It happens rather frequently. A well-known entertainer or celebrity makes headlines because they have been hit with a massive tax lien for delinquent taxes. Many may wonder how this could happen. They appear to be making many times the income of an ordinary worker, how could they, like the musician Nelly, suddenly find themselves facing a $2.4 million tax lien?
Estimated taxes. Or rather a failure to pay quarterly estimated taxes. Unlike most wage earners, these individual often earn tremendously varying incomes, depending on record sales, tour income, merchandising deals and any other endorsements, events or shows that generate income. This variability means they may have one year with very little income followed by the next year with substantial income.
If they fail to have someone who properly supervises their finances, those peaks and valleys may be ignored and they may simply fail to adequately account for the income and correctly estimate their taxes. The IRS, however, is likely to notice, and eventually files a Notice of Federal Tax Lien.
While you may not have sufficient income to generate a $2 million tax bill, if you work as an independent contractor or operate a business, your cash flow could vary significantly, you could make mistakes and overlook filing the proper forms and paying your estimated taxes. This could eventually cause problems like those of Nelly, albeit at a slightly lower amount.
If you have received the Notice of a lien from the IRS, you should consider contacting a tax attorney for assistance in resolving the matter. Should the IRS determine you are not being cooperative in working to fix the tax delinquency, they could then move to make a levy against your assets.
A levy is much more severe than merely a lien, which likely only impacts your ability to sell an asset or obtain credit. With a levy, the IRS seizes your assets including bank accounts and property to satisfy its lien. This is a drastic outcome that should be avoided as it could compromise the ability of your business to function.