By Mallon FitzPatrick and Victoria Jung
December 7, 2022 – Headlines featuring celebrities, rockstars, titans of business, and the IRS rarely end well. Typically, the sensationalized audits result in large fines or imprisonment because of tax evasion. Rarely do we see newsreel-worthy audits conclude with the government owing the taxpayer a refund, and certainly not $9mm in a single tax year. But, that’s exactly what happened to actor, comedian, filmmaker, and playwright Tyler Perry.
In the case of Tyler Perry, the IRS pursued an audit to account for expenses deducted on his tax return. The process extended for three years. It cost Perry many thousands of dollars to employ a small army of accountants to help correct the matter. Perry also invoked the taxpayer’s bill of rights to remove the auditor.
A $9mm refund from the IRS is a reason for celebration, is it not? The truth is, having the IRS owe you money is not necessarily good. Ideally, taxpayers should consider taking a conservative approach and paying a little more than their estimated tax liability. Significantly overpaying is like loaning money to the government and is an opportunity cost for the taxpayer. Money ‘loaned’ to IRS is not investable, interest-bearing, nor may it be used to pay down outstanding debt. If the $9mm overpayment had been invested for 3 years, earning a rate of return of 7%, the funds would have grown to over $11mm. It’s not a surprise that the team of accountants was sacked.
What is also noteworthy in Perry’s audit is the invocation of the Taxpayer’s Bill of Rights. According to the IRS, every taxpayer has a set of fundamental rights, and the relevant one in this case, was the right to quality of service. Under the quality service, the taxpayer is entitled to speak with the agent’s supervisor if a problem arises. After several years of inquiry and no resolution in sight, Perry requested that the supervising agent replace the auditor originally assigned to the case.
Tyler Perry’s case highlights the importance of employing wise counsel and having good representation when it comes to planning, paying, and filing taxes. Whether by misapplication of tax laws or miscalculating your withholdings, a significant overpayment will likely lead to a high opportunity cost. Perry’s case also emphasizes the importance of understanding the rights taxpayers are entitled to and when to apply them.