Tax Lien

What is a 'Tax Lien'

A tax lien is a legal claim by a government entity against a noncompliant taxpayer's assets. Tax liens are a last resort to force an individual or business to pay back taxes. To get rid of a lien, the taxpayer must pay what he or she owes, get the debt dismissed in bankruptcy court or reach an offer in compromise with the tax authorities. Federal and state governments may place tax liens for unpaid federal or state income taxes, while local governments may place tax liens for unpaid local income or property taxes.

BREAKING DOWN 'Tax Lien'

If the taxes remain unpaid, the tax authority can then use a tax levy to legally seize the taxpayer's assets (such as bank accounts, investment accounts, automobiles and real property) in order to collect the money it is owed. Tax liens are publicly recorded and may be reported to credit agencies. These two features of tax liens effectively prevent the sale or refinancing of assets to which liens have been attached, and prevent the delinquent taxpayer from borrowing money.

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RELATED FAQS
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    Find out the best way to prevent the government from placing a lien on your property, including the consequences of having ... Read Answer >>
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    Find out about the steps an investor must take to invest in tax liens, along with the potential benefits of doing so. Read Answer >>
  3. Does the IRS report to credit bureaus?

    Understand the relationship between the IRS and the various major credit bureaus. Learn how credit bureaus find out about ... Read Answer >>
  4. What types of liens are seen as good and which are bad for my credit?

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