The Internal Revenue Service is charged with collecting taxes on behalf of the federal government. Filers are expected to pay any taxes owed. Failure to do so can lead to the IRS taking legal action against you.
Identification
If you're delinquent on taxes owed to the Internal Revenue Service, the IRS can file a tax lien against you. These liens are reported to the credit bureau and will appear on your credit report as a public record.
Effects
Your credit score is based upon information in your credit report. Once a tax lien is placed on your report, it will drop your score significantly. How much of a drop depends upon the other information contained within your report. Keep in mind that 35 percent of your FICO score reflects how well you pay your bills, including late pays, judgments, bankruptcy and tax liens. A tax lien may also prevent lenders from approving a loan for you.
Misconceptions
According to MyFico, an unpaid tax lien can stay on your credit report indefinitely, depending upon what state you live in. Even if you pay the tax lien, the bureau will not remove it. It will remain there for up to seven years from the date it was paid.
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