Michael R. Stevenson is better known by his stage name of Tyga. Tyga is a successful rapper, who like many celebrities has found his way to Tax Court. His attorneys were pushing back against an IRS levy notice on a balance due of over $2 million for just 2019. It did not go well, in part because he doesn’t seem to be able to stop going deeper.
About Tyga
To learn about Tyga the first thing I checked was his Youtube account. He has over 5 billion views. Eminem has over 27 billion, but that is from a much longer career. We’ll see how Tyga stacks up in twenty years. Tyga did not have to go to Tax Court to get noticed by Forbes as you can see from these stories by Abigal Freeman, Zack O’Malley Greenburg, Chris Malone Mendez and his listing as Hip-Hop Cash Prince in 2014. I am 71 years old and don’t like much music made after 1975, so I asked my daughter who was born the same year as Tyga (1989) and she assured me that several of her younger friends are big Tyga fans.
Zack Greenburg, author of Empire State of Mind, a biography of rapper Jay-Z (Shawn Corey Carter) gave me this evaluation of Tyga:
“Tyga is one of those artists who always seems on the cusp of becoming a star, but never quite gets there. Despite a handful of moderately successful albums—and his association with a number of names bigger than his own—Tyga just hasn’t made the jump. Even so, he’s probably well-known enough at this point to keep making decent money from live gigs, reality shows and the occasional album.”
Well heck he is not even 34. That’s when I had my big breakthrough thanks to the Tax Reform Act of 1986. Hang in there Tyga.
About Tyga’s Tax Problem
Anyway Tyga in his persona of Michael R. Stevenson gets my attention because of a recent Tax Court decision. His problem is not unusual for celebrities and many of the uncelebrated. I explain it by positing that there are three types of taxpayers.
The first is ordinary people like me and most of the people I know and have done work for over the years. Their tax return represents a good faith belief of what the correct tax is and they remit any balance not covered by withholdings when they file the return. The second type is people with very complicated affairs and an aggressive attitude. That is the way I read our most recent former president. For them the tax return is more in the nature of a first offer, but at least they send in whatever the offer is.
The third type of taxpayer. which at least for 2019 includes Tyga, sends in a return that presumably represents the correct tax. But for this type of taxpayer the correct tax is more or less of just academic interest. It is in the nature of a sticker price or tuition at a well endowed university. The idea is that what the IRS will get is what the taxpayer can afford, their reasonable collection potential (RCP).
This sort of thing is more common than you might think. According to the IRS Data Book at the end of fiscal 2022, there were over 9 million delinquent taxpayer accounts representing over $120 billion in assessed tax, penalties and interest.
Included in that, presumably, is $2,166,469 from the timely filed Stevenson Form 1040 for 2019. When the IRS issued a notice of intent to levy the amount due had grown to $2,329,678 which includes a penalty for failing to make estimated tax payments. Apparently Tyga had not made an estimated tax payment since 2011.
What Happens When You Don’t Pay?
When you file without paying the ball is in the IRS court. There is a chance that they won’t do anything beyond sending notices that you owe. Apparently this is getting common for low dollar deficiencies. If ten years go by then you are olly olly oxen free thanks to the statute of limitations on collections. A war tax resister, who passively accepts being levied, wrote last year that the IRS hasn’t levied him in over a decade.
The IRS does have robust collection tools beyond just asking, but before it can use them it has to warn you. As noted IRS sent Tyga a notice of intent to levy. That means they will take his stuff, generally money in the bank, or tell people who owe him money that they have to pay the IRS instead of him. In principle they can grab physical items like cars, but that does not happen so much anymore.
The proper response is to file Form 12153 Request for a Collection Due Process or Equivalent Hearing. That needs to go in within thirty days and there is almost no slack on that deadline. That is what Tyga must have done. If you are not satisfied with the results of the hearing you can appeal to the Tax Court to argue that the hearing officer abused their discretion. Michael R. Stevenson (a/k/a Tyga) filed a petition on October 27, 2022.
The Opinion
Judge Patrick Urda’s review of the facts can give us some insight into what the priorities are in cases like this. Tyga was already paying $65,000 per month on a previous installment agreement, but decline in touring income is making it unlikely that he will be able to continue. There were multiple delays in providing financial information. Apparently of the greatest significance to the appeals officer was Tyga’s failure to get current with estimated tax payments. Here is how it went at the initial meeting:
“After noting that Mr. Stevenson had not provided the financial documentation necessary to analyze any installment agreement (as requested in her letter), the settlement officer gave him two weeks (i.e., until November 19, 2021) to provide financial information and proof of compliance with his estimated tax payments. She stressed to the representative that consideration of any installment agreement was contingent on full filing and payment compliance, noting that IRS records did not reflect any 2021 estimated tax payment by Mr. Stevenson.”
Tyga did make estimated payments in December 2021 and submitted financial information. His representative’s first offer, so to speak, was $13,000 per month to cover all liabilities from 2012-2019, a tab of over $8 million dollars. The offer was based on net business income of $73,211 and living expenses of $60,145 which included $37,244 for current taxes. Remember there is California to think about too.
The settlement officer was looking for filing and payment compliance before any consideration. Encouraged by receipt of the December 21 payment for three quarters, she dug into the numbers and using historic figures she computed that Tyga could afford $87,169 per month based on monthly income of $146,013 and expense of $58,844. As time passed, Tyga did not make any estimated tax payments for 2022.
On August 31, 2022 the representative indicated that he planned to submit an offer in compromise. The settlement officer indicated that an OIC could not be processed because of Tyga’s lack of compliance. He had accured over $8 million in outstanding liabilities. She gave him a deadline of September 7, 2022 for submission of proof of estimated payments. The representative asked for an extension but that was it as far as the settlement officer was concerned.
Judge Urda endorsed her decision:
“A settlement officer does not abuse her discretion by rejecting collection alternatives when a taxpayer is not in compliance with estimated tax obligations. Mr. Stevenson was not in compliance with his 2022 estimated tax payments — a chronic problem over the previous decade — and rejection of collection alternatives was plainly within the settlement officer’s discretion.”
This drama will continue, as it is unlikely that the IRS will be able to find enough assets to levy to satisfy the liability. Unless Tyga does something very foolish, which seems unlikely, it will probably not be in the public eye.
Other Coverage
Kristen Parillo has Tax Court Tells Rapper to Face the Music on $2.3 Million Tax Bill on TaxNotes.
“Against this long backdrop of oft-fruitless accommodation, we cannot fault the settlement officer for ultimately determining that enough was enough,” Urda wrote. “The settlement officer was within her discretion in denying another extension of time and rejecting any collection alternatives for lack of compliance with estimated tax obligations.”
Lew Taishoff has SAVE THE TYGA.
Mr. Taishoff’s title is a reference to a 1973 Jack Lemon film. Like me he prefers his pop culture old and cold. His summary is apt.
“Tyga consistently fails to pay estimateds, while running up north of $8 million in taxes, add-ons, and chops. The SO keeps giving Tyga’s representative extensions to come up with the current 1040-ESs, but to no avail.”
Read the full article here