As you may have heard, legendary singer Dionne Warwick filed for Chapter 7 bankruptcy in March, claiming only about $25,000 in assets but owing more than $10 million in California and IRS tax debt. According to reports, nearly $7 million of that tax debt is owed to the IRS, and the performer's lawyer says that mismanagement by Warwick's former business manager is largely to blame for that.
The IRS has made clear that it plans to get that money, even if Warwick is bankrupt. Most recently, the agency has asked the Chapter 7 court to look into whether two companies -- Star Girl Productions, Inc., and KMBA Productions -- are secretly holding Warwick's assets.
Warwick's attorneys filed an objection on Friday, saying that the two companies simply handle the administrative and legal tasks involved in booking her engagements. They do send her wages, but they're only middlemen, according to the filing. Warwick has no ownership interest in either company, and she doesn't serve as an officer or director for either company.
Nevertheless, Warwick's attorneys say, the IRS has already been seeking "to collect on pre-petition levies against the debtor from property in which the debtor has no interest," according to the objection. That's not allowed, the lawyers say. If the two companies are so closely tied to Warwick that they could be subject to IRS collections, they should have been named in the IRS motion. Failure to name them could be a violation of their due process rights.
It is unclear if the two companies have filed their own objections explaining their relationships with Warwick. If it's true that they are essentially paycheck processors, however, they should come forward and protect themselves from any undue liens. In theory, the IRS could garnish Warwick's wages through the companies, but the assets of the companies themselves should not be subject to collection.
As for the taxes themselves, Warwick claims that early tax mistakes snowballed out of control due to oppressive penalties and interest. All in all, her attorneys estimate, only about $25,000 of the tax debt would ordinarily be considered non-dischargeable in Chapter 7.
A hearing is scheduled on the matter next week. Will the bankruptcy court pull Star Girl and KMBA into Warwick's case, or will it just "walk on by"?
- The Wall Street Journal's Bankruptcy Beat blog, "Dionne Warwick Takes on the IRS," Jacqueline Palank, June 10, 2013
- The Wall Street Journal's Bankruptcy Beat blog, "Do You Know the Way to Bankruptcy Court?" Jacqueline Palank, March 26, 2013