Overview

A tax lien is the government’s legal claim against your property when you fail to pay taxes owed. Liens can arise from unpaid federal income taxes, state income taxes, property taxes, or other government debts. They don’t immediately remove ownership, but they create a cloud on title that can block refinances, sales, and reduce credit access (IRS; see Notice of Federal Tax Lien guidance at https://www.irs.gov/businesses/small-businesses-self-employed/notice-of-federal-tax-lien).

How tax liens are placed

  • Notice and demand: The tax authority usually sends a bill or notice demanding payment.
  • Filing the lien: If the tax remains unpaid after statutory notices and demand, the taxing authority may record a lien in public records (county recorder or state office). A federal lien becomes public when the IRS files a Notice of Federal Tax Lien.
  • Effect on property and credit: Once recorded, the lien attaches to current and future property in the jurisdiction and can hinder title transfers, block loans, and appear in public-record searches used by lenders.

For a step-by-step look at the IRS filing and removal process, see our guide: How the IRS Places and Removes Tax Liens: Step-by-Step.

How tax liens are released, withdrawn, or subordinated

  • Full payment: Paying the tax in full typically results in a certificate of release by the taxing authority (release of lien). The IRS and most states will issue written documentation once the debt is satisfied.
  • Withdrawal (federal): The IRS may withdraw a Notice of Federal Tax Lien in limited circumstances (for example, when withdrawal will facilitate collection through an approved installment agreement or because it was filed in error). Withdrawal removes public notice of the lien but does not remove the underlying tax liability (IRS guidance).
  • Subordination: A taxing authority can subordinate a lien to allow another creditor (often a mortgage lender) to take priority for a specific transaction — this helps homeowners refinance despite a lien but does not remove it.

For more on releases and title effects, see: Navigating IRS Tax Liens: Release, Subordination and Effect on Title.

How to challenge or dispute a lien

  • Verify the lien is valid: Confirm the taxpayer named, tax type, period, and amount. Errors in identity, amount, or duplicate filings are common grounds for dispute.
  • Administrative remedies: For federal liens, taxpayers can request a withdrawal, file a collection due process (CDP) appeal, or use IRS forms and procedures to challenge the assessment or lien filing. For state and local liens, follow that jurisdiction’s appeal or tax review process.
  • Seek professional help: Tax attorneys or enrolled agents can file petitions, negotiate releases or offer-in-compromise settlements, and represent taxpayers in appeals or CDP hearings.

Example resources: see our article on How to Challenge a Notice of Federal Tax Lien Effectively.

Real-world examples (professional insight)

In my practice I’ve seen small-business owners miss payroll or sales-tax filings and receive liens that froze bank accounts and blocked loans. One client negotiated an installment agreement and requested an IRS withdrawal so they could refinance—this cleared the public record quickly and preserved access to capital. Early communication with the taxing authority usually produces better outcomes.

Who is affected

  • Homeowners and real property owners (local property tax liens can lead to tax sales or foreclosure).
  • Business owners (state sales and payroll tax liens can attach to business assets).
  • Heirs and buyers: Liens often remain attached and must be cleared or negotiated during sale or transfer.

See our related coverage on how liens affect credit and homeownership: How Tax Liens Affect Your Credit, Home, and Financial Plans.

Practical steps to take if you face a lien

  1. Get the documents: Obtain the recorded lien, the taxing agency’s notices, and the tax assessment details.
  2. Confirm accuracy: Verify the taxpayer identity, amounts, and tax periods.
  3. Contact the agency: Ask about payment plans, withdrawal criteria, subordination, or release procedures.
  4. Negotiate in writing: If you reach an agreement, get a written release or withdrawal timeline.
  5. Use professionals for complex cases: Tax attorneys or enrolled agents can negotiate offers-in-compromise, appeals, or represent you at hearings.

Common mistakes and misconceptions

  • Mistake: Ignoring notices. Fact: Responding quickly preserves appeal rights and negotiation options.
  • Misconception: A lien equals immediate loss of property. Fact: A lien is a claim; sale or foreclosure usually follows additional steps and notices under state law.
  • Mistake: Assuming a withdrawal clears the tax. Fact: Withdrawal removes public notice but not the underlying tax liability.

Frequently asked questions

  • How long does a tax lien last? Duration varies by jurisdiction and type of lien; federal tax liens generally last until the tax is paid or becomes unenforceable under the statute of limitations (see IRS rules).
  • Can I sell property with a tax lien? Yes, but liens usually must be paid or resolved at closing; lenders often require release or subordination before approving loans.

Sources and further reading

Professional disclaimer

This article is educational and does not constitute legal, tax, or financial advice. For advice specific to your situation, consult a qualified tax professional or attorney. In my practice I recommend documenting all communications with tax authorities and getting written confirmations for any releases or withdrawals to protect title and credit.