Tax Lien

Tax Lien

Key takeaways
* A tax lien is a legal claim by a government against a taxpayer’s assets for unpaid taxes.
* A lien secures the government’s interest; a levy permits the government to seize and sell assets to satisfy the debt.
* Liens can be resolved by paying the tax, negotiating with the tax authority, or through specific IRS processes (discharge, subordination, withdrawal). Some tax debts may survive bankruptcy.

What is a tax lien?

A tax lien is a legal claim the government places on a person’s or business’s property when taxes are unpaid. It protects the government’s interest and gives it priority over other creditors for the taxpayer’s assets. A lien does not automatically mean the property will be sold — it simply attaches to assets (real estate, vehicles, bank accounts, securities, business property and receivables) and to property acquired while the lien is in effect.

How a tax lien is placed

1. The tax authority issues a notice of unpaid taxes (a demand for payment).
2. If the taxpayer fails to pay or make arrangements, the authority may file a lien against the taxpayer’s assets.
3. The lien is usually publicly recorded and remains until the debt is resolved or the statute of limitations on collection expires.

Lien vs. levy

• Lien: A claim on property that secures the tax debt.
• Levy: The legal seizure and sale of property to satisfy the debt.
  A lien gives the government priority; a levy is the enforcement step that actually takes assets to pay the tax.

Effects of a federal tax lien

• It takes precedence over other creditors’ claims.
• It can make it difficult to sell, refinance, or borrow against affected property.
• Until 2018, tax liens could appear on credit reports; the major credit bureaus no longer include them.
• A lien can survive bankruptcy in many cases; federal tax debts often are not fully discharged by bankruptcy.

How to resolve or remove a tax lien

Primary options to resolve a federal tax lien include:
* Pay the tax in full — the lien will be released and public records updated.
* Enter an IRS installment agreement with automatic payments.
Other IRS procedures that address liens:
* Discharge of property — removes a specific property from the lien (see IRS Publication 783 for eligibility and rules).
* Subordination — does not remove the lien but allows other creditors to take priority so the taxpayer can obtain financing (application: IRS Form 14134).
* Withdrawal — removes the public notice of the lien while the tax liability remains; this prevents the IRS’s lien from competing with other creditors (application: IRS Form 12277).
If repayment is impossible, a taxpayer may pay as much as feasible and seek to discharge the remainder in bankruptcy court, though relief depends on the nature and age of the tax debt.

Tax lien sales and investors

Many local governments sell unpaid property tax liens at public auctions. Investors who buy a tax lien receive the right to collect the unpaid taxes plus interest from the property owner; if unpaid, the investor may ultimately pursue foreclosure depending on local law. Tax lien investing requires understanding local statutes and real estate market risk.

Finding out whether a lien exists

To check for liens:
* Search local or state public records (county recorder, clerk, or attorney general offices).
* Use the IRS’s Automated Lien System for business liens.
* Use private lien-search services if needed.

How long property taxes can go unpaid

Timing varies by state and locality. Property owners commonly have around two years (this varies widely) before tax delinquency can lead to foreclosure; check local rules for exact timelines.

Conclusion

A tax lien is a powerful legal tool that secures unpaid tax debt by attaching to a taxpayer’s assets. It can hinder sales, refinancing, and credit access. Resolving a lien typically requires paying the debt, entering a payment agreement, or using IRS procedures such as discharge, subordination, or withdrawal. In difficult cases, bankruptcy or negotiation with the tax authority may be necessary.