Congress mulls reporting IRS income tax to credit bureaus

IRS Income Tax

In recent years, lenders have included new types of data in the evaluations made during the application processing stage. The prevailing theory behind this practice is that data from nontraditional credit sources – such as utility payments or information from private and public records – can provide a more well-rounded view of an applicant’s credit history than the simple review of a standard credit score.

Even so, lenders still lean heavily on traditional data from credit bureaus to evaluate credit applicants, and efforts continue to improve upon and expand these metrics. To that end, reports say Congress will consider a motion that would allow the Internal Revenue Service to report unpaid tax liabilities to the credit bureaus.

There are advantages and disadvantages to the practice. The Government Accountability Office conducted an analysis, noting that reporting this information to the bureau could place a sense of urgency on consumers who have been lax with payments. That may allow the IRS to collect on $373.2 billion in unpaid taxes, according to the Baltimore Sun.

Similarly, unpaid taxes represent a critical part of a consumers’ financial responsibilities, and an individual’s failure to pay these debts is something many lenders might want to know before extending credit. However, detractors say some consumers might avoid filing accurate tax returns to avoid suffering penalties on their credit report.

The debate ultimately sheds light on creditors’ desire to obtain a more accurate picture of consumers’ financial histories, and the fact that in many cases, lenders rely on incomplete information to make their determinations. Augmenting application processing procedures with credit application software that is tailored to accept and evaluate alternative credit data may be the next step in the refining of key lender processes.

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