What Is a Tax Lien?

A tax lien is a type of lien imposed by law on a piece of property. The purpose of the lien is to ensure payment. Tax liens may be imposed due to delinquent taxes on real or personal property, as well as income taxes or other taxes. In other words, a tax lien can occur in connection with any type of tax i.e. tax on income, gifts, estates, etc.

Generally, when one does not pay taxes, a written notice and demand is sent to the individual. The individual then has a ten day period to pay the tax. If the tax is not paid, the tax lien automatically arises. A tax lienís effect is retroactive, meaning it applies to the previous period when the tax was not first paid, notice was sent, and the ten days have elapsed.

For reference, Internal Revenue Code 6321 and 6322 further elaborates on tax liens. Specifically, these two sections respectively describe the definition of a tax lien, and the time period for it. Per Section 6322, the lien continues until it is paid.

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A tax lien applies not only to oneís property rights at the time the lien was assessed, but also to after-acquired property, which is any property the taxpayer owned during the period of the lien.

If two or more creditors have competing liens against the same property, the creditor whose lien was perfected at the earlier time takes priority. In order to perfect, the notice of federal tax lien must be filed with the state or county. The filing of this notice makes the lien public, and therefore able to come to the knowledge of other creditors. Through this, public notice is seen to have been given to third parties.

What is the difference between a tax lien and a tax levy? Tax liens establish the governmentís right to seize property, with a notification of this right being established. With a tax levy, it is defined as the actual seizing of the property.

A tip for those looking to acquire property: check to see if the property has any lien(s) on it already. You can do this by going to the local county office and checking the records. A new owner of property may be held responsible for the lien. Therefore, when buying property, be careful that you are not signing a release of the lien form, where the old owner has relieved him or herself of the lien, and transferred the obligation onto you.


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