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What is a Tax Lien?

Failure to pay property taxes grants the state or federal government the right to seize property.
A tax lien encumbers property when taxes owed are not paid.
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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 05 September 2014
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A lien is method by which a lender can secure, restrict the use of, or encumber property if debts owed are not paid in a timely fashion. A tax lien is the government’s right to encumber property when taxes owed are not paid. This is slightly different than a tax levy, where the government seizes property and can sell it to pay back taxes. Tax liens are the right for a government to seize property and notification of this right, but the levy refers to actual seizing of property.

Though you may often hear of a tax lien in connection with unpaid taxes on property, organizations like the US Internal Revenue Service (IRS) can also use a lien as the beginning process in collecting unpaid income taxes, as can most state tax boards. Essentially the lien can exist against any “present or future property” including income you make. The existence of a lien against present or future property may result, if the taxes remain unpaid, in seizure of any and all assets to recover the tax. Most often though, a tax lien in connection with income tax results only in seizure of income via garnishment of future wages.

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When people fail to pay needed taxes on property, they essentially grant the right for a state or federal government to seize that property, especially in the US. Under tax laws in different countries, a lien may only mean a government has the right to hold the property until taxes are paid, or most hold the property for a specific period of time before selling it, so that the person owing taxes has an opportunity to make money to pay those taxes. It’s important to note that if selling the property doesn’t result in full payment of the lien, the government can seize other property not associated with the item for which taxes are unpaid, or resort to things like seizure of assets and wage garnishment.

When you acquire property, it’s important to find out if the property has any liens against it. As a new owner, you may be held responsible for meeting these unpaid taxes. When people sell property with a lien on it, they may also sign release of the lien forms, which means the new owner will assume the responsibility of paying back taxes. Purchasing property can require the assistance of a good real estate agent or accountant so you can make sure you satisfy any tax liens existing against the property.

If a person owes money to several creditors or several state agencies, the law is not always clear on whether back taxes are the first things a person must pay. Organizations like the IRS do something called “perfecting” a tax lien, in order to establish priority over other creditors, though this doesn’t always work. Filing a Notice of Federal Tax Lien (NFTL) with local or state governments perfects the lien. The IRS has a strong interest in perfecting a lien first so they can be among the first paid through seizure or sale of property.

Tax liens do affect credit, and failure to pay them can result in serious downgrading of your credit score. When you can pay back taxes, liens are “released,” and cannot further affect your credit. Depending upon the amount of the lien, and your ability to pay it, it may help to consult a good tax attorney to help you create a reasonable offer of monthly payments that will allow you to retain possession of your property. In fact, you should address the issue of owing taxes you cannot pay early, before a tax lien is created or perfected, so that you can make payment arrangements with the agency issuing the lien, instead of waiting for lien and then levy to occur.

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Discuss this Article

anon935858
Post 15

I recently was notified of an IRS tax lien for back taxes my ex was supposed to pay. Are the liens posted in newspapers for the public to see like you see unpaid property taxes posted?

anon355197
Post 14

Any document presented to a clerk of the court which pertains to the internal revenue laws must be signed by the appropriate officer under penalties of perjury. See section 6065 of 26 U.S.C. concerning any other document made under the internal revenue laws.

A "notice of federal tax lien" from the government is just a mere notice a federal lien might be in place. If it does not meet the requirement of the Uniform Federal Lien Registration Act (which requires the notice to be "certified" by the Secretary or his delegate) or section 6065 of 26 U.S.C. (which requires a written declaration of under penalties of perjury) amongst other requirements not mentioned here.

All "notices of federal tax liens" sent to Clerks of the Circuit Courts in the counties of the several states are invalid, because the "lien" of 26 U.S.C. section 6321, requires a "implementing regulation", and that regulation only provides authority for unpaid alcohol, tobacco and firearms taxes. There is no implementing regulation for unpaid income taxes via a notice of federal tax lien. Want proof? See Parallel Table of Authorities, Government Printing Office Access website.

Why do you suppose tax lawyers in litigation fail to note the implementing regulation for a federal lien to protect their clients? Where is due process of law? Subtitle A of 26 U.S.C. (income tax subtitle) has no section of the 1,563 code sections, making anyone "made liable" for the income tax. Section 6001 and 6011 of 26 U.S.C. is clear about the liability requirement but fails to identify where such liability exists by statute.

