by
Kevin
Winter/Getty
Images)
Former
pop
megastar
Britney
Spears
is
now
fighting
the
IRS.
Last
month,
Spears
filed
a
petition
with
the
U.S.
Tax
Court
to
contest
a
$720,000
bill
for
the
year
2021
which
includes
taxes
and
penalties.
This
amount
does
not
include
interest.
The
U.S.
Tax
Court
specializes
in
resolving
tax
disputes
before
payment
is
required,
making
it
a
common
venue
for
taxpayers
unable
to
pay
disputed
amounts
upfront.
Taxpayers
can
also
sue
the
government
in
federal
district
courts
to
challenge
the
tax
but
the
court
only
has
refund
jurisdiction
which
means
the
taxpayer
must
pay
the
tax
in
full
first.
According
to
the
IRS
report,
the
auditor
added
$1,390,922
to
Spears’s
taxable
income
as
a
result
of
an
audit
of
her
S
corporation
return
named
Shiloh
Standing,
Inc.
An
S
corporation
is
a
pass-through
entity
so
the
corporation’s
income
or
net
loss
is
transferred
to
the
shareholders
based
on
their
ownership
percentage.
The
details
of
Shiloh
Standing
Inc.’s
audit
is
unknown
since
the
corporation
has
its
own
taxpayer
ID
number
(known
as
an
Employer
Identification
Number
or
EIN)
and
was
audited
separately.
But
the
tax
court
petition
states
that
the
entity
is
in
the
business
of
performing
arts
and
entertainment.
The
auditor
then
disallowed
$608,120
in
medical
expenses
claimed
as
an
itemized
deduction
claiming
that
Spears
did
not
prove
the
amount
claimed
was
a
medical
expense
and
paid
in
2021.
As
a
result
of
this
disallowance
and
thanks
to
complicated
tax
calculation
rules,
the
IRS
added
back
$334,372
originally
claimed
as
an
itemized
deduction.
The
thought
of
spending
$608,120
in
medical
bills
would
be
toxic
for
most
Americans.
But
for
some
current
or
former
celebrities
with
wealth,
this
is
not
that
unusual
as
high-end
rehab
facilities
can
charge
five-figure
fees
monthly.
The
petition
asked
the
court
to
remove
the
accuracy-related
penalty
against
Spears
because
there
is
no
tax
due,
and
in
the
alternative,
she
acted
in
good
faith
and
made
reasonable
attempts
to
comply
with
the
tax
laws
and
IRS
guidance.
Generally,
the
IRS
forgives
most
tax
penalties
if
the
taxpayer
can
show
reasonable
cause.
Reasonable
cause
is
shown
when
a
taxpayer
exercises
ordinary
business
care
and
prudence
in
determining
their
tax
obligations
but
is
unable
to
comply
with
those
obligations
due
to
circumstances
beyond
their
control.
Common
situations
favoring
reasonable
cause
include
reasonable
reliance
on
a
tax
professional,
severe
health
issues
for
the
taxpayer
or
their
immediate
family,
a
natural
disaster,
or
inability
to
obtain
records
that
are
not
the
taxpayer’s
fault.
Spears
states
in
her
petition
that
the
penalty
was
not
approved
by
an
immediate
supervisor
and
so
must
be
removed.
Supervisory
approval
is
required
by
law,
specifically
section
6751
of
the
Internal
Revenue
Code.
Generally,
when
a
taxpayer
is
presented
with
a
tax
adjustment
calculation
that
contains
a
penalty,
the
auditor
includes
in
the
report
a
letter
signed
by
a
supervisor
approving
the
penalty.
While
this
is
usually
standard
procedure
for
an
IRS
auditor,
it
can
be
missed
at
times.
If
the
taxpayer
can
prove
that
there
was
no
supervisor
approval,
the
penalty
can
be
automatically
removed
without
proving
reasonable
cause.
From
2008
to
late
2021,
Spears
was
placed
in
a
conservatorship
by
her
father
due
to
her
mental
health
issues.
At
the
time
the
2021
returns
were
timely
filed,
which
would
be
before
April
15,
2022
or
October
15,
2022
with
an
extension,
it
is
unclear
how
much
she
knew
about
her
financial
affairs
or
whether
she
understood
the
numbers
in
her
2021
tax
returns.
If
she
reasonably
relied
on
her
tax
preparer
and
her
fiduciaries,
she
has
a
strong
case
for
showing
reasonable
cause.
But
ultimately,
it
is
Spears’s
responsibility
to
ensure
that
the
tax
returns
are
correct,
even
if
it
requires
her
to
hire
a
second
professional
to
double
check
the
returns.
Since
the
case
appears
to
be
about
business
and
medical
expenses,
this
case
is
likely
to
settle
quickly
if
Spears
can
produce
the
documentation
to
IRS
satisfaction.
While
the
case
is
in
the
tax
court’s
docket,
it
will
be
sent
to
a
settlement
officer
from
the
IRS
Office
of
Appeals.
As
the
name
implies,
a
settlement
officer
must
consider
the
hazards
of
litigation
so
they
may
allow
a
deduction
in
a
close
case.
What
can
a
noncelebrity
learn
from
Britney
Spears’s
fight
with
the
IRS?
First,
keep
good
records
of
all
business
expenses
as
you
may
never
know
when
the
IRS
will
audit
the
returns.
This
is
particularly
important
if
the
expenses
are
unusually
large.
Medical
expenses
can
be
large
if
someone
is
uninsured,
or
if
the
insurance
does
not
cover
the
entire
bill.
Second,
if
you
feel
uncomfortable
about
claiming
a
large
deduction,
particularly
if
the
nature
of
the
expense
seems
to
be
in
a
gray
area,
consult
a
tax
professional
about
it.
Steven
Chung
is
a
tax
attorney
in
Los
Angeles,
California.
He
helps
people
with
basic
tax
planning
and
resolve
tax
disputes.
He
is
also
sympathetic
to
people
with
large
student
loans.
He
can
be
reached
via
email
at [email protected].
Or
you
can
connect
with
him
on
Twitter
(@stevenchung)
and
connect
with
him
on LinkedIn.