Why do California celebrities often owe back taxes?

If you owe back taxes to the IRS, then the IRS has the power to garnish your wages, impose liens on your property and even seize your assets. One method the IRS uses to accomplish this is through a federal tax lien. Filed with the local county courthouse, a federal tax lien is a legal claim that the government holds against your property when you owe back taxes.

Although people can owe back taxes for any number of reasons, one particular group in California may be especially prone to tax debt: celebrities. According to public records that were examined by USA Today, there are more than 50 people in the entertainment industry who allegedly owe $50,000 or more in unpaid taxes.

As one example, singer Lionel Richie recently learned he owes $1.1 million in unpaid income taxes to the IRS after receiving a federal tax lien on his property on April 2. Other well-known performers who allegedly owe back taxes include Lindsay Lohan, Sally Kellerman and Roberta Flack.

The reason for the back taxes seems to stem from the complicated nature of federal tax laws and from the highly variable income of those in entertainment. Far from being intentional tax dodgers, many people who owe back taxes have simply made an honest mistake. And even those who keep careful tax records can find themselves on the wrong side of the IRS.

Still, the IRS is certainly not immune to mistakes. The agency has been known to overstate tax liabilities, and in some cases, there may not be any back taxes owed at all. However, if a dispute arises with the agency, Californians should still give the tax claim due diligence and verify the amount owed.

Source: USA Today, "Celebrities are often in debt to the tax man," Dennis Cauchon, April 17, 2012

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