More Tax Troubles Ahead for Mary J. Blige
Mary J. Blige’s financial woes deepened in mid-February when the state of New Jersey reportedly filed a $900,000 lien against her New Jersey home.
While most people don’t own homes worth that much, Blige’s case is a reminder of what can happen when income taxes go unpaid.
The singer has been in hot financial water for some time, with two banks having already sued her for defaulting on loans worth about $511,000 and $2.2 million, and a landscaping company piling on with a demand for $4,000, according to news reports.
The target of the loans, as well as the new lien, is reportedly Blige’s $12.5-million home in Saddle River, N.J., which she bought in 2008 and then put on the market in 2011.
The fact that New Jersey has filed a tax lien against the property means that darker days are ahead for the R&B star. “The IRS and the states routinely file liens to protect the government’s interest,” explains Burton Haynes, a tax lawyer in Burke, Va. “They do this to get a position with respect to the taxpayer’s property ahead of any other creditors who might come along later.”
Darker Days Ahead
Thus New Jersey’s decision to get in line with other creditors could mean several things are next, none of them good for Blige: Bankruptcy could be around the corner if creditors are starting to circle. Or it could mean the state is worried that she’ll sell the mansion without paying the income taxes she owes.
Why not just send Blige a bill for unpaid taxes, then? New Jersey basically has. “A bill for unpaid taxes creates a ‘silent’ lien on the taxpayer’s assets,” says Haynes. But if she sells those assets, the government can collect any taxes it’s owed, plus buyers are alerted that there’s a problem with the property.
The IRS, for instance, “files liens to make sure that if an asset like a house is sold, the IRS will get paid from the proceeds,” Haynes says.
Lessons for the Rest of Us
If you are thinking of buying a home that has a tax lien on it, it may be cheaper, but there’s a fair amount of red tape you’ll have to address. “The lien has to be released, or at a minimum the property has to be discharged from the lien, in order for the buyer to get good title, free of the lien,” he says.
Blige’s situation should also serve as a warning to even taxpayers who are not fabulously wealthy. If you are already in financial trouble, like Blige was, and then owe a big income tax bill, can you avoid a lien on your home?
“The IRS will withhold the filing of a lien (or will withdraw a lien previously filed) if the balance owed is $25,000 or less, and if the taxpayer enters into a monthly payment arrangement,” Haynes points out.
“If the balance owed is more than $25,000, the taxpayer must prove to the IRS . . . that the IRS itself will be better off if it does not file a lien,” he says. “This is very hard to do.” You’d have to prove that something like a security clearance or professional license would be hurt by the filing. Not many taxpayers persuade the IRS in this way.
Lien Into It
If the government does put a lien on your home, you need to figure out how to pay off the tax, Haynes says, asking, “Can the property be sold? Can the taxpayer borrow enough to pay the tax, or at least to pay it down to $25,000 so the lien can be withdrawn?”
Ultimately, the lien could be released, but you’ll have to wait a long time – and few people can afford that. Liens are released when tax becomes unenforceable – because the government generally only has 10 years to collect it – but the government can get extensions and can even refile the lien within those 10 years, Haynes says.
“Every case is different, and so the strategy must be individually designed to fit the facts, preferably with the assistance of someone knowledgeable about such matters,” he adds.