GAO report weighs allowing tax debt to appear on consumer credit reports

A group of senators is contemplating allowing the Internal Revenue Service to report directly to consumer credit bureaus the $373 billion that individuals and businesses owe in federal taxes. The IRS can't report this information directly because of laws aimed at keeping tax return data private. Tax liens, however, are part of the public record and credit bureaus can then pick up that information and use it when compiling credit histories. A Government Accountability Office review out Wednesday weighed the pros and cons of such a policy switch, but made no recommendations. The report said fear of a credit ding could encourage more Americans to pay taxes on time. On the flip side, however, errors in reporting by the IRS could affect a citizen's access to credit negatively. “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,” the GAO report said. Senate Finance Committee Chairman Max Baucus, D-Mont., Sen. Orrin Hatch, R-Utah, and Sen. Charles Grassley, R-Iowa, asked the GAO to look into whether this change would help the U.S. government collect more of what's owed to the U.S. Treasury. Other federal agencies already report non-tax debt to credit bureaus to encourage payment of debts to those agencies. In a letter sent to the three senators, the GAO said millions of individuals and businesses owed about $373 billion in federal taxes as of Sept. 30, 2011. Before any changes are made, Congress would have to evaluate whether all federal tax debts, or just large balances, should be reported and how often this information would be updated with credit bureaus, the report said. The full report can be found at gao.gov/products/GAO-12-939