While Manny Pacquiao has won the boxing world championship in eight distinct classes, his fight with the Philippine and United States tax men is sure to be his most challenging yet. The Philippine Bureau of Internal Revenue (BIR) has slapped Pacquiao with a $50 million tax bill; at the same time, the IRS claims that Pacquiao owes $18 million in back taxes and placed a lien on his U.S.-based assets.
Filing a Notice of Federal Tax Lien is the IRS’s protocol when a taxpayer owes the IRS more than $10,000.00 (raised from $5,000.00 as part of the IRS Fresh Start Initiative). An IRS tax lien is a claim against a taxpayer’s property for the payment of back taxes including any interest, penalties, and costs thereon. The purpose of filing a lien is to protect the Government’s interest in a taxpayer’s property against the claims of other creditors. Therefore, despite his wealth and boxing prowess, I would not lend Pac-Man any money at this time.
Because Pacquiao is not a U.S. resident or citizen, he does not pay U.S. tax on worldwide income. However, foreign entertainers must file U.S. income tax returns and are subject to special withholding rules. Tax controversies can arise as to what was considered U.S.-source income and what was paid.
The US government has a tax treaty with Pacquiao’s country, the Philippines, in which Article 23 provides relief from double taxation. Many of Manny Pacquiao’s fights were held in the United States where he is legally required to pay tax on this income, something which he claims to have done. If he can prove that he has indeed paid U.S. taxes, he would only need to pay the difference to the Philippine tax agency (there is a 2% difference between what the IRS and the Bureau of Internal Revenue would charge). However, the BIR claims that Pacquiao still owes at least $50 million in back taxes.
To resolve the tax controversy, he should obtain an original certificate from the IRS proving he has paid the taxes claimed. To date, he has not produced papers showing that he has paid US taxes, but his lawyer has publicly states that Pacquiao has the paperwork and intends to take the case to court in the Philippines.
If you have an IRS tax debt as a result of a foreign tax credit or international tax dispute and are in need of legal guidance, contact the law office of Todd S. Unger, Esq. LLC today!