A tax lien is a legal claim a government entity places on a person’s or business’s property when taxes go unpaid. This claim secures the debt owed to the government. The specifics of tax liens in Texas, how they function, and what they mean for residents are the focus of this guide.
Types of Tax Liens Affecting Texans
Texans can be subject to several distinct types of tax liens, each from a different government authority. The most encompassing is the federal tax lien, which the Internal Revenue Service (IRS) imposes for overdue federal taxes like income or employment taxes. To make this lien public and notify other creditors, the IRS files a document known as a Notice of Federal Tax Lien.1U.S. Code | US Law | LII / Legal Information Institute. U.S. Code § 6323 – Validity and Priority Against Certain Persons
At the state level, the Texas Comptroller of Public Accounts is responsible for collecting state taxes, including sales and franchise taxes. If a business or individual fails to pay these, the Comptroller can place a state tax lien on the taxpayer’s property, formalized through a public filing.2Texas Legislature. Texas Tax Code Chapter 113 – Tax Liens
Finally, local governments in Texas use property taxes, and when a property owner does not pay, a lien automatically attaches to the specific property in question.3FindLaw. Texas Tax Code § 32.01 – Tax Lien This process is established by the Texas Tax Code.
What Texas Property Can a Tax Lien Attach To
A tax lien in Texas can extend to both real and personal property. Real property includes land and any structures permanently affixed to it, such as homes and commercial buildings. A lien on real property can prevent its sale or refinancing until the tax debt is settled.
A tax lien can also attach to personal property, which includes movable assets like vehicles, bank accounts, business equipment, inventory, and accounts receivable.
Texas law provides significant homestead protections, which shield a homeowner’s primary residence from many types of creditors. However, these protections have specific limitations when it comes to tax debts. Both federal IRS tax liens and local property tax liens can attach to and even force the sale of a Texas homestead.4Texas Legislature. The Texas Constitution Article 16, Section 50 – Protection of Homestead
How Tax Liens Are Established in Texas
The creation of a tax lien follows a defined legal process. For the IRS to establish a federal tax lien, it must first assess the tax liability and send a “Notice and Demand for Payment” to the taxpayer.5U.S. Code | US Law | LII / Legal Information Institute. U.S. Code § 6303 – Notice and Demand for Tax If the debt remains unpaid after this demand, the IRS then files its Notice of Federal Tax Lien in the relevant county’s public records.
The Texas Comptroller follows a similar path for state-level taxes. After the tax is assessed and the taxpayer is notified, failure to pay allows the Comptroller to file a state tax lien. This notice is filed with the county clerk where the taxpayer resides or owns property, and for business assets, it may also be filed with the Texas Secretary of State.
Local property tax liens are unique because they attach automatically on January 1st of each year for the taxes owed for that year. This lien becomes enforceable through legal action if the taxes become delinquent.
Consequences of Having a Tax Lien in Texas
Although tax liens are no longer included on consumer credit reports, they remain public records. Lenders often conduct public record searches and may deny credit or offer less favorable terms if they discover a lien.
A lien also restricts the ability to manage property. It acts as a cloud on the title of real estate, meaning the property cannot be sold or refinanced until the lien is paid and officially released.
The most serious consequence is the potential for the taxing authority to enforce the lien by seizing assets. The IRS has broad powers to levy bank accounts and garnish wages. For local property tax liens, the taxing units can initiate a lawsuit to foreclose on the property, leading to a forced sale.6Texas Legislature. Texas Tax Code Chapter 34 – Tax Sales and Redemption
For businesses, a tax lien can damage the company’s credit profile, making it difficult to secure financing. Suppliers and partners may also view the business as a credit risk, potentially altering trade terms.
Discovering Existing Tax Liens in Texas
Since most liens are public records, they can be found by searching official databases. For liens on real estate, including federal, state, and local property tax liens, the primary source is the county clerk’s office in the county where the property is located. These records are often searchable online.
For certain types of liens related to business assets or personal property, the Texas Secretary of State’s office maintains a central database where state and some federal liens are recorded.
To check specifically for federal tax liens, individuals can request their tax account transcript directly from the IRS. The IRS also sends a copy of the Notice of Federal Tax Lien to the taxpayer’s last known address when it is filed.
Resolving Tax Liens in Texas
The most direct method to resolve a tax lien is to pay the underlying tax debt in full. Once the liability is satisfied, the taxing authority will issue a Certificate of Release of Lien. This document should be filed in the same public records where the original lien was recorded to clear the title to the property. You can obtain a final payoff amount by contacting the relevant agency.
If immediate full payment is not feasible, taxpayers can arrange an installment agreement. This involves making regular monthly payments over time. To apply for an agreement with the IRS, taxpayers use Form 9465, and the Texas Comptroller also has a process for establishing payment plans for state taxes.
An Offer in Compromise (OIC) allows certain taxpayers to resolve their tax liability for a lower amount than what they originally owed. This option is available from both the IRS and the Texas Comptroller but is subject to strict eligibility criteria, such as doubt as to collectibility. The application, IRS Form 656, requires extensive documentation of your financial situation to prove you cannot pay the full amount.
In some situations, a taxpayer may need to sell or refinance a specific asset but cannot pay the full tax debt. They can apply for a lien discharge, which removes the lien from that particular piece of property, though the debt remains. Another option is lien subordination, which allows a new creditor to take priority over the tax lien, often necessary for refinancing. Finally, an IRS lien withdrawal, requested using Form 12277, removes the public notice if it was filed improperly or if the taxpayer has entered a payment plan.7U.S. Code | US Law | LII / Legal Information Institute. U.S. Code § 6325 – Release of Lien or Discharge of Property