Last week, news broke that the IRS had placed a tax lien on Rudy Giuliani’s Palm Beach condo in Florida, revealing an outstanding tax debt of nearly $550,000 for the year 2021. This development has sparked curiosity about the implications of a tax lien and what options Giuliani may have to address it.
A tax lien, specifically a Notice of Federal Tax Lien (NFTL) issued by the IRS or state tax agencies, serves as a public notice of a taxpayer’s debt to the government. While it generally applies to all properties owned by the taxpayer, its impact is most pronounced on real estate. Typically, an NFTL is filed when a taxpayer owes a balance of over $10,000, although exceptions exist where a lien can be avoided for balances under $25,000 with an installment agreement in place.
In the past, an NFTL would negatively affect credit scores and make obtaining loans more challenging. However, credit reporting bureaus have ceased including tax liens in recent years due to concerns about inaccuracies. This change prevents a paradoxical situation where a taxpayer seeking a loan to pay off their tax debt may be denied due to the existence of the NFTL.
Beyond the impact on credit, tax liens become a matter of public record, making them visible during employment background checks. Individuals with tax liens may encounter difficulties finding or maintaining employment in finance or any profession involving money or sensitive information. Furthermore, they may be inundated with solicitations from companies and legal and accounting firms offering assistance in resolving their tax debt. In the case of public figures like Giuliani, news coverage and public scrutiny can exacerbate reputation damage or worsen an already compromised standing. The IRS sometimes emphasizes these consequences to encourage prompt debt resolution.
The IRS typically allows taxpayers time to settle their tax debt before issuing a tax lien. However, in certain situations where collecting the debt is at risk, the IRS may expedite the process. Now that Giuliani finds himself faced with a tax lien, he has a few options available.
One possibility is selling the condo. Considering the tax lien is attached to his Florida property, which is estimated to be valued between $3 million and $4.5 million, selling it could allow proceeds to be used for satisfying the tax debt. Generally, the IRS refrains from foreclosing on primary residences.
Another avenue is negotiating a payment arrangement with the IRS. While Giuliani’s representative claims an installment agreement is already in place, it typically does not remove the lien itself.
Giuliani may also seek the withdrawal of the tax lien. This can be pursued by either filing a Collection Due Process request within 30 days of the NFTL’s filing or submitting a request to the IRS directly. The IRS may remove an NFTL in situations involving filing errors, procedural deficiencies, or if it’s in the best interest of the government. Unfortunately, liens are rarely withdrawn due to financial hardships.
Lastly, Giuliani might consider filing for bankruptcy, although it presents its own complexities and limitations. Income taxes typically cannot be discharged in bankruptcy for the most recent three years, and tax returns for the relevant years must have been filed for at least two years. Moreover, the tax debt must have been assessed for a minimum of 240 days, although certain actions can suspend collections and extend this timeline. Importantly, filing for bankruptcy does not eliminate the tax lien, meaning that selling the condo post-bankruptcy could still lead to the proceeds being applied towards the debt, unless the collection statute of limitations expires (generally 10 years from assessment).
Given the mounting lawsuits and potential significant judgments Giuliani faces, bankruptcy might become a viable option, even with these challenges. A bankruptcy filing ahead of such judgments would potentially prevent their own liens from being filed against his assets. In such a scenario, the tax debt would persist, but it could move down the priority list among Giuliani’s creditors.
Rudy Giuliani confronts a precarious financial situation, with the IRS becoming another creditor in an increasingly challenging landscape. Though the tax collector arrived late to the creditor party, its tax lien could claim a prominent position in the upcoming feeding frenzy of potential claims against Giuliani’s assets.
Market Capital Research 