Lien on Me: Tax Liens 101

Tax Leins and what you need to know

When you fail to pay your taxes, you’re going to have to face repercussions. Not only will you have to pay interest and penalties on the balance that you owe, but you will also have to deal with the IRS enforcing collection actions in the form of tax liens. If you are worried about this because you have unpaid tax bills, then it is vital that you understand everything there is to know about tax liens, including how to resolve it. Luckily, Tax Deed Investors have answers for any questions you may have about tax liens.

What is a Tax Lien?

If you have a tax delinquency, such as failing to pay income tax or property tax, the U.S. Internal Revenue Service (IRS) or your state’s revenue agency can issue liens against your assets. A tax lien is the government’s legal claim against your property.

Tax liens are issued when you fail to fully pay the debt on time after the IRS assesses your liability and sends you a bill that explains how much you owe. The IRS then files a public document – the Notice of Federal Tax Lien – to alert creditors that there is a lien on your property.

Liens are a last resort action to force someone to pay their back taxes. The taxing authority will keep a lien on the property until the debt is paid. A property with a tax lien on it cannot be sold by the owner.

Tax Liens and Levy

What is the Difference between a Tax Lien and a Levy?

A tax lien is different from a tax levy. A levy is the government’s legal seizure of your property to satisfy a tax debt. With a levy, your property is immediately taken by the government. Meanwhile, a lien is just a legal claim on your property. It secures the government’s interest in your property.

Since the Notice of Federal Tax Lien is a public document, credit reporting agencies may find it and include it in your credit report. If you fail to pay a tax lien, it will negatively affect your credit score. An IRS levy, meanwhile, is not a public record and shouldn’t affect your credit report.

What is Tax Lien Investing?

Tax liens can be bought by individual investors as an investment. This is called tax lien investing. Since interest can be earned in tax liens, the investor can get a lot of money on it. When a property is redeemed, then the investor would get back their invested money plus the interest due. If the property is not redeemed, then they would be in the first position to own the property once other taxes or fees are paid.

How Do You Resolve a Tax Lien?

The only way to fully resolve a tax lien is by paying your debt. Your lien will be released within 30 days after the IRS receives payment.

A tax lien can affect you in a number of ways, from attaching to all of your assets to limiting your ability to get credit. To avoid the headache of tax liens, you should file and pay all of your taxes in full and on time.