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.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.
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.
If you Owe the IRS Back Taxes, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).
The IRS already files Notices of Federal Tax Lien very aggressively. Until recently, IRS did so in nearly every case where the taxpayer owed more than $5,000. As the Advocate has pointed out in her reports, public notice of the tax debt often hinders collection rather than enhancing it. The IRS revised its lien policy to be more flexible and this proposal would be a step backwards not forwards. Tax debt is not like credit card debt--and should not be treated the same. There are often incorrect, and the recent slew of identity theft cases have made that even more possible. The potential financial damage to folks is far more of a problem than the potential missed revenue (questionable to begin with) by failure to report the data, especially since filed liens already show up on credit reports.ReplyDelete
This proposal would create more work for IRS personnel at a time when IRS resources are needed for customer service and other needs, including implementation and administration of constantly changing tax laws.
Posted by Liz Atkinson
David Ronquillo, E.A.ReplyDelete
I would expect severe opposition from the NTA regardless of how much additional revenue would be brought in.
william garofalo • The secrecy of taxpayer data has long been a given in the tax world. The IRS has twisted itself in knots over such mundane issues as emailing taxpayer data to the taxpayer. Tax data cannot be given to federal authorities in a nontax criminal case without a court order except under very limited circumstances. And now the IRS would be handing over data about alleged debts to credit bureaus? I say "alleged" because IRS assessments are frequently wrong, often disputed, and generally not very reliable.ReplyDelete
I think this is a gross violation of taxpayer privacy. It would give tremendous power to revenue officers who can do damage to a business by blacking its credit rating through an incorrect assessment. And it will lead to many people's credit being damaged by incorrect or disputed assessments.
Who hasn't seen assessments due to incorrect data entries? Or overzealous trust fund investigations? Or heard of assessments due to identity theft? And will anyone be happy depending on the IRS and credit bureaus correcting these mistakes and expunging incorrect data?
Credit bureaus already get publicly filed lien data. That is enough.
This is really a bad idea.
Tom Ellis • Ha.....some slug does not pay his or her just tax debts so us others pay more to offset?ReplyDelete
Seems like this is how our country is going, but it is wrong.
Taxpayer data is not disclosed, just that he or she made an agreement to pay and did not do it. Think the IRS is better than Sears?
Sidney Goldin • This idea is potentially very bad. What happens once the debt is paid off ? How long will it take the IRS to notify the credit bureaus and in turn, the credit bureus to remove from a person's credit report ? Judging from first hand experience in dealing with IRS inefficiency and incompetence this would be a nightmare in a number of cases.ReplyDelete
Martha. I agree but the filing of a Federal Tax Lien is already law and, at least, memorializes an existing debt. Using Credit Agencies opens another door of encroachment. This is just about as bad as using private agencies to collect taxes which the IRS has tried a couple of times already. Don't get me wrong....I pay my taxes, under threat of losing my EA license. Everyone should pay their taxes. We might disagree on the methods but not on the principle.ReplyDelete
Posted by Jerry Slade
IRS has increased the tolerance for filing a Notice of Federal Tax Lien because filing them on low balance accounts proved unproductive by making it harder for taxpayers to pay their bills. This is an administrative decision. Disclosing tax liabilities to credit bureaus on cases where a Notice of Lien was not filed would be just the same undoing the benifits of chaning the filing tolerance but would be done courtesy of Congress.ReplyDelete
Posted by Michael Cash
Mr. Jerry Slade. The IRS already encroaches. Liens that are filed with the County Recorders are picked up by credit agencies anyway. The proposal will only add more computer costs for sending the information to credit agencies directly. .ReplyDelete
Posted by Martha De la chaussee
I would prefer to leave the system as it is. It does take the IRS some time to file the notice of tax lien, and that does give some taxpayers the time needed to solve the problem before it becomes public record. With the Fresh Start Program, some taxpayers who are actively dealing with their problems and who enter a DDIA, can get the liens withdrawn. Even with the lien system as it is, the current impact on credit has caused some of my clients to go out of business. Liens have always been a two edged sword, and have sometimes been counter-productive to collecting the taxes.ReplyDelete
I doubt very much that the direct reporting will have a positive impact on compliance. It does run counter to the Fresh Start Initiative.
For representatives though there may be a bright side. If there is direct reporting, there has to be a mechanism for correcting it. Perhaps that opens another avenue for representation services. (This is tongue in cheek. I don't care much for lien representation and I'm sure I will like this less.)
Posted by A. J. Decaria EA