Allowing the Internal Revenue Service to report taxpayer’s debt to consumer credit bureaus is being considered by Congress.
The Senate Finance Committee received a report for the Government Accountability Office on the factors for considering a congressional proposal to report tax debts to credit bureaus. The report stated that millions of taxpayers owe billions of dollars in unpaid federal tax debts.
At the end of the 2011 fiscal year the debt was $373 billion, including $253 billion in individual debt and $115 billion in business debt. Tax debts, unlike other debts to the federal government, are not directly reported to the credit bureaus that collect and sell information about the credit history of taxpayers.
The long-standing federal law protects the privacy of any personally identifiable information reported to or developed by the IRS. This law is the reason why the IRS is not allowed to directly report tax debt information to credit bureaus; however, the IRS is allowed to file tax liens on some tax debts.
Potential reasons for directly reporting tax debt information to credit bureaus is the possibilities that revenue could increase by encouraging tax debtors to pay off their debt and that it could give the users of credit bureau information a more complete picture of the indebtedness of tax debtors.
Such a proposal could potentially include all tax debts or specify the types of tax debts.
The amount of the debt appropriate to report to credit bureaus could depend on the purpose of the proposal. More than half of the tax debts owed to the federal government are less than $5,000. Approximately $60 billion of the debts owed were either debts in the collection process or covered by the installment agreements. About $110 billion of the total debt was classified by IRS as noncollectable. Tax liens are filed by the IRS on some tax debts, which are public records that credit bureaus routinely pick up and add to their data.
According to subject matter experts, important factors Congress should consider in regards to any future proposal to report tax debts to credit bureaus would be issues surrounding data accuracy, alternatives, and the expected benefits. Many of these experts said the IRS’s current use of tax liens as an alternative to reporting debts directly should be considered. Another consideration would be the expected benefits, which could bring in benefits such as increased revenue collected or reduced tax debt inventory.
The National Taxpayer Advocate believes that such reporting could cause some taxpayers to choose to file inaccurately or not to file at all if they know they owe the IRS money.
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