Governator’s Tax Lien

Introduction

In May, IRS slapped California Governor Arnold Schwarzenegger with a $79,000 tax lien for failing to pay penalties assessed against him during 2004 and 2005.

Note: In October, IRS filed a lien against another politician, Oakland Mayor Ron Dellums, for $240,000 in delinquent income taxes during 2006 and 2007.

Tax Lien

An IRS tax lien attaches to all assets and usually ruins one’s credit score, since no rational lender will extend credit when the government has a blanket claim against all assets owned by a taxpayer. IRS may then levy (forcibly collect) and sell the assets to pay tax debts without first suing in court

Appeal

Once IRS files a tax lien, a taxpayer receives notice of appeal rights. If a taxpayer files an appeal within 30 days, IRS generally suspends collection until the process is completed
Evidently Schwarzenegger disregarded the appeal process, resulting in the tax lien.

Tax Penalty

Schwarzenegger was assessed penalties under IRC Sec. 6721, failure to file information returns (typically W-2 or Form 1099), a $50 penalty for each delinquency. Judging by the size of the fine, the failure must have involved thousands of employees or independent contractors

He probably was listed as the “responsible person” for several major business or investment ventures.

Conclusion:

While the Govenator’s spin-doctors claim that the tax lien did not involve income taxes, he must have ignored the series of escalating IRS warnings that preceded the filing.

Perhaps, Schwarzenegger was not legally responsible, but he should have appealed. Then, IRS would have to establish that he was indeed responsible. Instead, he chose to blow-off IRS, which is often a bad idea.

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