Even global icons like Beyoncé, among the wealthiest entertainers on the planet, are not immune to IRS scrutiny. Recently, Queen Bey found herself entangled in a dispute with the Internal Revenue Service (IRS) over an alleged $2.9 million in unpaid taxes, interest and penalties. This high-profile case draws attention to the complexities of tax law, and why having a skilled tax attorney or CPA in your corner is crucial—whether you’re a global icon like Beyoncé or an average taxpayer.
In this article, we’ll break down Beyoncé’s IRS dispute, look at the key lessons we all can learn as taxpayers—especially about business deductions and charitable donations—and provide insights on how a skilled tax attorney or CPA can be a game-changer in resolving tax disputes.
What Sparked Beyoncé’s IRS Dispute?
On January 18, 2023, following a 2022 tax audit (a.k.a. “IRS examination”) of Beyoncé’s 2018 and 2019 tax returns, the IRS issued a Notice of Deficiency, assessing an additional $2,228,597 in unpaid taxes for those years, along with $449,719 in interest and $263,757 in penalties.1 For tax year 2018, the IRS added $1,449 in unreported royalty income to Beyoncé’s Form 1040, reduced self-employment tax by $11,316 (“SE AGI Adjustment”), and disallowed the following deductions:
- $761,455 in “other expenses” reported on Schedule C;
- $473,738 in legal and professional services on Schedule C;
- $868,766 in itemized deductions on Schedule A (charitable contribution carryover); and
- $3,581 in qualified business income deduction.
For the 2019 tax year, the IRS disallowed a $14 qualified business income deduction, in addition to the following deductions reported on Beyoncé’s Form 1040, Schedule E:
- Other expenses - $9,801;
- Utilities - $11,948;
- Taxes - $54,610;
- Management fees - $24,691;
- Insurance - $33,301; and
- Depreciation - $3,401,780.
These deductions were likely disallowed due to Beyoncé’s failure to substantiate the expenses with adequate documentation. Beyoncé responded by filing a petition with the U.S. Tax Court, where she asserted that the IRS made several “erroneous determinations,” asked the court to rule that she doesn’t owe any additional taxes for the years in question, and to grant any other appropriate relief, including a refund if it finds that she overpaid taxes owed.2
The Importance of Proper Documentation
One of the principal lessons from Beyoncé’s IRS dispute is the importance of maintaining proper documentation for all deductions, especially charitable contributions and business expenses. The IRS is notorious for its strict enforcement when verifying charitable donations. Taxpayers must provide sufficient proof, such as receipts and acknowledgment letters from the nonprofit organization, especially for larger donations. This proof typically includes receipts or written acknowledgments from the organization for any contribution of $250 or more, as well as detailed records such as bank statements or canceled checks.3 These written acknowledgments from the charity must explicitly state whether you received any goods or services in return for your donation.4 For non-cash donations over $500, the taxpayer must also file Form 8283 to provide additional details about the contribution.5 And, for more significant non-cash donations over $5,000, an independent appraisal may be required.6 In Beyoncé’s case, even a multimillionaire is not exempt from these rules.
Charitable Donations: The Fine Print
While charitable giving is an excellent way to reduce your tax liability, not all donations qualify for a tax deduction.7 For example, donations to individuals, political organizations, or non-qualified charities won’t count. In Beyoncé’s case, the IRS questioned the validity of the $868,766 charitable contribution carryover claimed on her 2018 return, likely due to missing or inadequate documentation such as the Charitable Contribution Carryover Worksheet, written acknowledgments, Forms 8283, appraisals, bank records and/or receipts.
When your donations exceed the limits allowed for charitable deductions (generally 60% of your adjusted gross income for cash donations or 30% for appreciated assets), you must carry over the excess to subsequent years.8 You should complete and keep a Charitable Contribution Carryover Worksheet from IRS Publication 526 to show how the carryover amount was calculated. To claim a charitable contribution carryover, you need thorough documentation that shows the original donation amounts from previous years and how much of the deduction was used each year. This includes retaining copies of your prior tax returns where the carryover was reported.
For noncash donations over $500, Form 8283 must be attached to your tax return, and for donations exceeding $5,000, the charity must sign Section B of the form.9 As you can see, having detailed records will help validate your charitable deduction and prevent any issues if the IRS scrutinizes it. This highlights just how meticulous the IRS can be when it comes to the charitable contribution deduction.
Challenging the IRS: It’s Not Just for Celebrities
Beyoncé’s decision to challenge the IRS in tax court is an important reminder that taxpayers have the right to contest findings after an audit. Contrary to the common misconception that additional IRS tax assessments are final, taxpayers have the right to contest auditor findings or additional tax assessments they believe to be incorrect.
How to Challenge the IRS’s Findings Following an Audit
When the IRS completes an audit, it issues a report that outlines its findings, including any additional tax owed or disallowed deductions. This document is called a Notice of Deficiency (also referred to as a “90-day letter”), which informs the taxpayer of the proposed changes and their right to challenge them in court.10 Once this notice is received, the clock starts ticking on your opportunity to dispute the IRS’s findings.
