Congress is considering allowing the Internal Revenue Service to report on taxpayers’ tax debts to consumer credit bureaus.
The Government Accountability Office provided a report Wednesday to Senate Finance Committee chairman Max Baucus, D-Mont., and Senate Judiciary Committee ranking member Charles Grassley, R-Iowa., on the factors for considering a congressional proposal to report tax debts to credit bureaus. The report noted that millions of individual and business taxpayers owe billions of dollars in unpaid federal tax debts—$373 billion as of the end of fiscal year 2011, including $258 billion in individual debt and $115 billion in business debt—and the IRS expends substantial resources trying to collect these debts.
Unlike many other debts owed to the federal government, tax debts are not directly reported to the credit bureaus that collect and sell information about the credit history of individuals and businesses. The IRS is not allowed to directly report tax debt information to credit bureaus because long-standing federal law protects the privacy of any personally identifiable information reported to or developed by the IRS. The IRS is, however, allowed to file tax liens on some tax debts. Tax liens become part of the public record, which can be picked up by credit bureaus and included in the credit history information they compile
Among the potential reasons for directly reporting tax debt information to credit bureaus are the possibility that it could increase revenue by encouraging tax debtors to pay off their debts and the possibility that it could give the users of credit bureau information a more complete picture of the indebtedness of tax debtors. A proposal could conceivably encompass all tax debts or specify types of tax debts for such reporting. “However, the tradeoffs that directly reporting tax debts to credits bureaus would entail are not well understood, and you asked us to provide information about such tradeoffs by applying our recently published guide for assessing proposals to authorize disclosures of tax information,” said the GAO.
How much of this debt would be suitable to report to credit bureaus could depend on the purpose of the reporting proposal, such as to collect more debts or simply to inform other potential creditors of the existence of tax debts, the GAO noted. Most debts are relatively small in size. Well over half of individuals and businesses with tax debts owed less than $5,000.
However, much of the aggregate debt is concentrated among those owing relatively large amounts. Debts over $25,000 add up to a total of $310 billion. Some debts were in the collection process, where the IRS notifies the taxpayer of the debt, and were subject to dispute by the taxpayer, while other debts were covered by installment agreements. Approximately $60 billion of the debts owed were in these two categories. About $110 billion of the total debt was classified by IRS as uncollectable. IRS files tax liens on some tax debts and these liens are public records that credit bureaus routinely pick up and add to their data. Over half of the total amount owed was subject to liens, cutting across the above categories.
Subject matter experts consulted by the GAO commented that issues surrounding data accuracy, alternatives, and the expected benefits would be among the important factors that Congress might wish to consider in regards to any possible future proposal to report tax debts to credit bureaus.
“One key factor discussed was the need to ensure that any reported tax debt data is accurate and current as this would be important to both credit bureaus and the affected taxpayers, who could be denied credit, employment, or housing based on inaccurate negative information in their credit histories,” said the GAO.
Several subject matter specialists who the GAO spoke to said that it would be important to consider the IRS’s current use of tax liens, which are already known to credit bureaus, as an alternative to reporting debts directly. Another important consideration would be the expected benefits of direct tax debt reporting. These experts suggested that such reporting could yield benefits such as increased revenue collected or reduced tax debt inventory.
However, the National Taxpayer Advocate cautioned that such reporting could cause some taxpayers to choose not to file or file inaccurately if they know they owe money to the IRS.
12 Comments
Are they going to report members of the Govenment? There are over 350,000 of them, from Geithner to IRS employees themselves?
Posted by: BRES | October 12, 2012 10:50 AM
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The comments already posted are not only insightful and thoughtful but also revealing about the desperate situation facing the Federal government over its failure to allow the Bush tax cuts of 2001 to expire in 2010 which will add 2 trillion dollars to the national deficit over next 10 years (2010 to 2020) according to GAO. These "gimmicks" to deal with the problem actually create new and more perplexing problems as noted in the earlier comments and really do very little to generate significant revenues needed to make up for the lost revenues from the failure to allow the Bush tax cuts to expire. Of course, since the Presidential election and Congressional races for re-elections are "front & center", then the timing of this proposed revenue enhancement has the "smell" of campaign politics as well. Shame on all of our government officials including the IRS Commissioner and his leadership team that is willing to go along with this "charade" of making progress towards reducing the national deficit.
Posted by: DukeUgrad | October 11, 2012 2:10 PM
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Seems everyone is blaming the IRS for their mistakes caused by under staffing, in turn caused by the very Congress that these same people, Accounts, vote for.
Accounts seem to like bottom line policies, so vote for those who reduce expenditures, then complain when the IRS is included in the reduced expenditure request. Hypocrites all!
Posted by: tego@verizon.net | October 11, 2012 12:43 PM
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IRS and credit are already working together. Once a lien is filed the taxpayer will take a hit on their FICO score so what is the difference? Its already happening and I have several clients who have experienced the hit on the FICO. This has impeded their ability to qualify for a home so its real and its here.
Posted by: lavalos | October 11, 2012 11:39 AM
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I would not be against the policy if the IRS could get their act together. At what stage are they going to report information to the credit bureaus. Until they can have a comprehensive policy to put before the people and congress to review before enacting the policy it should not be allowed. They make too many mistakes on my clients for me to feel comfortable with this. For example, they issued the guidelines on how the BP Oil settlements were to be handled and then my self-employed clients get letters stating they did not report the income. I sent the IRS a copy of their instructions to settle the claim that this income was not reported. If they can not follow their own rules, I do not feel comfortable with them having the ability to report anything to the credit bureau.
Posted by: taxpath | October 11, 2012 10:32 AM
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IRS should not be allowed to report to the credit bureaus. They are so understaffed right now that they cannot even accurately tell a taxpayer what his or her debt balance is. They do not remove liens when taxes are paid. The Finance Committee should be looking into the poor job IRS is doing in serving the tax paying public and not giving them more opportunities to do an even worse job.
Posted by: Taxlady@62 | October 11, 2012 10:22 AM
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Will the reporting to the credit bureaus include reporting of elected officials or will they exempt themselves?
Posted by: jakob49h | October 11, 2012 9:54 AM
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Will the reporting to the credit bureaus include reporting of elected officials or will they exempt themselves?
Posted by: jakob49h | October 11, 2012 9:54 AM
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1. What a field day the collection agencies will have with this one.
2. Congress has cut the IRS budget so thin that it is forced to go outside, like the credit agencies to collect funds.
3. With folks retiring within the agency in large numbers in the coming years, the IRS and Congress have to take a serious review of hiring more RO's/RA's to do more collection activity instead of farming out that part of the business.
4. What a confidentiality issue. Ya like the other commenter said: Credit bureaus and IRS working together...typical pass the buck instead of just getting in the trenches and doing what the agency is suppose to do...
It's all out of control.
Posted by: HootSparky | October 11, 2012 9:06 AM
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why do you complicate life any people so severely? these debtors do not understand the system of taxation in general?
Posted by: nmindyuk | October 11, 2012 9:02 AM
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Credit bureaus & IRS working together? A dangerous combination.
Posted by: nraacct | October 11, 2012 7:29 AM
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As horrible as the IRS is in terms of accuracy and the ability to timely process anything, letting them report to credit agancies would be a REALLY bad idea. Inaccurate information would never get removed.
Posted by: fstitely | October 11, 2012 7:25 AM
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