Osbournes not the first celebrities to hear from IRS

Ozzy and Sharon Osbourne just sent the IRS a check for approximately $750,000.00 as payment toward some of the back taxes they owe. According to TMZ.com the Osbournes still owe taxes from 2007, 2008, and 2009 and the total tax amount due is well over $1.3 million.

The Osbournes are far from the first affluent family of entertainers to fall into disfavor with the Internal Revenue Service. Look at this list of celebrities in tax trouble from sheknows.com:

-JaRule: $1.1 million
-Al Pacino: $188,283
-Marc Anthony: $2.5 million
-Toni Braxton: $396,000
-Christina Ricci: $180,000
-Jaime Pressly: $637,000
...as well as Joe Francis, Wesley Snipes, Val Kilmer and Nicolas Cage.

Why do some celebrities stop paying their taxes? In USA Today's story "Celebrities are often in debt to the tax man" several suggestions are made:

-An entertainer may see income drop unexpectedly from $10 million a year to $1 million after a canceled TV show, for example
-Mortgage payments and investing in the next project may take priority over paying the estimated quarterly income taxes the IRS wants
-Sometimes the entertainer is away from the country, ill, or even in jail and unable to pay the taxes
-In some cases the entertainer may legitimately not know he owes the taxes

Types of Penalties.
As far as the IRS is concerned it DOES matter why you didn't pay your taxes; there will be a penalty based on the reason. That means that not only will the tax amount be due but interest and penalties amount will also accrue until the total amount is paid off.

There are several types of penalties including the "failure to file penalty", "failure to pay penalty", and the "accuracy-related penalty". The amount of additional monetary liability various with each type of penalty.

Failure to file: 5% for each month the tax return is late, up to a total maximum penalty of 25% of the tax due on the tax return.

Failure to pay: 0.5% for each month the tax owed is not paid in full. No maximum limit.

Accuracy-related penalty: Generally 20% of the underpayment amount, or up to 30% if the underpayment was due to an undisclosed transaction (as listed by the IRS)


Resources
Income Tax Planning for Financial Planner 4th edition, 2011
http://www.tmz.com/2012/06/03/ozzy-sharon-osbourne-unpaid-taxes/
http://www.usatoday.com/life/people/story/2012-04-17/celebrity-tax-troubles/54319254/1

 
The Quarter Roll is published to provide personal insights and opinions on everyday ways of saving and managing money, budgeting, and reducing debt. The Quarter Roll does not give professional accounting, legal, or investing counsel. The ideas, examples, and advice presented on this site are solely the opinion of the authors based on his or her personal experiences. All photos courtesy of The Quarter Roll, iStockphoto, or Dreamstime. All rights reserved. This site is best viewed when using Adobe Flash Player. the quarter roll magazine financial entertainment