Articles Posted in Tax Debt

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Aaron Carter, who achieved fame as a singer in the late 1990s and early 2000s, filed for Chapter 7 bankruptcy in Florida in October 2013. In his petition, he lists assets of just over $8,000 and debts of more than $2 million. More than half of the debts, including a seven-figure amount owed to the Internal Revenue Service, date back to when Carter, now twenty-five years old, was a minor. Much of his fame and fortune accrued before his eighteenth birthday, but he is liable for tax on that income regardless of age.

Carter’s music career began before he was even a teenager. His older brother, Nick Carter, was a member of the popular “boy band” the Backstreet Boys. Carter opened shows for the group and toured on his own. He acted in movies and on stage, and his family was featured on a reality television show several years ago. He is currently touring in support of a comeback, but the performances are reportedly not bringing in enough money to pay his debts.

The majority of his outstanding debts were incurred when he was a minor, and his relationships with the people managing his career did not always turn out well. He filed for legal emancipation from his mother, who was also his manager, in 2003, claiming that she was working him too hard and mismanaging his income. He was also managed by Lou Pearlman, who created and managed numerous “boy bands.” Pearlman is currently serving a sentence in federal prison for fraud, and has been the subject of multiple lawsuits by former clients, including two lawsuits filed by Carter in 2002 and 2007. Continue reading

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Federal tax debt is a significant factor for many individuals filing for bankruptcy protection. Celebrities like Willie Nelson have experienced widely-publicized difficulties due to taxes owed to the Internal Revenue Service (IRS). Unlike many types of debts, bankruptcy generally can only wipe out an individuals federal tax debt if certain legal requirements are satisfied. An individual that wishes to discharge his or her tax debts through Chapter 7 or Chapter 13 bankruptcy must initially review those tax debts to determine how much, if any, would be dischargeable in bankruptcy.

Federal Tax Debt

Unpaid taxes may accrue unintentionally, as in one of the most famous cases of substantial tax debt, country singer Willie Nelson. Nelson had invested heavily in a tax shelter in the early 1980’s that the IRS disallowed as a deduction. This led to an assessment by the IRS of $6 million in unpaid taxes over a period of six years, from 1984 to 1990, with an additional $10 million in accrued interest.

Federal agents raided Nelson’s residence in November 1990 and seized most of his property, although he was able to keep his guitar. Instead of bankruptcy, he reached an agreement with the government that involved the sale of most of his assets and the release of an album. He would split the proceeds of the album, titled “The IRS Tapes: Who’ll Buy My Memories?” with the IRS. The government received $3 from the sale of each $19.95 album, and collected a total of $3.6 million from album sales. It used proceeds from the sale of many of Nelson’s assets to pay part of the debt, and Nelson was able to use money from a settlement with his accountant to pay the remainder of the debt. Unfortunately, most individuals may not have the clout to reach such an agreement with the IRS. Continue reading

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Tough times can affect anyone, even celebrities. Bankruptcy protection allows people to restructure or discharge debts when they do not have the income to support all of their payments. Celebrities and other prominent people have filed for bankruptcy protection throughout American history, and many emerged from bankruptcy and found further success. For some, the lavish celebrity lifestyle led to financial troubles, but for many, the same issues that anyone else might face, including taxes, medical expenses, and ordinary bills, overtook their income. Here are few recent celebrities who have filed for bankruptcy, a few well-known celebrity bankruptcies, and some that might not be so well-known.

Dionne Warwick

The multiple Grammy-winning singer filed for Chapter 7 bankruptcy in New Jersey in March 2013. She listed tax debt owed to the IRS and the state of California totaling more than $10 million. Despite monthly income stated at more than $20,000, she valued her assets at less than $3,000. Tax debt is dischargeable in a Chapter 7 or Chapter 13 bankruptcy, although the debtor must meet a strict set of criteria. The IRS has reportedly intervened in Warwick’s case seeking to seize assets held by companies connected to her, in an attempt to satisfy her debt.

Sinbad

David Adkins, known to most as the comedian Sinbad, filed for Chapter 7 bankruptcy protection in a California court in May 2013, citing over $10 million in debt and about $131,000 in assets. He has had a prolific film and television career, including an eponymous television show in the early 1990’s, but taxes owed to the IRS and California, as well as credit card and other debt, have allegedly exceeded his claimed $16,000 monthly income. Adkins previously filed for bankruptcy in 2009. Continue reading