with me today, I thought that we could do our own entertainment spread called “Celebrities And Their Tax Problems”.

Susannah discuses Lauryn Hill

Legendary hip hop artist and eight-time Grammy winner Lauryn Hill started serving her three-month prison sentence in Connecticut on July 8, 2013 after pleading guilty to tax evasion charges. The South Orange, N.J. native and mother of six admitted in a state court that she hadn’t filed tax returns from 2005 to 2007. During that time, Hill, at age 37, had earned more than $1.5 million and she failed to pay over $1 million in taxes. After her period of incarceration, she was on parole for one year, spending the first three months under house arrest. 

Jeff discusses Wesley Snipes

Wesley Snipes tried nearly every defense to avoid paying taxes. Star of the Blade trilogy and White Men Can’t Jump, Snipes narrowly escaped tax-fraud charges in 2008 after a lengthy trial in which he blamed his advisers for bad information and claimed, at various points, that the IRS was an illegitimate government agency, that he was a nonresident alien, that he had received bad information from his associates … and on and on. The excuses weren’t enough to dodge a conviction on the charge of not filing a tax return, and Snipes received a three-year prison sentence for his malfeasance.

The Wesley Snipes saga began in 2006 when he was accused of tax fraud. He was originally indicted on charges of attempting to claim nearly $12 million in fraudulent tax refunds and not filing any tax returns for several years. Snipes pleaded not guilty on all counts. The matter did go to trial in 2008. Despite a lengthy list of potential witnesses, and claims that the defense to the trial could take up to a month, the Snipes defense team rested – after less than an hour – without offering any witnesses. Snipes was eventually acquitted of felony federal tax fraud and conspiracy charges. However, he was convicted of failing to file tax returns from 1999 to 2004, which were misdemeanor charges. He faced up to three years in prison for the failure to file and he received the maximum sentence.

Snipes reported to prison on December 9, 2010, at McKean Federal Correctional Institution, in northwest Pennsylvania. On April 2, 2013 Wesley Snipes was released from prison and put on house arrest until July 19, 2013.

Susannah discusses Richard Hatch

Richard Hatch outwitted, outplayed and outlasted everyone on the first season of Survivor. The Internal Revenue Service, however, is a completely different kind of opponent. Despite being one of the most publicized TV-show winners ever, Hatch somehow thought he could get away with not paying taxes on his million-dollar bounty.

Since 2005, he’s been battling with the IRS. Hatch was charged with ten criminal counts, including tax evasion. If convicted on all charges, Hatch faced up to 47 years in prison. Still, Hatch refused to take a plea. Instead, he rolled the dice and went to trial. He was eventually convicted on two of those charges (one count of “attempting to evade taxes” and one count of “filing a false tax return” relating to his 2000 and 2001 returns). A Rhode Island jury sentenced him to 51 months in prison.

Hatch spent several years in federal prison before being released in 2009. He was sent back to prison at that time for not amending his 2000 and 2001 tax returns, as ordered by the judge. Hatch said that he was told that he could not amend them because of the ongoing investigation. He’s right. Once a criminal investigation has begun, a taxpayer may not attempt to fix the problem by filing old or amended returns or by paying the tax due. After he served additional time, the requirement that he file those amended returns was eventually dropped.

Jeff discusses Willie Nelson

It’s tough to be mad at Willie Nelson. So when Willie got into tax trouble, his fans were there to bail him out. Nelson’s tax trouble started in 1984, when the IRS began looking into his returns stretching back to 1972. After years of investigation, the IRS declared that Nelson had underpaid taxes for six years, primarily because of invalid deductions he had taken after investing in tax shelters the IRS subsequently nixed. Nelson protested, but the U.S. Tax Court ruled in favor of the government, and the musician grudgingly agreed to pay $6 million in back taxes, plus more than $10 million in penalties and interest. After the IRS hit the country crooner in 1990 with a bill for $16.7 million in unpaid back taxes, Nelson had to hand over many of his possessions to stay out of prison.

