Charlie Sheen’s tax woes seem to be at an end. I mainly remember Sheen as the star of Two and a Half Men, but there is a lot more to his career and fame than that. As I related back in January, the Internal Revenue Service has been trying to collect the balances due on Mr. Sheen’s 2015, 2017 and 2018 returns.
Many people have the impression that failure to send in the balance due with your return will result in 87,000 agents willing to use deadly force knocking on your door, but it really doesn’t work that way. There is a lot of process and the only IRS employees with guns are a couple thousand agents in the criminal investigation division. In some circles I think the return balance due is viewed as the sticker price on cars used to be or full tuition at a well-endowed university—that is, open to negotiation.
Excellent Representation
Steven Jager is a CPA and also a USTCP (United States Tax Court Practitioner). A USTCP can represent taxpayers in Tax Court without being a lawyer. They are a rare breed who have to pass a tough exam. Jager had negotiated an offer in compromise for Sheen in the amount of $3.1 million. We don’t know how much the original tab was, but it is a reasonable inference that it was substantially more than the offer.
At a higher level of the IRS, acceptance of the offer was taken off the table. A likely concern was that Sheen, who will be turning 57 in a couple of weeks, still may have a lot of earning potential. That is what prompted Jager to file in Tax Court. The only power that the Tax Court has in cases like this is to send the case back to the IRS. Rather than the Court ordering that, the IRS agreed to take it back. Lew Taishoff, who covers the Tax Court intensely, gave Jager a lot of credit for the result commenting:
As I discovered many years ago, it’s not necessarily that some animals are more equal than others, as George Orwell put it. Sometimes it’s more important to know what to say to your adversary and how to say it. Getting a teletubbying IRS counsel to drop one of the cascading files confronting him/her back to Appeals depends more upon petitioner’s counsel than on petitioner’s IMDb listing.
Finally Settled
We learned today that the matter is finally settled. Sheen will have to pay $3.3 million and will be subject to a “future income collateral agreement”. Simplistically, this means that if his income continues as it has for the last several years he will not pay anything more. If something breaks for him, however, he will pay an additional percentage to the IRS possibly up to the amount of the full liability. The agreement does not extend the statute of limitations on collections so he should be olly olly oxen free before this decade is out.
Although late night TV ads about settling your tax liabilities for pennies on the dollar are not to be relied on, settling with the IRS for a lower amount or paying them over time is an option open to all taxpayers. At the present time if you have an old balance there might not be much point in being proactive about it.
The IRS has to warn you explicitly about your right to a collection due process hearing when it starts doing liens and levies. There is a tight deadline for filing Form 12153 – thirty days. Don’t mess with it. Remember Reilly’s Seventeenth Law of Tax Planning – Don’t cut your deadlines close and use the US Mail with proof of mailing.
If significant dollars are at stake, use a tax practitioner with substantial experience in the collection field. Don’t count on your regular tax preparer to be able to handle it for you.
Other Coverage
Lew Taishoff caught the story from perusing the Tax Court site. He has Good News Charlie?
As Charlie Sheen, Docket No. 14774-18L, has attracted much attention (see my blogpost “Orwellian,” 1/26/22, especially the responses thereto), I note for the record that Judge Holmes has denied IRS’ motion for summary J as moot.
A quick docket search shows entry of stipulated decision, although the text of the stipulated decision is not online (thanks a lot, Genius Baristas).
Congratulations, Mr. Jager. Here’s a Taishoff “Good Job.”
Other recent Charlie Sheen news seems to be about why Denise Richards divorced him in 2005.