Should the IRS be allowed to report income tax debts to the credit reporting bureaus that have the power to make lives pretty miserable? While it doesn't exactly answer it, the Government Accountability Office (GAO) was asked to at least look into the question.
Currently the IRS is prohibited from reporting income tax debts to the credit bureaus (Equifax, Experian, TransUnion, etc.) by federal laws protecting the privacy of taxpayers' information. Only when the IRS files tax liens, which are public information, do the credit bureaus show the debt on consumers' credit reports.
But Republican Senators Orrin Hatch of Utah and Charles Grassley of Iowa, looking to recover some of the $350 billion or more in unpaid taxes owed to the government every year, asked the GAO to evaluate the effects of allowing the IRS to report tax debts to credit bureaus.
What the GAO Found: According to the GAO, individual tax payers and businesses owed a total of about $373 billion in unpaid federal taxes in 2011 -- --$258 billion by individuals and $115 billion by businesses. Over half of the tax debts were less than $5,000, but debts over $25,000 made $310 billion of the total $373 billion debt. About $60 billion of the total tax debt was either in the IRS collections process or covered by taxpayer-IRS installment payment agreements. Finally, about $110 billion of the total debt was classified by the IRS as being "uncollectable." Over 50% of the total tax debt was subject to tax liens, making those debts fair game for the credit reporting bureaus.
Also See: How the IRS Abuses Tax Liens
Tax experts advising the GAO pointed out that before allowing the IRS to report tax debts to the credit bureaus, Congress should consider alternatives, the accuracy of the data reported and the expected benefits to the government.
The experts stressed that data reported inaccurately by the IRS could harm taxpayers who might be wrongly denied credit, employment, or housing based on inaccurate negative information in their credit histories.
And, while allowing the IRS to report tax debts to the credit bureaus might result in increased revenue or a reduction in the amount of unpaid taxes, the IRS' National Taxpayer Advocate cautioned that it could also cause some taxpayers to choose not to file tax returns or file inaccurate returns, especially if they already know they owe back taxes.