IRS Seizes Lindsay Lohan’s Bank Accounts
The news comes on the heels of the dual criminal charges filed against Lohan last week in New York and California for her involvement in a nightclub brawl and in a motor vehicle accident, respectively. The “Mean Girls” actress is already on probation for theft and DUI convictions.
Anonymous sources told the New York Post that Lohan is freaking out about the IRS raid and claiming she never knew about the tax debt until it was too late. She does have at least one friend in her corner: Actor Charlie Sheen reportedly handed over $100,000 to Lohan’s manager to help pay off the debt.
Lohan is far from the first celebrity to find herself owing a big hunk of cash to the IRS. Among the more prominent tax scofflaws in recent years:
- Hip hop star Lil Wayne got hit with a lien when he owed over $5 million for 2008 and 2009
- Rocker-turned-reality TV star Ozzie Osbourne underpaid by a cool $1.7 million for 2008 and 2009
- Between 2001 and 2006 comic and actor Chris Tucker managed to ring up a bill of over $11.5 million in unpaid taxes
- Movie star Wesley Snipes is two years into a three-year federal prison sentence for tax evasion to the tune of $7 million from 1999 to 2001
On Time and In Full
The easiest way to avoid getting dinged for failure to file or underpaying taxes is to pay on time and in full. For complicated filings and returns that go beyond a simple W2, a good accountant or tax attorney is crucial to avoid making potentially costly mistakes. For taxpayers who do mess up and end up with a large bill, there are a few options to rectify the situation.
One is to contest the bill in the first place. If an audit finds that you owe more than you thought you did, say over a disputed deduction, you can contest the bill administratively. “You would have an accountant or a lawyer represent you to show support for the validity of the deduction,” says David M. Hryck, a tax attorney and partner at New York City-based firm SNR Denton. “Supporting that you actually incurred the expenses, or whether your particular expense qualifies under a particular provision of the law, both legally and factually.”
If that doesn’t work, you can take the revenue collectors to court. “Taxpayers can file a claim in tax court to contest the validity of the liability,” Hryck says. “Many times you end up settling.”
Offers in Compromise
Still in the red after an appeal? There are two main options for paying down a large debt. “There’s a way to do an installment agreement, where you pay your taxes over time,” the attorney explains. “You’ve got to pay interest and penalties and so forth with that.”
Taxpayers who are experiencing hard times can also consider making an “Offer in Compromise” to the IRS. “If you can’t legitimately pay your liability, i.e. it creates a substantial financial hardship, the IRS would in those cases consider letting you into an offer in compromise, when the amount you offer represents honestly the most they can ever expect to collect within a reasonable period of time,” says Hryck.
If you don’t make some effort to get your affairs in order, the government can and will come after you to get what they’re owed, whether it be by confiscating bank accounts, like in Lohan’s case, or garnishing wages, putting a lien on real estate or even taking a cut from social security checks or other government payments.
Note that tax evasion and tax fraud are federal crimes, so in the most egregious situations the IRS can charge scofflaws criminally if they refuse to cooperate, which can result in jail time — but that’s a worst case scenario. “The IRS generally doesn’t like to put people in jail for not paying their taxes,” Hryck says, “as long as they’re voluntarily willing to do something to make arrangements to come forward and make some kind of honest effort to correct their mistakes.”
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