Ultimately, Nelson lost virtually everything he had, including his Texas ranch. The property was returned to him, thanks to a generous fan who purchased the ranch on behalf of a group of farmers who promptly gave it back to him, as a gesture of gratitude for his ongoing Farm Aid support.

When Nelson was unable to pay off his substantial debt, in spite of the seizure of all of his property, he released a compilation album, ‘The IRS Tapes: Who’ll Buy My Memories?’ with the agreement that he would share the proceeds with the IRS.

Nelson settled his debt with the IRS for an undisclosed amount, and it was considered cleared by 1993.

Susannah discusses Chris Tucker

Chris Tucker has recently joined the ranks of Wesley Snipes and Willie Nelson of Celebrities Having Faced Tax Problems after it was discovered that he owes $14 million to the IRS, a bill that’s either outstanding or paid in full, depending on whether you believe Tucker’s publicists.

Tucker was just hit with a brand new federal tax lien for $2.5 million. The liens that were filed by IRS showed that Tucker failed to pay a total of $2,496,138.24 in 2008 and 2010. So when adding the back taxes for 2001 through 2006 that came to a grand total of over $14 million. Tucker has since been able to settle up with IRS but this story demonstrates how powerful a tax lien can be.

After the break we will have more on celebrities and their tax troubles and what we can learn from their stories to avoid tax problems. This is the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team and my co-host Susannah Kahn.

Today’s theme is “Celebrities And Their Tax Problems”.

Jeff says, If you owe taxes to the IRS or State Tax Agency, you do not want to let your situation get to a point where tax liens are being filed.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

So a lot of people get confused between Tax Liens and Tax Levies – we will try and break this down for you.

Lien vs. Levy

Sue states – A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

Jeff asks, when would the IRS file a Tax Lien?

Sue replies, the IRS will file a lien when the agency feels there is a chance that collection is in peril. It does not just grab your assets. Filing of a tax lien is normally dictated by the dollar amount; the IRS’s Fresh Start program has increased the lien threshold from $5,000 to $10,000.

Jeff asks, where does the lien get filed?

Sue replies, the Notice of Federal Tax Lien is filed in the public records office of each county where you own property and thus attaches to any property you own. If you sell the property, proceeds will be used to satisfy the lien. Any person or company pulling a credit report on you will see the tax lien. This will damage your borrowing ability, making it difficult to refinance your home, get an auto loan, credit card, or business loan. Also, if you are looking to refinance your loan, the lien would have to be satisfied at closing in order for the lender in the new loan to retain a senior creditor’s position.

Jeff asks, what can a taxpayer where in a refinancing the tax lien would still not be satisfied?

Sue replies, a taxpayer can request that the IRS subordinate their lien to the new lender. In the process, even though the tax lien would be older than the new loan, the IRS agrees to stand behind the new lender should the loan be defaulted and the new lender now seeks to foreclose on the property. There are specific requirements that must be followed to accomplish this so you should involve tax counsel to make sure this can be successfully and timely completed before closing.

Jeff, I heard that certain taxpayers who enter into payment plans with the IRS can get tax liens withdrawn even before the liability is paid in full?

Sue, that’s correct. If you enter into a Direct Debit installment agreement, you may have your lien withdrawn.

Eligibility Requirements are:

1. The current amount you owe must be $50,000 or less
2. If you owe more than $50,000, you may pay down the balance to $50,000 prior to requesting the lien withdrawal to be eligible
3. Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
4. You must be in full compliance with other filing and payment requirements
5. You must have made three consecutive direct debit payments
6. You cannot have previously received a lien withdrawal for the same taxes unless the withdrawal was for an improper filing of the lien
7. You cannot have defaulted on your current, or any previous, direct debit installment agreement

Jeff asks, how does this impact a taxpayer on a regular installment agreement?

Sue replies, If are currently on a regular installment agreement, you may convert to a Direct Debit Installment Agreement. Bear in mind that if you default on your Direct Debit installment agreement after the lien is withdrawn, a new notice of lien may be filed and collection efforts may resume.

