Ten months ago the IRS slapped a lien on California Governor Arnold Schwarzenegger for nearly $80,000. Now after paying only $20.50, the debt is cleared. How did that happen?
Here’s the story.
The day after Thanksgiving 2009, TMZ.com reported that on May 11, 2009, the IRS filed a lien on the actor-turned politician. According to the lien, Schwarzenegger owed $39,047 for tax year 2004 and another $40,016 for 2005, plus possible penalties.
The governor’s spokesman, Aaron McLear addressed the issue with reporters: “The governor had not been notified of any discrepancy or of the lien until today,” he said on the day TMZ broke the news in November. "[Schwarzenegger] is resubmitting certain information to the IRS and we fully expect that the matter will be resolved and the lien expunged without any penalty assessed upon the governor."McLear added, this issue is "completely unrelated to the payment of taxes, which the governor has paid in full and on time."
After the news broke, California tax attorney Jeffrey Kahn told the San Jose Mercury News that the lien listed code number 6721, which, he says, indicates that the problem is related to an information return, such as a W-2 or 1099, rather than income tax. Kahn explained that if Schwarzenegger and a group of partners were involved in a particular business, he and each other partner would be listed as a "responsible person", and in the case of a tax lien, the lien would be filed against each of the designated agents of the business. That, says Kahn, would explain why Schwarzenegger was unaware of the lien.
After some checking, it became clear that the problem was caused by a computer glitch. When the lien was filed in May 2009, the IRS believed that Schwarzenegger had not paid payroll taxes for his household help. The notices that were sent to alert him to the issue were sent to his home instead of his office. For security reasons, the governor does not receive mail at home, which is his explanation for why he was unaware of the lien. When Schwarzenegger learned about the lien, his office assured the IRS that the taxes had been paid as they became due.
According to the governor’s business manager, a review of the facts proved that the problem was not a failure to pay taxes, but a discrepancy between the reference numbers used on Schwarzenegger’s personal tax (his Social Security number) and his payroll reports (his employer identification number).
On Friday February 5th, the governor’s office issued documents showing that the lien had been cleared. Schwarzenegger paid administrative fees of $20.50.