Tax fraud broadly encompasses all attempts by a taxpayer or entity to falsify information on a tax return or other document in order to reduce their tax liability. This can take the form of wrongly calculating the value of assets, using deductions and credits, or blatantly not reporting income.
Tax liability is the total amount of tax that a taxpayer is legally obligated to pay to a government.
[Last reviewed in August of 2025 by the Wex Definitions Team]
A tax lien is a lien acquired by court order that gives the government a security interest in property because of a failure to pay assessed taxes. If the property is mortgaged a tax lien will take precedence over the mortgage.
Tax lien notice, often used in the context of federal tax, refers to a document released by Internal Revenue Service (IRS) in public records to notify a taxpayer that they risk losing their assets and alert creditors that the IRS has a claim against the taxpayer’s assets.
Tax optimization consists of reducing tax liability by complying with current tax laws and using regulations to the taxpayer’s advantage. Taxpayers use legal tax mechanisms provided by the state to lower their tax burden.
Tax registration certificate is a required document for businesses and certain entities to have in order to conduct their activities in a jurisdiction. The tax registration certificate is often a part of or issued alongside a business license. The certificate serves the purpose of confirming the business has been registered for tax purposes and can file its own tax return.
Tax returns must be filed annually with tax agencies and include critical information regarding taxable income, claimed deductions, and claimed tax credits, which ends with their tax liability.
Tax sale is the forced auctioning of property or liens on property owned by a taxpayer with back taxes. A tax sale generally is a last resort method for the Internal Revenue Service (IRS), state, or local tax agency to reclaim unpaid taxes, and they occur long after a taxpayer falls behind on tax payments.
A tax shelter is a financial method or investment scheme that is created primarily to reduce or delay a person’s or businesses taxable income or tax liability. Common tax shelters include retirement accounts like a 401k, which allows an individual to defer taxes until they withdraw that income from their accounts.
