Tax liens are a useful resource for conducting public records research on a potential business partner, company or a political figure. For the potential investor, a tax lien can serve as a warning sign of deeper underlying financial problems. Additionally, many forms of tax liens qualify as secured creditors in bankruptcy proceedings, meaning paying the lien will take precedence over an investor's claim if the company were to seek Bankruptcy Court protection. For political figures, the existence of a tax lien can make them vulnerable to arguments that they are not meeting their civic obligations and are hurting the institutions funded by the unpaid taxes; such as schools, police or fire departments. A tax lien is filed against an individual or business to secure the payment of outstanding tax obligations; including property, income and business taxes. All levels of government, from the city to the federal government file claims in the form of a tax lien.
Tax liens are filed in the county where the property or business upon which the lien is placed is located. A search of the County Recorder or County Clerk's records will identify most tax liens, although some states also record federal tax liens with the Secretary of State. The second part of any lien is the Release or Satisfaction, which is filed once the debt has been paid. If no Release or Satisfaction has been filed, the lien may still be open and the debtor still liable to pay back the lien amount plus incurred interest or penalties. Keep in mind that not all tax liens that are filed are correct and that, in certain instances, a document might be filed indicating that a lien was filed in error, that is that no outstanding obligation was owed.
Tax liens that are filed against immovable property are attached to the property until the lien is satisfied. So, if a tax lien exists against a specific parcel of land and that land is sold to a new owner, the new owner assumes the responsibility for the lien. This is one of the reasons mortgage companies require a title search and title insurance before approving financing on a home purchase.
Federal Tax Liens
A federal tax lien is filed by the Internal Revenue Service after a party refuses to provide payment as demanded by the IRS; most commonly the demanded payment will relate to federal income, employment or business taxes. The IRS lists the reason for the lien under the Kind of Tax column, with the most common reason listed as 1040 (personal income taxes). The lien is a means for the IRS to publicly claim rights to all property owned by the debtor, including houses and cars, and is also applied to property purchased after the lien was placed.
Once a federal tax lien is filed, the lien will remain for a period of 10 years unless the debt is paid off or an agreement is reached between the debtor and the IRS. Once the debt is satisfied, the IRS will file a Release of Federal Tax Lien with the office where the original lien was filed. If no Release of Federal Tax Lien has been filed, the lien is still in place and a debt is owed.
For more information on federal tax liens, click here.
State Tax Liens
Like federal tax liens, a state tax lien can be filed against a subject for failure to pay personal, business or employment taxes. Where state tax liens differ is that they can be levied by multiple divisions of the state government, each of which has different taxing powers. In California, for instance, a state tax lien can be placed by the Employment Development Department for failure to pay into the unemployment insurance pool, the Board of Equalization for unpaid sales taxes or the Franchise Tax Board for unpaid income taxes.
County Tax Liens
County tax liens are most often filed when a subject fails to pay property taxes. County tax liens can be placed against secured property (land and immovable structures such as a home) or against unsecured property (computers, cars & boats), allowing the county to claim possession of that property or sell the lien to an investor who can than begin foreclosure procedures if the lien is not paid within a specified amount of time (this varies by county).
As property taxes are a major funding source for schools in most locations, political figures are particularly vulnerable when they fail to pay their property taxes.
Municipal Tax Liens
Municipal tax liens can be placed against a subject for a variety of possible reasons, ranging from unpaid utility taxes to unpaid property taxes depending on the jurisdiction. Utility liens often times list the names of multiple debtors, and for this reason the lien documents can be several dozen pages or longer.