Would people be more likely to pay their taxes if they knew the IRS would report unpaid liabilities to credit bureaus, thereby damaging their credit scores?
Congress is considering that.
The Government Accountability Office released a report last month to lawmakers about the pros and cons of a significant shift in practice. Currently, the IRS isn't allowed to report unpaid income taxes as part of an old law that protects taxpayers' privacy. (The IRS, though, can put a lien on property, and that public information is collected by credit bureaus.)
But Americans, including businesses, owed as much as $373.2 billion as of last year in unpaid federal taxes. (The GAO reports debts in some cases are over $100 million. Youza!) Reporting deadbeats may be a way to make them pay up. Besides, the GAO notes, reporting taxes in arrears gives creditors a truer picture of consumers.
On the other side of the argument, the GAO says that the National Taxpayer Advocated pointed out that some people might refuse to file returns — or might file incorrect returns — if they know that unpaid amounts will be reported on their credit files.
It's hard to get up in arms about reporting unpaid taxes to credit bureaus when you consider the country's fiscal problems, until you consider one point in the GAO report – accuracy.
The GAO talked to specialists that inaccurate information would impose burdens on taxpayers and IRS.
"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. Our 2011 audit of IRS' financial statements found that IRS experienced errors and delays in recording taxpayer information, payments and other tax assessment related activities."
For years, credit bureaus have been known putting inaccurate information on reports, and then making it very difficult for consumers to get it off.
This alone is reason to not report unpaid taxes.