To contest an IRS audit outcome, begin by scrutinizing the Notice of Deficiency issued to you, which outlines any adjustments made by the IRS along with the additional taxes, penalties, or interest. If you disagree with the IRS’s conclusions, you have the legal right to challenge them by filing a petition with the U.S. Tax Court.11 This court uniquely allows you to argue your case without first paying the disputed amount, providing a significant advantage. The process is time-sensitive, with a strict 90-day deadline (150 days if residing outside the U.S.) from the date you receive the Notice of Deficiency to file your petition. Missing this deadline forfeits your right to dispute the changes in court, after which the IRS can enforce collection measures such as levies, liens, or garnishments.12 If timely filed, you’ll prepare your case by gathering all necessary documentation to support your claims. The case may either reach trial in Tax Court or be settled beforehand if both parties can agree, often resolving through adjustments or reductions to assessed penalties and taxes.
However, challenging the IRS is no simple task—it requires navigating a complex legal system with strict deadlines. One of the most critical deadlines is the 90-day window outlined in the IRS’s Notice of Deficiency. If you fail to file a petition within this timeframe, the IRS’s assessment becomes final, and you lose your right to dispute the findings in court.13 Once the assessment is finalized, the IRS will begin collection efforts; moreover, unpaid taxes will continue to accrue interest and penalties, further increasing your overall tax liability.
This is where having a skilled tax attorney in your corner becomes essential. Just as Beyoncé relied on legal experts, everyday taxpayers can also benefit from professional guidance to navigate the IRS process and avoid costly mistakes. An experienced attorney can help protect your rights, ensure deadlines are met, and potentially reduce or eliminate additional tax burdens.
Lessons for Self-Employed Individuals and Small Businesses
Beyoncé’s dispute also sheds light on how self-employed individuals and small business owners are particularly vulnerable when it comes to IRS audits. Many of the deductions she claimed related to business expenses—a common area of contention between taxpayers and the IRS.
Self-employed individuals, including artists, freelancers, musicians, performers and small business owners, often claim, as business deductions, expenses for travel, meals, entertainment,14 and home office expenses. However, the IRS scrutinizes these deductions closely, particularly if there’s a chance they could be seen as personal expenses rather than business-related.
What Happens Next in Beyoncé’s Case?
As of June 26, 2024, Beyoncé and the IRS have resolved most of the key issues in their dispute, with a status update scheduled for the tax court later this month (October 25, 2024). Although Beyoncé’s case has not yet been completely resolved, it serves as an important reminder for taxpayers at all income levels that even those with the top legal and financial teams can face tax disputes. The key is to be proactive, maintain accurate records, and challenge the IRS in a timely manner if you believe an error has been made.
For most of us, the stakes may not involve millions, but tax issues can still be stressful and financially draining. The best way to prevent disputes with the IRS is by practicing good tax habits—filing accurately, keeping thorough documentation, and staying informed about tax laws or consulting with a knowledgeable tax professional.
Are You Facing IRS Challenges?
Whether you are confronting an IRS audit, back taxes, or seeking clarity on your tax obligations, Fleurinord Law has the experience and expertise to effectively resolve these issues. Our team is adept at navigating complex tax disputes, ensuring that individuals and businesses achieve efficient and favorable outcomes.
As evidenced by Beyoncé's IRS dispute, no one is beyond the IRS's reach, but with expert representation, your rights are protected and fair results are achievable. Take proactive steps towards resolving your tax issues before they escalate. Don’t delay—timing is critical! Contact Fleurinord Law to navigate these complexities with confidence and secure the professional advocacy necessary to tackle even the most daunting tax issue.
1 See Notice of Deficiency, IRS, No. 5695-23, Apr. 17, 2023. A tax assessment, as defined by the IRS, is the official recording of a taxpayer’s liability—determined through a tax return, audit, or other process—which recognizes the amount owed, including penalties and interest, and allows the IRS to begin collection actions if unpaid. See Internal Revenue Manual § 35.9.2 (Feb. 26, 2021), IRS.gov (last visited October 3, 2024).
2Knowles-Carter v. Comm’r, No. 5695-23 T.C. original petition filed on Apr. 17, 2023).
3 See Charitable Contributions: Written Acknowledgments, IRS.gov (last visited October 3, 2024).
4Id.
5See About Form 8283, Noncash Charitable Contributions, IRS.gov (last visited October 4, 2024).
6 See Charitable Organizations: Substantiating Noncash Contributions, IRS.gov (last visited October 4, 2024).
7See I.R.S. Pub. 526, Charitable Contributions (Feb. 29, 2024) (explaining types of contributions that are not tax-deductible, such as donations to individuals, political organizations, and the value of time or services).
8 Id.
9See I.R.S. Instructions for Form 8283, Noncash Charitable Contributions (Dec. 2023).
10 See I.R.C. § 6212 (which authorizes the IRS to issue a Notice of Deficiency to taxpayers, providing official notification of the IRS’s intention to assess a tax deficiency and affording taxpayers the right to challenge the proposed assessment in U.S. Tax Court within 90 days, or 150 days if located outside the U.S.); see also Internal Revenue Manual § 4.8.9.2 (Jan. 10, 2023).
11 Id.
12See I.R.C. § 6213(a).
13Id.
14I.R.S. Pub. 463, Travel, Gift, and Car Expenses (Jan. 29, 2024) (explaining the rules for deducting travel, meal, entertainment, gift, and car expenses for business purposes, including recordkeeping requirements and substantiation guidelines).
