Florida Broker Practice Exam

What type of lien is created when a taxpayer has not paid their income taxes to the government?

1. Judgment lien

2. Income tax lien

3. Mortgage lien

4. Construction lien

The correct answer is: Income tax lien

The correct answer is that an income tax lien is created when a taxpayer fails to pay their income taxes to the government. An income tax lien is a legal claim against an individual's property, which arises when the IRS or state taxing authority files a notice of a tax lien against the taxpayer's assets. This lien serves to secure the government’s interest in the amount owed, essentially acting as a warning to other creditors that the governmental body has a priority claim on the taxpayer's property. Unlike a judgment lien, which is a result of a court decision in a suit against the debtor, an income tax lien is specifically related to unpaid taxes. Mortgage liens are associated with real property and arise when a borrower takes out a loan to purchase a home, while construction liens typically involve contractors or subcontractors who have not been paid for work on a property. Each of these other types of liens is established under different circumstances and serves distinct purposes, highlighting why the income tax lien stands out in relation to unpaid income taxes.