Jeff, says so it should be clear that a lien just makes sure the IRS eventually gets paid. A levy means now the IRS gets paid.

Jeff discusses Tax Levies.

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in.

For instance,

• The IRS could seize and sell property that you hold (such as your car, boat, or house), or
• The IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

Sue asks, what due process must IRS follow before they can levy?

Jeff replies, the IRS will levy only after these three requirements are met:

• The IRS assessed the tax and sent you a Notice and Demand for Payment;
• You neglected or refused to pay the tax; and
• The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS will give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested.

Sue asks, so it sounds like that Final Notice is your last warning?

Jeff says, that’s right and it is such an easy notice to miss.

Sue asks, is there a difference between a bank levy and a wage levy?

Jeff says, if the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS.

If the IRS levies your wages, salary, federal payments or state refunds, the levy will end when:

• The levy is released,
• You pay your tax debt, or
• The time expires for legally collecting the tax.

Sue asks, now what if the levy is creating an immediate economic hardship?

Jeff, it is possible that the levy may be released and we have had many cases where we were able to show this and get a full or partial release of the levy.

PLUG: And that is where we come in. The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned because after the break we are going to tell you how the State Of California also gets into the act in causing tax problems for celebrities and us regular folks.

You are listening to the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my co-host, Susannah Kahn.

Today’s theme is “Celebrities And Their Tax Problems”.

Sue discusses O.J. Simpson

For a man who never met a legal problem he didn’t like, O.J. Simpson finds his tax troubles the least of his concerns. The CourtTV regular was one of a slew of celebrities called out by California when the state released a list of its most delinquent citizens. The Juice apparently owes the state $1.4 million in back taxes. Good luck collecting that, though. Tracking down the ex-football star isn’t the issue. He’s living in a Nevada prison on a kidnapping and armed-robbery conviction for the foreseeable future.

Jeff discusses Sinbad

Joining O.J. Simpson on the list of California’s biggest tax debtors is comedian Sinbad – real name David Adkins – who owed the Golden State $2.5 million in personal income tax.

 

Whether you are a celebrity or a regular person, if you have tax problems, ignoring them will not make them go away.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff says, California is unique in the structure of its tax system. Most States operate under a single tax agency. The Federal government uses a single tax agency called the IRS. But California has three tax agencies!

Sue, that’s right they are the Franchise Tax Board (“FTB”), Board Of Equalization (“BOE”) and the Employment Development Department (“EDD”).

Sue asks, What does FTB cover?

Jeff replies, The FTB administers the income tax. Applies not only to individuals, but also to sole proprietorships, partnerships, estates, and trusts. In addition, the income “passed through” to individuals by Subchapter S corporations and certain other entities is subject to State Personal Income Taxation. The tax is applied to all sources of income unless specifically excluded, including wages and salaries, interest, dividends, business-related income, and capital gains.

Sue asks, What does BOE cover?

Jeff replies, The BOE administers the Sales and Use Tax. The tax in a specific California location has three parts: the state tax rate, the local tax rate and any district tax rate that may be in effect. Sale and Use Tax is the second largest tax levied in California and is assessed at both the state and local levels.

Sue asks, What does EDD cover?

Jeff replies, EDD involves payroll taxes which includes all employer paid taxes, State Income Tax Withholding of employees, State Disability Insurance (“SDI”) Taxes and Unemployment Insurance (“UI”) Taxes.

Aggressive Actions Beyond Liens And Levies Taken By California Tax Agencies.

Sue asks, what can the FTB do that goes beyond liens and levies?

Jeff replies, the FTB publishes Top 500 Delinquent Taxpayers (one list for personal and one for corporate)

FTB is required by law to post this information at least twice annually.

• The FTB will notify each taxpayer by certified mail 30 days before they post their information.
• As cases are resolved, those taxpayers are removed from the list, reducing the total number of listings from the original 500.
• Removal of this tax delinquency information, as well as the FTB’s authority to publish this list, is pursuant to California Revenue & Taxation Code Section 19195.