The IRS says that the income tax is collected from you by "voluntary compliance", an oxymoron. Compliance is a mandatory requirement. Voluntary cannot be a mandatory requirement. However, a provision is made in subtitle C of 26 U.S.C. at section 3402(p), where a employee of the Federal Government can make a voluntary agreement with his employer to withhold tax on certain Federal payments. If he/she makes the agreement, it then makes the employee "liable" for the tax. The same employee can terminate the agreement at any time and can end payment by claiming no liability for payment of tax at section 3402(n).

No lawyer who has ever read my comments has refuted the law as presented, because they can't come up with applicable law that would otherwise refute the claim.

Knowledge is power! A note to remember is never take the IRS to federal court over a tax issue, because federal courts are only for federal crimes committed. If the IRS takes you to federal court, then it has to be an Article III Court, or otherwise you will lose your case in defense.

anon337582
Post 13

Great description of a tax lien here and I'm glad to see that it's not being confused with a tax levy. These are two entirely different weapons in the IRS arsenal. The only real similarity between the two is the negative impact they both have on a person's credit score.

Again, great job and thanks.

anon329245
Post 12

All notices of federal tax liens for unpaid income taxes are unlawful. Why? Because every federal statute requires a "Regulation" from which the statute gets authority. The lien of section 6321 title 26 is controlled by title 27 Code of Federal Regulations Part 70 section 141. This fact can be seen as proof by looking in the Parallel Table of Authorities, Government Printing Office Access website.

The IRS can be prosecuted for filing a false document with the clerks of the circuit county courts in the several states, namely the notice of federal tax lien for unpaid income taxes.

All federal documents made under the provisions of the internal revenue laws must have a written declaration of under the penalties of perjury, and the IRS NFTL does not have it.

The NFTL filed by the IRS also fails to meet the requirement of the Uniform Federal Lien Registration Act, which requires the notice to be certified, which it is not. Knowledge is power and can set your mind at ease when such unlawful activities are being enforced upon you.

JustinC23
Post 11

I was very motivated to purchase a property and through the title search found out the seller has a federal tax lien against him. The bank would not give me a loan for that reason. The property is in his wife's name currently, but was previously in his name.

If I purchase this with cash, am I taking a chance on the government seizing this property? It is a small piece of raw land without any buildings or houses. The assessed value is around 11K and the sale price is for 10K.

bananas
Post 9

Buying tax liens can be risky, actually money can be lost. Like any investment, nothing is full proof.

Especially if there is a premium paid while buying tax lien certificates, and the debt is paid in a relatively short time, the investor can incur loses.

legalbear
Post 8

jerryan: It's very limited as to getting help here. They won't let me leave a phone number, web page, or even direct you respecting a search in the search engines. You're going to have to use some ingenuity to get in touch with me. I will say I use my login name a lot on the internet.

anon77481
Post 7

get a U.S citizenship first

anon53504
Post 6

I am not a resident in US. Please advise me on what l need to have in order to invest in a Tax Lien.

anon43271
Post 5

I am considering buying online the contents of a business which has several tax liens on the company. Can that owner legally sell those items to me, if there are liens on the company?

legalbear
Post 4

The US Supreme Court has said that when your property rights are involved the IRS must follow their internal procedures "with precision". Congress has made extremely difficult for the IRS to get it right.

tonyanguiano
Post 2

I've recently gotten help with understanding how Tax Liens work. I've even bought tax liens in the past and it's been hit and miss.

Getting Tax Liens can be really easy and safe when you know how the strategies work. Of course the "Late Night Gurus" make it seem easy and quick but when we try it's not so easy and quick. Tax Liens like any other investment have their pitfalls. However with any strategy pitfalls they're easily avoided when you research the properties in depth. I've personally tried a couple different strategies, website and yes, a few "Late Night TV Gurus."~Tony

jerryyan
Post 1

I suddenly know that I have a tax lien with US IRS. I have no idea why I have it.

I have paid taxes every year. I have never received notices or letters from IRS that I owed its taxes. How come I have a lein in court? Thank you for advice.

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