Dionne Warwick filing highlights effectiveness of bankruptcy against taxes

warwickDionne Warwick has filed for bankruptcy. The 72 year old pop diva’s case was filed pretty far from San Jose — in the bankruptcy court in northern New Jersey.

Big numbers always make big headlines in the financial pages, and Warwick’s has a whopper — $10 million dollars due for back taxes. Of this, $7 million is owed to a single creditor — the Internal Revenue Service, for the 1991-1999 tax years.

Although the numbers might be a lot higher, Warwick’s case has a lot in common with middle income folks who file for bankruptcy in Massachusetts and New Hampshire.

First, back taxes is a common, and a proper reason to file a bankruptcy case. When the taxes are old, as they are here, they will usually be discharged without a fuss in bankruptcy court.

Second, the case highlights the aggressive tactics used by the IRS to squeeze taxpayers. As described by Dionne Warwick’s publicist:

‘‘In light of the magnitude of her tax liabilities, (Dionne) Warwick has repeatedly attempted to offer re-payment plans and proposals to the IRS and the California Franchise Tax Board for taxes owed,’’ Kevin Sasaki said in an email Tuesday. ‘‘These plans were not accepted, resulting in escalating interest and penalties. Although the actual amount of back taxes owed has been paid, the resulting penalties and interest has continually accrued.’’

As far as differences go, Warwick’s income is far greater than the average bankruptcy file — an estimated $20,950 per month, mostly from song royalties. At that level, expect her to end up in a Chapter 13 case, where she will have to partially repay creditors with monthly payments to her bankruptcy trustee.

 

By Doug Beaton

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