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Unpaid taxes and credit reports: IRS role under review

It's already pretty tough when you have financial challenges and owe back taxes to the IRS. Should the agency be allowed to add to your troubles by reporting you to credit bureaus?

Congress is considering whether to let the IRS take that step. The Government Accountability Office has already published a report discussing the benefits and drawbacks of doing so.

Current IRS practice is not to repot unpaid income taxes to credit bureaus. The policy reflects protections on taxpayer privacy in current tax law.

It's no secret, however, that the government is short of money. Individuals and businesses with unpaid federal taxes are obviously a possible revenue source - especially when they are estimated to owe at least $373.2 billion as of the end of 2011.

That number is almost certainly much higher now, with only two months left in 2012.

The National Taxpayer Advocate has raised a very legitimate concern, however, regarding taxpayer privacy. If taxpayers know that their unpaid amounts will be reported to credit rating agencies, it might make some people and businesses less likely to file at all.

And then there's the issue of accuracy of the data. If inaccurate tax information is reported to credit bureaus, it could really cause difficulties for taxpayers. After all, once inaccurate information is reported to the big credit bureaus, it can be difficult to get it changed, even if it wrongly harms someone's credit scores.

Many people don't take the trouble to correct inaccurate information, for one thing. Errors are more common than many people like to think. To require the IRS to report delinquent taxes might add significantly to this problem.

Source: "Should the IRS report unpaid income taxes to credit bureaus?" The Baltimore Sun, Eileen Ambrose, 10-15-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice please visit our IRS tax collection page.

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