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Subscribe to RSSHere’s a scary thought, especially if you owe back taxes: What if the Internal Revenue Service reported your payment history to the big national credit bureaus?
Unlike many other debts owed to the federal government, unpaid taxes are not reported to credit bureaus. The IRS is not allowed to directly share this information because of federal privacy laws.
Of course, Congress could always change the law to allow the IRS to directly report all delinquencies to the credit bureaus. No one has proposed making this change, but last year the Senate Finance Committee did ask the General Accounting Office to look at the issue.
The GAO did not make any recommendations in its report released in October, but it did list arguments for and against the idea. It also provided some hard numbers about the staggering amount of money owed to the federal treasury in unpaid taxes.
As of October 2011, about $343 billion was owed in unpaid federal tax debts. That’s more than the federal deficit of $207 billion for the 2012 budget year. Most of the outstanding debts are relatively small –less than $5,000.
Some tax information does make it to the credit bureaus. When the IRS files a tax lien to collect back taxes, that information is public record and can be picked up by credit reporting agencies. The GAO found that liens have been filed for more than half of all the dollars owed in tax debts.
Why change the current system?
Simply put: the possibility of more revenue.
If this information were reported to the credit bureaus it would have an effect on credit scores and that might change behavior. Some people might be encouraged to pay their taxes on time or pay off existing debts to improve their credit scores.
It might also provide another way to enforce the tax code. Anyone who owed more than a certain amount of back taxes could be barred from receiving certain benefits, such as government contracts, grants or loans.
Would this really make a difference? According to the GAO report there’s no way to be sure.
“Some taxpayers have agreed to installment agreements, so reporting their debts many not influence their willingness to pay because they are already making payments. IRS classifies other debts as uncollectible, and reporting those debts many not make the debts any more collectible.”
There’s also the belief that providing tax payment history to credit bureaus would give potential lenders a more complete – and possibly more accurate – picture of the person or business applying for credit.
Under the current system, the credit reporting agencies know the dollar amount of a tax debt when a lien is filed. They don’t know if the debt grows because of penalties and interest. They don’t know when it’s reduced as the amount owed is paid down.
Direct reporting, supporters say, would provide more current information which would give the taxpayer an incentive to pay off the debt because the declining balance would improve their credit history.
The GAO did offer this caution: reporting tax payment information on an ongoing basis could increase the risk that negative information shows up in a person’s credit file twice.
Would it really make a difference?
The General Accounting Office did not come to a conclusion on that.
It noted that such a system could cost the IRS money because it would have to handle transmission of information to the credit bureaus and deal with taxpayer inquiries and disputes.
“Taxpayers would be forced to either dispute the inaccurate information to have it corrected or face possible serious consequences such as denial of credit, employment, or housing due to the inaccurate negative information on their credit histories. IRS would incur additional costs as it would have to respond to related inquiries and disputes.”
The GAO report also included a caution from the National Taxpayer Advocate that full reporting could result in some people choosing not to file tax returns – or to file inaccurately – if they know they owe money to the IRS.
The credit reporting industry hasn’t taken a position on this idea. And since nothing has been proposed, consumer groups haven’t really focused on the issue.
Chi Chi Wu, staff attorney for the National Consumer Law Center said her main concern was the potential harm that could be caused by reporting errors.
“Would tax debts show up in the wrong credit reports?” she asked. “I’d be concerned that adding a whole new batch of data would increase the number of errors credit bureaus make and how difficult it can be to get them fixed.”
Wu noted that American taxpayers share some very private and confidential information with the IRS and in return Congress prohibits the IRS from sharing that information.
“If that bargain is going to be changed,” Wu said, “we want to think long and hard about why and how it would be changed.”
Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.
Herb will be a guest on the Jim Bohannon Radio show Tuesday night (Feb. 26) talking about current consumer issues. Listen live at 11 pm Eastern. Here’s how to find a radio station in your area.
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No... Because they have far more power than the typical creditor. They can take the money straight out of your bank account. They can garnish your wages without a court ordered writ of garnishment. If they want to become a normal creditor and give up those capabilities, then sure.
