Tax debts and celebrity seem to go together like bread and butter, if a recent report from USA Today detailing the financial troubles of several different entertainers is to be believed.
Celebrities tend to be susceptible to accruing large amounts of tax debt because their income, while often large, is so unpredictable, which can make tax planning very difficult.
And the high rate of tax debts has led many celebrities to file for bankruptcy. Tax debts may be eliminated in bankruptcy, but only in some circumstances, and bankruptcy courts are unwilling to help people whose tax debts are a result of fraud or other criminal activity.
Tax Debts and Bankruptcy for Celebrities
According to a report in USA Today, celebrities have a tradition of gathering staggering amounts of tax debt. Entertainers who have run afoul of the IRS include:
- Lionel Richie. Earlier this month, the IRS issued a $1.1 million tax lien on the famous singer for taxes he allegedly failed to pay in 2010. Interestingly, Richie has no history of prior financial problems, and he is one of the top-selling musicians of all time. So, this may be a temporary blip for the performer, and he recently said in a statement that his tax problems will be “handled immediately.”
- Other musicians. Lionel Richie certainly doesn’t have a monopoly on tax trouble among musicians. Sources say that Glen Campbell owes the IRS more than $100,000, Vince Neil owes the government $370,000, and singer Roberta Flack is more than $150,000 in debt to federal tax collectors.
- Famous athletes. According to sources, boxing hero Floyd Mayweather Jr. owes almost $3 million in unpaid taxes, while Dennis Rodman, the colorful former basketball star, owes a comparatively paltry sum of $371,000 to the tax man.
- Lindsay Lohan. Of course, no list of celebrities in trouble would be complete without the queen of gossip magazines. The former child star reportedly owes roughly $230,000 in unpaid taxes.
Discharging Tax Debts in Bankruptcy
Some of these celebrities may try to discharge debts to the IRS in bankruptcy court, but their task will not be easy.
Tax debts may be eliminated in bankruptcy, but only if they are not the product of fraud, are income taxes, are more than three years old, and meet a few other requirements established by bankruptcy law.
Of course, bankruptcy may help many people eliminate other forms of debt, such as credit card debt or medical bills, which could free up funds that could then be redistributed towards repaying Uncle Sam.