CELEBRITY TAX PROBLEM OF THE WEEK

IRS CHASES AFTER ‘NATIONAL TREASURE’ STAR TO PAY UP

Think you have issues with the IRS? At least you’re not Nicholas Cage, star of dozens of films, including the appropriately named “National Treasure”.

Update: By the latest count, Cage owes Uncle Sam approximately $14 million in back taxes relating to income from 2002, 2003, 2004 and 2007. The actor just recently made a payment of $360,545. At least he’s trying.

Meanwhile, he is suing his former business manager, Samuel Levin, for $20 million. Cage claims Levin got him into this mess. The lawsuit states that Levin “lined his pockets with several million dollars in business management fees while sending Cage down a path toward financial ruin.”


Levin, who is countersuing, asserts that he tried to warn Cage about the dangers of his “compulsive, destructive spending,” and encouraged him to sell off 12 automobiles and a $1.6 million comic book collection.


Whatever you think of this guy’s financial woes, it seems like he can’t catch a break. Last year, he saw the close of escrow on his beloved Bel Air home that was sold at auction to an undisclosed limited liability company. The 1940s Tudor mansion once belonged to Dean Martin and Tom Jones. Cage put it on the market in 2007 for $37 million.


The house did not sell and, by 2010, it was burdened by loans from six different lenders totaling $18 million. The home eventually sold last July for 10.5 million. Cage purchased the property in 1998 for $6.5 million.


Real estate agent Bret Parsons told reporters at realestatechannel.com that the house has lots of mounted toy trains and other oddities. He described the interior of the house as “frat house bordello”.


About a year ago, the actor’s 14,300-square-foot Las Vegas home went into foreclosure. Cage bought the house in 2006 for $8.5 million. It boasted a 16-car subterranean garage, a theater, and an elevator. According to reports, the foreclosure sale brought nearly $5 million.


In July of 2009, Cage lost his two New Orleans homes, worth a total of more than $6.8 million, to foreclosure auctions, according to money.cnn.com. A New Orleans sheriff reported that Cage owed the city $151,730 in real estate taxes, and was behind $5.5 million in mortgage payments. The only bids came from a bank.


Regions Bank of Alabama bought Cage’s property at 1140 Royal St. in the French Quarter for $2.3 million. The property appraised at $3.5 million. Regions also purchased Cage’s other home, at 2523 Prytania St., for $2.2 million. It is reportedly worth $3.3 million.

Also, Cage recently sold his mansion in Bath, England, as well as a castle in Bavaria and his New York apartment.


It’s difficult to feel sorry for a guy who was paid enough to generate a tax bill of $14 million. Clearly, the income side of the equation is not the issue. Forbes listed him as one of the 100 most powerful celebrities, and reported that he was paid $40 million between June 2008 and June 2009. Declining real estate values didn’t help, but they probably brought to light Cage’s uncontrolled spending.


Tip: Don’t make the same mistakes as the actor. Paying the IRS on time should be a top priority.

CELEBRITY TAX PROBLEM OF THE WEEK

Scorsese, Pacino Whacked by IRS Tax Liens

Movie director, Martin Scorsese and actor, Al Pacino have separately been hit by the Internal Revenue Service with tax liens.

Scorsese was slapped with a tax lien for $2.85million from the IRS on February 14, according to the New York Post. Scorsese’s tax lien appears to be related to his former accountant, Kenneth Starr, who was convicted of fraud and sentenced last week to 90 months in prison. The Oscar-winning director’s lawyers are contesting the claims.

Scorsese’s reps have also said that the “Goodfellas” director has paid off the IRS tax lien, in addition to earlier tax liens totaling nearly $1.9 million from 2002-2003.

Pacino is another former client of Starr who is also facing tax liens from the IRS. The IRS filed a lien for $188,283.50 against the “Godfather” actor for unpaid taxes from 2008 and 2009. Pacino’s representative told TMZ that he has a new business manager who will pay off the Academy Award-winning actor’s tax debts.

DEBT FORGIVENESS - IS IT TAXABLE?

Q. The bank wrote off a portion of my home loan. I thought that was a good deal, but now someone told me that it was taxable. I thought if anybody could help me, you could. Please tell me it isn’t so!

A. First and foremost this can be complicated, so make sure you get commitment help to advise you on your particular circumstances. Here are the basic rules:

Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

• Mortgage debt that is partly or entirely forgiven during tax years 2007 through 2012, may allow you to be able to claim special tax relief and exclude the debt forgiven from your income. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

• Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion but proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

• Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision however in some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

You normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. Examine the Form 1099-C carefully.