I agree, to an extent, however IF these leeches at the credit bureaus were to be held responsible for the accuracy of the data the hold and release to anyone who will pay their fees. i.e if its wrong they issue an apology to the person has been liabled, and pay the victim (say) $1000/day the misinformation was out there, and issue a retraction to everyone who inquired about the liabled individual.then fine.
If not then Do not release this information.
Yes - a dead beat is a dead beat. Report it all. Child support, Alimony, taxes, etc, etc. Your past conduct is a good indicator of your future conduct.
Don't you think it should be determined by a case-by-case situation - which the IRS doesn't have the employees to complete - which means they should keep their mouth shut. People have lost jobs - lost homes - lost retirement accounts - lost thousands in stocks - lost health care - etc., etc., - not paying your taxes to Uncle Sam might just be a cause-and-effect situation and, really, do we need to kick them when they are down?
I prepare taxes professionally. I think it's a horrible idea, and here's why: You have no idea how easy it is to run afoul of IRS. Lose your job, lose your home, and not have enough money to pay your taxes AND feed your family, and which one will you choose? But you'll still owe IRS--this is a debt that almost never goes away, even in bankruptcy. If you still have some kind of credit left, having IRS ding your score could put you completely into poverty. The idea that it will somehow be an incentive for people to pay their taxes is wrong thinking. "Oh, I better not buy groceries for the kids--don't want IRS to hurt my credit score!" Yeah, that will work.
Tax evaders should be punished. People who get into tax trouble through circumstances beyond their control should consult a tax lawyer, CPA, or Enrolled Agent to see what needs to be done. There are ways to settle these debts.
I do not advise anyone to call those companies that advertise on TV--they will just take even more of whatever few dollars you have left with little result.
Needless to say, this is a lot of money and most of it will never be collected simply because government choses to ignore or find excuses for not doing what's necessary and available to collect it.
One can only imagine the problems that will arise in Obama Care.
25% of all credit reports ALREADY contain errors, now we want to add more teeth to these already quasi legal gestapo agents.
Anybody voting yes on this, I wish you the best 30 second, indian villager dispute case review you deserve.
Might be the only way to get members of congress to pay their taxes.
Anybody who thinks it's a good idea to give the government one more way to screw the population over is a fool. Hell no, as a matter of fact, let's just get rid of the IRS completely and go with a national sales tax.
No for 2 reasons...
1. Reporting them would simply make it harder for a person to pay the money back. Talk about self defeating.
2. Because the IRS is not always right and getting them to correct a mistake like that would likely take years.
The credit agencies might get confused by having some accurate data.
Yes..deadbeats costs us all money...better they be hassled than making the rest of us pay for their theft...
You cannot beat a dead horse. I hope they still beat you when your down, heartless.
So what happens when the IRS makes a mistake and lists YOU as past due? Enjoy the bad credit for the 3-10 years it takes to get them to correct it.
It's a horrible idea!!! The 3 credit bureaus are extremely inaccurate and inefficient, and even then hold the power to bar you from driving a car, being employed and even rent an apartment.
Not to mention that when you owe taxes, federal or state, a tax lien will surely appear on all three credit reports. So it's already done. Allow me to cite my own personal horror story. My name is the same as my father's, with the exception of mine having Jr. at the end. My credit has always been ok, until Experian decided to include all of my dad's bad credit history into my file, due to the name similarity. My dad lost his business and home when the recession hit, hence the bad credit. I've so far spent about a year and hard earned money trying to fix the mix up, with mixed results. The only way to stay abreast of your credit file is to pay them monthly to let you know what's going on, which now I do, out of necessity. The other day I called Experian, and after being on hold for about 20 minutes, was connected to a young lady in the Philippines!!! To those who think this is a great idea, wait until you get caught in this major cluster f**k of a system.
No...Like the credit bureaus are trustworthy institutions in the first place.
Report IRS back taxes then people won't get jobs to pay off their debts since now most employers won't hire you with a bad credit score. Garnishing someone's wages or taking money out of their bank accounts (which is why the Govt won't come down on criminal banks) seems an effective way to get a response from a working taxpayer.
If the person's not working and homeless, well, good luck.
