More People in Tax Trouble Now than Ever
By Dan Pilla
Since the United States has become mired in financial problems, more people than ever have become delinquent on their federal income taxes. And IRS enforcement action is busier and more aggressive than it has been in decades.
In September 2012, the Government Accountability Office (GAO) released its most recent data on the IRS’s accounts receivable ledger. The accounts receivable number reflects the dollars that are assessed as liabilities against taxpayers, but which have not been paid.
According to the GAO, the amount of delinquent taxes currently assessed and on the IRS’s books is $373.2 billion. That’s nearly four times the amount of debt owed in 1994. Of this amount, the GAO reports that $258.4 billion is owed by individuals, and $114.8 billion is owed by businesses.
IRS Enforcement Actions on the Rise
With so many individual and business tax debtors out there, you would think that IRS enforcement actions are on the rise. And you would be correct. Enforcement is on the rise and has been for some time.
According to the IRS’s 2011 Data Book, the annual report of its activities that the agency produces, the number of third-party levies issued in 2011 was more than 3.7 million. This represents an increase from 2010 of about 4 percent.
While a 4 percent increase many not seem like much, 2010 represented an all-time high in levies to begin with. Add to that the fact that the IRS also filed more than 1 million tax liens in 2011. And while that number is actually down a bit from the 2010 number (which was just under 1.1 million), the drop may be accounted for by the fact that IRS changed its lien-filing criteria in 2010. Prior to that, IRS policy required the filing of a lien in cases where more than $5,000 was owed. The threshold now is $10,000.
The IRS changed its lien filing policy in response to pressure put on the agency from various sources, not the least of which was the National Taxpayer Advocate and myself. For years, I said that in most cases, the filing of tax liens actually does more harm than good to the IRS in the collection of taxes.
The National Taxpayer Advocate reported in 2011 that the filing of federal tax liens was rarely responsible for the IRS collecting anything additional from taxpayers that the agency would not have otherwise extracted. The NTA reported that in a great majority of the cases, the largest share of the collection of delinquent taxes came through refund offsets and installment agreements entered into by delinquent citizens. All the liens did was mess up the taxpayer’s credit score, making his financial problems even worse.
Government Seeks to Eviscerate Privacy Protections for Tax Debts
I have seen countless cases where individuals owe substantial amounts but no lien is filed. In those cases, the fact of the tax delinquency is never made public because the IRS does not independently report tax debts to the various credit bureaus in the country. The reason is that federal privacy laws expressed in code section 6103 prevent the disclosure of a person’s tax data except in specifically authorized circumstances – and unpaid tax debt is not one of them.
So while credit bureaus do pick up and report the fact of a federal tax lien filing (since that is considered public record), they have no information about unpaid tax liabilities that are not covered by liens. Thus, millions of people owe the IRS money but the world does not know about it.
Now there is discussion about changing that. Policy makers are considering the idea of requiring the IRS to report all delinquent tax debts to credit agencies, regardless of the amount and whether or not a lien is filed.
There can be little doubt that reporting tax debts to credit bureaus independent of the tax lien information they pick anyway will be a disaster. Imagine going for a car loan and the finance department explaining that you cannot get the loan because you owe the IRS $6,200. Or, how about applying for an apartment lease but your credit score is marred because of a $4,300 tax debt that you have already agreed to pay in installments over two years?
The examples could go on, but the point is made. This proposal is just another policy that will have the negative impact of doing more harm than good. It is another example of short-sighted, myopic thinking that does nothing but further squeeze the American taxpayer. We don’t need more proposals that cripple income earners. We have to find ways to lighten the load or we will certainly lose the productive component of society.
Daniel J. Pilla is a Feature Writer for Independent Living and is nationally regarded as an expert in IRS procedures. Through his more than 4,000 media appearances and the sale of his many books, including How to Get Tax Amnesty, more than 3 million people have found relief from a tax debt they were unable to pay or received sound solutions to tax-related difficulties. Dan is an official tax consultant to the National Commission on Restructuring the IRS and the National Taxpayers Union.