The IRS Won’t Let Forest Whitaker Pay His Taxes in Installments; Rob Wood Explains What Went Wrong

Forest Whitaker has enjoyed a successful career as an actor. And like some other celebrities, he has had problems with the IRS. Whitaker owed taxes and had not paid them. He sought an agreement to pay in installments, but the Tax Court ruled against him. He then appealed to the U.S. Ninth Circuit. That court affirmed the Tax Court. In this report, San Francisco tax lawyer Rob Wood discusses Whitaker’s situation and explains how things might have gone right for Whitaker. Wood reported on the case in a Forbes article, “Forest Whitaker Loses Tax Case, Provides IRS Handling Tips.”

Wood explains that Forest Whitaker has been very successful, but he has had a series of tax problems over the years. This latest situation is, Wood says, largely the result of Whitaker’s failure to communicate effectively and carefully with the IRS. He may have gotten some bad advice.

Rob Wood

Rob Wood

Wood notes that Whitaker was an employee of his own company, but he was not withholding payroll taxes as he should have. He was taking out a very small amount for taxes, but not nearly enough. As a result, there was a shortfall of hundreds of thousands of dollars in taxes due but no paid. The IRS discovered this. Wood says that Whitaker filed his own tax return, noting the large amount owed. Then Whitaker’s advisor began communicating with the IRS to the effect that Whitaker could not pay the amount due at once and wanted to pay in installments.

Wood says that getting the IRS to agree to accept installment payments is not difficult, but the request must be handled correctly. If the IRS asks for things, the taxpayer should provide those things. A taxpayer who has not been withholding enough from salary payments to cover taxes should increase the withholdings going forward. Whitaker failed to do this, and that was probably a key reason why the IRS refused to give Whitaker more time to pay his taxes. Wood says that a refusal by the IRS to accept payment in installments does not happen frequently.

Wood also notes that Whitaker started going to court, “which probably was a waste of time, in my view.” His issue for the court was that the IRS was unreasonable in refusing to let him pay his taxes in installments. The Tax Court granted the IRS a summary judgment. To make matters worse, Whitaker then went to the court of appeals, making the same argument. This was, says Wood, a tough argument to make in light of the way his advisors communicated with the IRS. It was also clear that had things been handled better at the beginning, Whitaker wouldn’t have wasted time and money on a fight with the IRS that he couldn’t win.

The moral, Wood says, is that taxpayers should be realistic in what they ask of the IRS. It’s all right to disagree with the IRS, but the nature of the disagreement is the key. If there’s no dispute about the amount owed and the only issue is paying in installments, there are things that need to be done that apparently weren’t done in Whitaker’s case. “This is about communication.”

Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.