Maybe if the average American taxpayer could afford Mark Zuckerberg's or Romney's tax accountants, they'd be getting sizable refunds like they do.
Many people don't realize that if you owe taxes and don't respond, IRS can swoop in and take all the money out of your bank accounts. And, if they are wrong in taking it, you won't get it back for months! What will you do in the meantime? And, IRS can swoop in and take a big chunk of your wages. What will you do then?
The way to avoid these horrible things from happening is to ALWAYS respond to any letter received by IRS or a tax agency. Don't just ignore it--the IRS computer that generated the letter is keeping track. If no response is forthcoming, the computer just escalates to the next level.
I had a tax client who didn't believe that this was serious in spite of my warnings, until the day came that all her checks bounced. THEN she came sobbing to me about it. There was very little I could do at that point--whereas if she had responded before the money disappeared, the problem could have been easily resolved.
Don't think this can't happen to you.
Especially report deadbeat dads!
This may be a good idea if we had any faith in our credit bureaus. With thier really bad reputation for reporting bad info, I think not. Maybe the IRS could have thier own credit reporting agency and do a better job of keeping info accurate, but I won't hold my breath.
What the hell kind of sense would it make to harm the credit ratings of people who might need to take out a loan in order to pay those back taxes? "Sorry, your credit rating is too low, we won't lend to you."
The IRS should collect delinquent taxes from gov't employee deadbeats. They're much more able to pay since they have a good job that we're paying for anyway. Is the SEIU protecting them in some way?
The IRS needs to look inward first. I've had a payment agreement before the IRS for a limited sum owed for six months now. It's been lost one time, resubmitted, assigned to a working group where it awaits assignment to an agent and then review. Six months. In that time I have been making monthly payments as if it were in force. I am still looking for an approved agreement in about 60 days (the current estimate from the IRS) at about the same time the account will have been paid in full.
Reporting to credit companies does not help the IRS recover funds, it can hurts as some people who work on a contract basis, as I do, can not find assignments with a bad credit rating.
the IRS does in a way, if you owe enough, the IRS will file a federal tax lien against you. it is public record and will show up on your credit report.
The IRS makes too many blunders with peoples tax accounts to go and report them to credit bureaus. Maybe on long established and 100% verified accounts, but when some know nothing rookey at the IRS sends you your first notice it's just not time to ruin your credit over it.
Tax deadbeats? Do they mean multibillion dollar corporations like GE?
They pay their taxes, they just use to many loop holes
The IRS has more power than it needs to collect taxes. They should not be doing anything else but that, and the government can ruin your life with one phone call, so the IRS should be limited to gathering the money our country needs to operate. NOTHING MORE!
Well put.
It's inevitable. As well as other initiatives toward ultimate economic enslavement.
screw the IRS AND the Credit Bureaus,,,,
What wrong to don't want to pay for our freedom
Yes tell everyone. People who don't paid their share should be outed to all
of the US.
Not everyone who has a back tax debt is a deadbeat. I know someone who owes because of unexpected disability that left him with a choice of paying the taxes or feeding his child. But to report it to the credit agencies would make finding work, especially for someone who works in financial services, damn near impossible. Then tell me how the debt gets paid. It's not so black and white to say everyone who owes is some deadbeat trying to steal from the government.
Rather than beat up on people who owe back taxes (and trust me, I realize there's plenty who just don't pay because they're not honest), go after all those folks working at jobs under the table and underreporting their incomes, or just cheating on their taxes. I wouldn't be surprised if you were to quantify that, if it was an even larger number than what is owed in back taxes.
It talks about changing behaviors... report people to change habits. Many people today either cannot afford to pay this years taxes, keep their house, pay bills, and feed families. Adding taxes on top of it all, is impossible. It seems the government just keeps taking..... when will it stop.
Get rid of the IRS! Plain and simple. Come to think of it Timothy Geithner would have been screwed with the reporting.... Where is that bitch?
Tax liens get reported. So it really simple; everyone, personal or corporate, who has tax debt more than say two years old, pick a reasonable number, has a tax lien filed against them. Since tax liens are public record, the credit bureau reporting takes care of itself. It is so simple, it is scary.