Could Lindsay Lohan and Stephen Baldwin Have Been Nabbed by Tax Whistleblowers?

If you read something about a seizure and Lindsay Lohan this week, no, it wasn’t some drug and alcohol induced problem.  The IRS seized Lindsay’s bank accounts for unpaid taxes.  Lohan owes about $234,000 in back taxes.  The New York Post says that Lindsay was “freaking out” and wants it known that the failure to pay the debt was not her fault.  The article went on to say that Lohan’s managers are addressing the problem and expect to have it resolved by the end of the year.

Last year, reports on Lohan said she was “flat broke.”  In 2012, she’s expected to earn about $2 million.

Baldwin Failed to File NY Tax Returns

On December 7, 2012, the Rockland County district attorney’s office announced that it arrested actor Stephen Baldwin for failing to file New York state personal income tax for three years.  The amount owed exceeds $350,000.  According the website Celebrity Networth, Baldwin’s net worth is estimated at $4 million.  Stephen pled guilty and was released on his own recognizance.  Alec Baldwin stated the he didn’t believe Stephen would go to jail.

The arrest came from a year-long joint investigation by the Rockland County Special Investigations Unit and the New York State Department of Taxation and Finance.  As near as I can tell, no whistleblower was involved in either Lohan’s or Baldwin’s case.

Potential Whistleblower Claims?

Now, let’s get to the really interesting question.  Could a tax whistleblower have benefited from reporting either Lindsay or Stephen tax evasion?

Stephen Baldwin’s case involved a failure to file STATE tax returns, so an IRS whistleblower would not have had any wrongdoing to report.  Stephen, unfortunately for him, failed to file his returns for New York State, the one state in the country that explicitly allows whistleblowers to get awards for reporting state tax violations.  The New York False Claims Act includes other income related threshold criteria, and I couldn’t quickly find out how much money Stephen makes in a year.  His net worth doesn’t matter as much as his annual income in terms of qualifying the claim as a potential whistleblower award, but it is useful to know the net worth of an individual who is the subject of a whistleblower claim because it’s important to know if the government can collect the amount owed.

Depending on what Lindsay earned in the years she failed to pay her full tax debt, she could conceivably have been the target of an IRS whistleblower report.  The IRS requires that individuals targeted by the program have to make more than $200,000 in gross income per year.  This means that Lindsay, if she isn’t careful to pay her full income taxes, could possibly reported by a whistleblower for 2012.  Even for 2011, the year news sources reported she was broke, I imagine she likely grossed more than $200k for the year, but I don’t really have any idea.

There are other factors that distinguish good cases from bad, of course.  One major potential problem for a whistleblower would be the timing of his or her claim.  Generally, the whistleblower has to provide information to the government BEFORE the government learns of the misconduct and begins to investigate it.  If anyone out there thinks they can file tax whistleblower claims for either Lindsay Lohan or Stephen Baldwin, forget it.  You are way too late.

The Takeaway:

In addition to reporting federal tax violations to the IRS, whistleblowers can report New York State tax violations to the state government through filing a False Claims action (NYFCA).

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