As I said at the beginning, this can be confusing, so make sure you get help with you return.

DEDUCTING SPECIAL EDUCATION COSTS FOR CHILDREN WITH SPECIAL NEEDS

Q. Our daughter that is in middle school has learning disabilities and we are sending her to a private school to take advantage of smaller classes. Are there any tax benefits? It is going to be expensive, so anything we can deduct will help.

A. I am sorry to hear that you have issues with your daughter. I know how frustrating and difficult that can be. I respect the commitment that you are making.

You have asked me whether you may deduct the special education costs you are incurring on behalf. It may be possible for some of the cost to be deducted as medical expenses, but there are hoops and limitations.

Expenses that you incur in order to enable your child to compensate for or overcome disabilities or to prepare your child for future normal education or normal living are deductible medical expenses. Thus, any expenses for therapy that helps your child's adaptation are deductible medical expenses. In addition, the expenses of your child's schooling at a “special school” for mentally or physically disabled individuals are deductible (including the cost of an ordinary education) if the resources of the school are the reason for your child's presence and the educational services provided are rendered only as an incident to the medical care provided.

The qualification of a school as a special school depends on the school's curriculum. Thus, a school qualifies as a special school only if the primary focus of its curriculum is to enable students to compensate for or overcome disabilities, and to prepare them for future normal education or normal living. For example, schools that provide special services for children with mental and/or physical disabilities, such as schools for the teaching of Braille or lip reading are special schools because the primary purpose of the schools is alleviating or treating a physical handicap. Similarly, schools with special programs for treating severe learning, mental, psychological or emotional disorders or dyslexia are special schools.

In contrast, a school that does not provide a special program, but is beneficial because of its small class size or because it provides added services within a normal academic setting, is not a special school, since the primary purpose of the school is academic. However, if an ordinary school is willing to develop a special program that meets your child's needs, the school will qualify as a special school, since the determination of whether a school is a special school is made on the basis of your child's curriculum, not the curriculum of the school as a whole.

In addition, the medical expense deduction is part of your itemized deductions and is limited to the amount that exceeds 7.5% of your adjusted gross income unless you have a health saving account; flex spending account or employer provided medical benefits. Make sure that you check with the school and your CPA for detailed guidance.

CELEBRITY TAX PROBLEM OF THE WEEK

Ja Rule Pleads Guilty to Tax Charges – Owes over $1 Million In Back Tax

Rap singer Ja Rule has admitted to failing to file tax returns for five years, causing a loss to the government of over $1.1 million.
The rapper, whose real name is Jeffrey Atkins, pleaded guilty Tuesday to three counts of failing to file tax returns with the Internal Revenue Service during a court appearance in Newark, N.J. Atkins, 35, of Saddle River, N.J., entered his guilty plea to three of the five counts of failing to file his tax returns before U.S. Magistrate Judge Patty Shwartz.

According to the charges filed against him and the statements made in Newark federal court, during the period in question, Atkins was the sole shareholder of ASJA Inc. and Rule Tours Inc. He admitted that during the five tax years from 2004 through 2008, he received music royalty income from ASJA Inc. and music tour and live performance-related income from Rule Tours Inc.

While Atkins has pleaded guilty to charges specifically related to tax years 2004, 2005 and 2006, the terms of his plea agreement state that the tax loss for all five years, including 2007 and 2008, will be taken into account at sentencing—a total loss to the government of approximately $1,137, 912.

Atkins has also agreed to file true and accurate tax returns and to pay all taxes and penalties owed to the IRS. Judge Shwartz set bail at $500,000 and permitted Atkins’ release pending sentencing, currently scheduled for June 13, 2011.

IRS HAS NO CURRENT PLANS TO INCREASE STANDARD MILEAGE RATES

Normally, when gas prices go through the roof, the IRS does a midyear increase to the standard mileage rate, but apparently not this year. During its May 12th payroll industry conference call, an IRS spokesperson said that IRS has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven, despite the big boost in gasoline prices.

DO YOU KNOW THE DANGERS OF TAKING PICTURES WITH YOUR PHONE?

This is not about tax or business, but thought it was important. If you have children or grandchildren, you NEED to watch this. I had no idea this could happen from taking pictures on the blackberry or cell phone. It's scary.

http://www.youtube.com/watch?v=N2vARzvWxwY



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