Tax Law

Rudy Giuliani Hit With $550K Tax Lien

He's in a financial tailspin, and the IRS is another creditor.

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(Photo by Alex Wong/Getty Images)

Last week, the IRS placed a tax lien on Rudy Giuliani’s condo in Palm Beach, Florida. It shows that he owes almost $550,000 for the year 2021.

The lien was signed by an IRS revenue officer, a specialist in collections. Recently, revenue officers have stopped the practice of visiting a taxpayer unannounced. But that does not stop them from taking enforcement action such as issuing tax liens.

Let’s look at what a tax lien does to Giuliani and what he can do to remove the lien or at least minimize its effects.

The IRS (and state tax agencies) issues a Notice of Federal Tax Lien (NFTL) when a taxpayer has a large tax liability. The NFTL, like other liens, is a public notice of a taxpayer’s debt to the IRS. With a few exceptions, the NFTL attaches to all property the taxpayer owns although it has the most impact on real estate. According to the Internal Revenue Manual, an NFTL is typically filed when a taxpayer has a balance of over $10,000. However, in some cases, a lien can be avoided when the balance is under $25,000 and an installment agreement is set up.

Until recently, an NFTL would show up on a taxpayer’s credit report, which would negatively affect their credit score, making it harder for people to get loans. But in recent years, credit reporting bureaus stopped including tax liens due to reports that many of them could be incorrect. It also avoids the situation where a taxpayer seeking to get a loan from a bank to pay the tax debt but is likely to be denied, ironically due to the NFTL.

An NFTL is a matter of public record. This means that employers will see the tax lien during a background check. People with tax liens will have difficulty finding or keeping a job in finance or any job that involves handling money or sensitive information such as trade secrets. Also, you will get a seemingly endless amount of solicitations from companies and law and accounting firms offering to help settle your tax debt. And if you are a famous (or infamous) public figure, the news will report on it, which can damage your reputation, or in some cases worsen it. Sometimes the IRS might advise the taxpayers of this to incentivize the taxpayer to pay off the debt as soon as possible.

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In most cases, the IRS will give the taxpayer some time to pay off the debt before issuing an NFTL. But in some cases can issue them quickly if they think that waiting could jeopardize their ability to collect.

Now that Giuliani is stuck with the tax lien, what can he do?

One option is to sell the condo. The NFTL was attached to his Florida condo, which is reported to be worth between $3 million and $4.5 million. Assuming there is enough equity in the condo, if it is sold, all or part of the proceeds will be used to pay the tax debt. In most cases, the IRS will not foreclose on a property, particularly if it is the taxpayer’s primary residence.

The other option is to work out a payment deal with the IRS. According to Giuliani’s representative, there is an installment agreement in place. However, setting up an installment agreement generally does not remove the lien.

Giuliani can also try to get the lien withdrawn. He can either do this by filing a Collection Due Process request within 30 days of the NFTL’s filing or by submitting a request to withdraw the NFTL. Generally, the IRS will remove an NFTL if it was filed in error, filed without proper procedures, or if removing the lien will be in the best interest of the government. Unfortunately, the IRS will rarely remove liens due to financial hardship.

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The final option is to consider filing bankruptcy. But this is complicated. Income taxes are nondischargeable in bankruptcy for the three most recent years. Also, the tax returns for the years at issue must have been filed for at least two years. Also, the tax debt must have been assessed for at least 240 days (in other words, the IRS must have 240 days to collect). Certain actions can put collections on hold, extending the 240-day limit.

In addition, a bankruptcy does not remove the tax lien. In other words, if Giuliani sold the condo after the bankruptcy while the lien is still in place, the sale proceeds could be used to pay the balance unless the tax debt exceeds the collection statute of limitations, which is usually 10 years after the tax is assessed.

So why would Giuliani file bankruptcy despite the above hurdles? He appears to be in serious financial straits due to a number of lawsuits thrown his way. He is being sued for $1.3 million in unpaid legal fees. He is also being sued for $10 million by a former employee for harassment. He also did not contest a defamation lawsuit which could lead to a default judgment. And just recently, he was sued by Hunter Biden for hacking into his laptop. These potentially large judgments could incentivize Giuliani to file bankruptcy before these plaintiffs file liens of their own. Even if it means the tax debt still sticks.

Rudy Giuliani is in a financial tailspin and the IRS is another creditor. Even though the tax collector is late to the creditor party, its tax lien could give it the first bite on the upcoming feeding frenzy.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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