Looking at Rudy Giuliani's $148M defamation judgement from a tax perspective

The IRS has reported that it received 163,473,000 income tax returns for 2024. Consider how many things 163 million Americans did last year.

Outside the obvious eating, sleeping, walking and so on, anything that 163 million of us do in a year is significant.

This is especially true when none of us really wants to do the thing people care about: Taxes.

Politicians recognize this. They talk about their plans for the tax laws. Their talk makes little sense and is seldom pursued, but they know they must still talk.

Not all businesses employ labor. Not all businesses utilize capital. But all businesses pay taxes.

Arnold Schwarzenegger, when running for governor of California, complained that “all day long it is tax, tax, tax, tax, tax.”

Schwarzenegger said you are taxed when you flush the toilet, get a coffee, go to the gas station, go to lunch, and on and on and on.

But that may be why you are reading this column! You care about taxes! You should. Taxes do permeate all aspects of our lives.

This sad fact has turned me into somewhat of an oddball. When I read a story about some current event, I often think about the tax angle.

Rudy Giuliani was the mayor of New York City from 1994 to 2001. Following the 9/11 terrorist attack, he became known as “America’s Mayor.”

Giuliani now faces a $148.1 million defamation judgment in favor of two Georgia election workers.

Giuliani has quite a lavish personal budget, a fact that has annoyed the election workers and their attorneys, as well as the presiding judge in the case.

After the judgment was entered, questions arose as to how Giuliani would satisfy such a large obligation.

Giuliani has valuable assets. This includes a co-op in Manhattan, a condominium in Palm Beach and two vintage Mercedes-Benz automobiles.

One Mercedes was once owned by Lauren Bacall, one of the greatest stars of the so-called “Golden Age” of Hollywood.

Bacall once starred in “How to Marry a Millionaire.” Giuliani might want to watch that movie in developing a payment strategy.

But back to taxes. In addition to real estate, Giuliani also has New York Yankee memorabilia, including a signed Joe DiMaggio jersey.

Giuliani has three World Series rings specially made for him by the Yankees following their 1996, 1999 and 2000 championship seasons.

I suspect the Georgia election workers do not want a Manhattan co-op, a Palm Beach condominium or even the DiMaggio jersey and World Series rings.

It turns out Giuliani settled with the workers in a deal that allowed him to keep all that stuff. Details of how he will pay are private.

But what if Giuliani reneges on the deal? Presumably, we’ll be back to him being forced to dispose of his personal effects.

And then what? Well, let’s say he sells the real estate and Yankee memorabilia. He will probably have a gain from the real estate sales.

He might escape tax on as much as $250,000 of gain from his main home. I suspect the gains exceed that.

The Yankee stuff was received as a gift. It probably has no tax basis to Giuliani. So, any proceeds of sale will be taxable.

Giuliani might have a large tax liability to add to the judgment. What if he simply turns the stuff over to the election workers?

That won’t change the tax result. A tax on a gain applies to a sale but also to any “other disposition” of property.

Exchanging the property for satisfaction of the judgment is an “other disposition.” Giuliani will be taxed on the value received over the tax basis of the property.

It could be that Giuliani’s judgment ends up being a “two-fer,” with money going to the election workers and the IRS.

I suppose some people think this would be unfair, or even that my analysis is wrong. But it is logical and sound tax policy.

The tax treatment should be the same if he sells assets to obtain money or transfers the property to satisfy all or a portion of the judgment.

There is no tax exclusion for exchanging assets for reduction of a judgment. That settlement might have helped Giuliani in two ways.