If your name is on this list:

• Your occupational and professional licenses, Including your driver license may be suspended under Business and Professions Code Section 494.5.
• State agencies will not enter into contracts for the acquisition of goods and services with you under Public Contract Code 10295.4.

Sue asks, what can the BOE do that goes beyond liens and levies?

Jeff replies, The BOE will revoke your seller’s permit. If your seller’s permit is revoked, you cannot sell your goods.

Also, did you know as a corporate director, officer, member, manager, or other person having control or supervision of the filing of returns or payments of taxes, you may become personally liable for any unpaid sales and use taxes, interest, and penalties?

Such personal liability for any unpaid taxes and interest and penalties on those taxes is triggered upon termination, dissolution, or abandonment of a corporate business or limited liability company, any officer, member, manager, or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation or limited liability company in complying with any requirement of this part. Section 6829 of the Revenue and Taxation Code

Sue asks, what can the EDD do that goes beyond liens and levies?

Jeff replies, The IRS has the Trust Fund Recovery Penalty (also known as the 100-percent penalty). The EDD has something similar referred to as “CUIC 1735”. But CUIC goes way beyond the IRS’ version. Not only does the EDD assert a full 100-percent exposure of the employees tax withholdings AND the employer’s share of payroll taxes to targeted responsible individuals but also a 10% nonabatable assessment penalty (it should be noted that the IRS version is limited only to the employee’s share of FICA and withheld federal income taxes, roughly 60 % of the corporate employer’s overall liability).

The two key elements of CUIC 1735 are responsibility and willfulness. The EDD must have both elements before they can make the 100% assessment stick.

Any officer, major stockholder, or other person in charge of the affairs of the business can be held responsible. Before the assessment can become final, the targeted responsible person must be given notice, an opportunity for an administrative hearing, and an appeal. If the targeted individual loses his or her administrative hearing and appeal, and does not pay within 10 days after assessment, her or she will be penalized a further 10% pursuant to CUIC 1135.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my co-host Susannah Kahn.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Susannah, what questions have you pulled from the kahntaxlaw inbox for me to answer?

1. How long should I keep my tax papers?

At least three years, but six years is preferable. The IRS has three years after you file a tax return to complete an audit. For example, if you filed on April 15, 2006, for 2005, keep those records until at least April 16, 2009.

The IRS can audit you for up to six years if it suspects that you underreported your income by 25% or more. If the IRS suspects fraud, there is no time limit for an audit, although audits beyond six years are extremely rare.

Keep records of purchases of real estate, stocks, and other investments for at least three years after the tax return reporting their sale was filed.

2. How long should I worry if I haven’t filed tax returns that I should have filed?

At least six years. The government has six years from the date the nonfiled return was due to criminally charge you with failing to file. There is no time limit, however, for assessing civil penalties for not filing. If you didn’t file for 1958, you still have an obligation if you owed taxes for that year. Not until you actually file a return does the normal audit time limit—three years—and collection time limit—ten years—start to run.

Don’t over worry about a nonfiled return due more than six years ago if you haven’t heard from the IRS. The IRS usually doesn’t go after nonfilers after six years—unless the IRS began its investigation before the six years elapsed. After six years, the IRS transfers its computer files to tape for storage.

3. If I can’t pay my taxes, should I file my return anyway?

Yes. Filing saves you from the possibility of being criminally charged or, more likely, from being hit with a fine for failing to file or for filing late. Interest continues to build up until you pay. Of course, filing without paying will bring the IRS collector into your life, but she’ll be friendlier if she doesn’t have to hunt you down. The sooner you start filing, the better.

4. Who has access to my IRS file?

Federal law makes IRS files private, not public records. The law has many exceptions, however. IRS files can be legally shared with other federal and state agencies. Most leakage comes as a result of sloppy state agencies that are granted access to IRS files. Furthermore, IRS employees have been caught snooping, and computer hackers have broken into government databases. While violation of the Privacy Act is a crime, rarely is anyone prosecuted for it, though IRS personnel can be fired if caught.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Well we are reaching the end of our show.

You can reach out to me on Twitter at kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone!