FEDERAL TAX 

DEBTS

Factors for 

Considering a 

Proposal to Report

Tax Debts to Credit 

Bureaus

Report to Congressional Requesters

September 2012

GAO-12-939

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-939, a report to 

congressional requesters

September 2012

FEDERAL TAX DEBTS

Factors for Considering a Proposal to Report Tax 

Debts to Credit Bureaus

Why GAO Did This Study

Millions of individual and business 

taxpayers owe billions of dollars in 

unpaid federal tax debts, and the IRS 

expends substantial resources trying to 

collect these debts. Other federal 

agencies that are owed nontax debts 

report such debts to credit bureaus, in 

part as a tool to encourage debtors to 

pay. However, IRS is not allowed to

directly report tax debts to credit 

bureaus because long-standing federal 

law protects the privacy of taxpayers’ 

information. IRS is only authorized to 

disclose personally identifiable

information reported to or developed 

by IRS in limited circumstances as 

specified by law. IRS is, however, 

allowed to file tax liens on some tax 

debts, and such liens are public 

records that are picked up by credit 

bureaus and included in the credit 

history information they compile. 

GAO was asked to describe (1) IRS's 

inventory of tax debts and the

characteristics that may be relevant to 

a potential proposal to report tax debts 

to credit bureaus and (2) factors that 

experts believe could be useful to 

consider in the evaluation of any

proposal to report tax debts to credit 

bureaus. To conduct this work, GAO 

reviewed IRS data on tax debts and 

held discussions with selected experts, 

including government and 

nongovernment officials with 

experience in tax policy and 

administration, taxpayer and privacy 

interests, and the credit reporting 

industry. GAO does not make 

recommendations in this report.

What GAO Found

At the end of fiscal year 2011, individuals and businesses owed a total of about 

$373 billion in federal unpaid tax debts—$258 billion in individual debt and $115 

billion in business debt. How much of this debt would be suitable to report to 

credit bureaus could depend on the purpose of the reporting proposal, such as to 

collect more debts or simply to inform other potential creditors of the existence of 

tax debts. Most of debts were relatively small in size. Well over half of individuals 

and businesses with tax debts owed less than $5,000. However, much of the 

aggregate debt is concentrated among those owing relatively large amounts.

Debts over $25,000 add up to a total of $310 billion. Some debts were in the 

collection process where the Internal Revenue Service (IRS) notifies the taxpayer 

of the debt and were subject to dispute by the taxpayer, while other debts were 

covered by installment agreements—about $60 billion of the debts owed were in 

these two categories. About $110 billion of the total debt was classified by IRS as 

uncollectable. IRS files tax liens on some tax debts and these liens are public 

records that credit bureaus routinely pick up and add to their data. Over half of 

the total amount owed was subject to liens, cutting across the above categories. 

Subject matter experts commented that issues surrounding data accuracy, 

alternatives, and expected benefits would be among the important factors that 

Congress might wish to consider in regards to any possible future proposal to 

report tax debts to credit bureaus. One key factor discussed was the need to 

ensure that any reported tax debt data is accurate and current as this would be 

important to both credit bureaus and the affected taxpayers, who could be denied 

credit, employment, or housing based on inaccurate negative information in their 

credit histories. Some subject matter specialists GAO spoke to said that it would 

be important to consider IRS’s current use of tax liens, which are already known 

to credit bureaus, as an alternative to reporting debts directly. Another important 

consideration would be the expected benefits of direct tax debt reporting. These 

experts suggested that such reporting could yield benefits such as increased 

revenue collected or reduced tax debt inventory. However, the National Taxpayer 

Advocate cautioned that such reporting could cause some taxpayers to choose 

not to file or file inaccurately if they know they owe money to IRS. 

View GAO-12-939. For more information, 

contact James R. White at (202) 512-9110 or 

whitej@gao.gov. 
Page i GAO-12-939 Tax Debt Reporting

Letter 1 

Background 3

Of the Overall Billions of Dollars in Federal Tax Debts, Some Debts 

are Small, Subject to Dispute or Change, Not Considered 

Collectible, or Already Known to Credit Bureaus 7

Experts Suggested That Data Accuracy, Alternatives, and Expected 

Benefits Are among the Important Factors to Consider 13

Agency Comments 18

Appendix I External Parties Contacted 20

Appendix II List of Threshold and Policy Factor Questions and Subquestions 

That Guided Our Discussions with Subject Matter Specialists 22

Appendix III GAO Contact and Staff Acknowledgments 25

Tables

Table 1: Key Differences Between the Tax Debt Inventory and the 

Tax Gap 3

Table 2: IRS Collection Process Status Definitions for Tax Debts 5

Table 3: Tax Debt Inventory by Collection Process Status, as of 

End of Fiscal Year 2011 10

Table 4: Tax Debt Inventory by Financial Reporting Classification, 

as of the End of Fiscal Year 2011 12

Table 5: Tax Debt Inventory for Individuals and Businesses for 

Which Liens Had or Had Not Been Filed by Collection 

Process Status, as of the End of Fiscal Year 2011 13

Figures

Figure 1: Tax Debt Inventory in Ranges of Total Debt Owed by an 

Individual, as of the End of Fiscal Year 2011 8

Figure 2: Tax Debt Inventory in Ranges of Total Debt Owed by a 

Business, as of the End of Fiscal Year 2011 9

Contents
Page ii GAO-12-939 Tax Debt Reporting

Abbreviations

FCRA Fair Credit Reporting Act

IRS Internal Revenue Service

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-939 Tax Debt Reporting

United States Government Accountability Office

Washington, DC 20548

September 10, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Charles E. Grassley

Ranking Member

Committee on the Judiciary

United States Senate

Millions of individual and business taxpayers owe billions of dollars in 

unpaid federal tax debts—$373 billion as of the end of fiscal year 2011—

and the Internal Revenue Service (IRS) expends substantial resources 

trying to collect these debts. Unlike many other debts owed to the federal 

government, tax debts are not directly reported to credit bureaus—

companies that collect and sell information about the credit history of 

individuals and businesses. IRS is not allowed to directly report tax debt 

information to credit bureaus because long-standing federal law protects 

the privacy of any personally identifiable information reported to or 

developed by IRS.1

Among the potential reasons for directly reporting tax debt information to 

credit bureaus are the possibility that it could increase revenue by 

encouraging tax debtors to pay off their debts and the possibility that it 

could give the users of credit bureau information a more complete picture 

of the indebtedness of tax debtors. A proposal could conceivably 

encompass all tax debts or specify types of tax debts for such reporting. 

However, the tradeoffs that directly reporting tax debts to credits bureaus 

would entail are not well understood, and you asked us to provide 

information about such tradeoffs by applying our recently published guide 

IRS is, however, allowed to file tax liens on some tax 

debts, and such liens are public record, which can be picked up by credit 

bureaus and included in the credit history information they compile.

 

1

This information, which is known as federal tax information, can be disclosed only in 

limited circumstances specified in 26 U.S.C. § 6103.

 
Page 2 GAO-12-939 Tax Debt Reporting

for assessing proposals to authorize disclosures of tax information.2

To describe the characteristics of the tax debt inventory, we obtained and 

reviewed data from IRS’s Chief Financial Officer Accounts Receivable 

Dollar Inventory Management System and Compliance Data Warehouse 

databases, including information on the amounts, collection process 

status, financial classifications of the debts, and extent to which IRS had 

filed federal tax liens on the debts. We determined that the data were 

sufficiently reliable for our purposes.

In 

response to your request, this report describes (1) the inventory of tax 

debts owed to IRS and the characteristics that may be relevant to a

potential proposal to report tax debts to credit bureaus, such as IRS 

determinations of the likelihood that particular debts may ever be 

collected and the extent to which debts are the subject of tax liens, and 

(2) factors that subject matter specialists believe could be useful to 

consider in the evaluation of any proposal to report tax debts to credit 

bureaus.

3 To identify factors that subject 

matter specialists believe could be useful to consider in regard to 

potential tax debt credit bureau reporting proposals, we first selected 

specialists based on their government and nongovernment experience in 

tax policy and administration, taxpayer and privacy interests, and the 

credit reporting industry. (See app. I for the list of the 22 federal offices 

and other parties we contacted.) We then based our discussions with 

these specialists on the questions found in the guide we issued in 

December 2011 to assist policymakers in assessing proposals to 

authorize disclosures of tax information (see app. II for the list of 

questions in our guide).4

We conducted our work from February 2012 to September 2012 in 

accordance with all sections of GAO’s Quality Assurance Framework that 

 

2

GAO, Taxpayer Privacy: A Guide for Screening and Assessing Proposals to Disclose 

Confidential Tax Information to Specific Parties for Specific Purposes, GAO-12-231SP 

(Washington, D.C.: Dec. 14, 2011).

3

To assess reliability we reviewed such information as on IRS’s data collection and quality

control procedures for the IRS Chief Financial Officer Accounts Receivable Dollar 

Inventory Management System and Compliance Data Warehouse databases and inquired 

how IRS queried the databases to assure accuracy. In addition, we compared the unpaid 

assessments data with data we audited as reported in Financial Audit: IRS’s Fiscal Years 

2011 and 2010 Financial Statements, GAO-12-165 (Washington, D.C.: Nov. 10, 2011).

4

GAO-12-231SP. 
Page 3 GAO-12-939 Tax Debt Reporting

are relevant to our objectives. The framework requires that we plan and 

perform the engagement to obtain sufficient and appropriate evidence to

meet our stated objectives and to discuss any limitations in our work. We 

believe that the information and data obtained, and the analysis 

conducted, provide a reasonable basis for any findings and conclusions in 

this product.

The inventory of tax debts is comprised of tax assessments that are not 

collected along with related penalty and interest charges. The inventory of 

tax debts and the concept of the tax gap—the difference between the tax 

amounts that taxpayers voluntarily and timely pay and those they owe—

are related but distinct.5

Table 1: Key Differences Between the Tax Debt Inventory and the Tax Gap

Key differences between the two are summarized 

in table 1.

Tax debt inventory Tax gap

• Sum of all tax debts owed to IRS at a particular point in time, 

including debts from the current year and debts from 

previous years that fall within the 10-year statute of 

limitations on collections

• Estimate of total tax liability not timely paid for a single year

• Debts based on known assessments on filed returns or 

through IRS enforcement activities

• Composed of known assessments as well as estimates of 

other taxes not timely paid that were not identified by IRS 

through audits or other enforcement programs

• Includes taxes, penalty, and interest • Only includes tax

Source: GAO.

Federal taxes that are owed become tax debts when the tax is assessed 

but not paid. Generally, taxes are either self-assessed by taxpayers 

based on information they report on their tax returns or by IRS through its 

enforcements programs. For example, when a taxpayer files a return 

showing a balance due without a payment to cover it, the self-assessed 

tax becomes a tax debt. Alternatively, IRS may determine a taxpayer’s 

tax liability through its enforcement programs, such as audits and 

automated comparisons of return information to information reported by 

third parties. Another IRS enforcement program, known as the Automated 

 

5

In January 2012, IRS estimated that the gross tax gap—the difference between taxes 

owed and taxes paid on time—was $450 billion in tax year 2006. IRS estimated that it 

would eventually recover about $65 billion of this amount through late payments and 

enforcement actions, leaving a net tax gap of $385 billion.

Background 
Page 4 GAO-12-939 Tax Debt Reporting

Substitute for Return program, estimates a taxpayer’s tax liability when a 

taxpayer has failed to file a return. The Automated Substitute for Return 

program estimates the tax liability based on information reported by third 

parties but does not include exemptions or deductions to which the 

taxpayer may be entitled, so it may overstate the amount due. The intent 

of this estimate is to provide incentive for the taxpayer to file an accurate 

return showing the actual tax liability, among other things. To ensure the 

validity of debts and provide due process to taxpayers, enforcement 

programs are required by law to provide a taxpayer with multiple notices 

and opportunity to provide information before the estimates become 

assessed tax debt.6

As we have previously reported, IRS has a complex process to attempt 

the collection of tax debts.7 As a first stage, IRS sends a series of notices 

to notify the debtor of the debt owed and to prompt payment or other 

debtor response, such as to dispute the debt or request to enter into an 

installment payment agreement. If the debt is not resolved by notices, IRS 

may then initiate contact with the taxpayer by telephone or in-person. 

After the notice phase, IRS can also take enforcement action, such as 

levying or seizing assets. IRS categorizes a tax debt into one of 10 

collection process statuses, including (1) the debt is in the notice or other 

collection phases, (2) the taxpayer is paying off the debt in installments, 

(3) IRS has suspended active collection efforts, or (4) IRS has determined 

the debt is currently not collectible. Table 2 describes IRS’s collection 

process statuses for tax debts.

 

6

For example, the taxpayer has 90 days after receipt of a notice of deficiency (150 days if 

the taxpayer lives outside the United States) to file a petition with the Tax Court for a 

redetermination of the deficiency. The deficiency may not be assessed until the expiration 

of the 90-day period if no appeal is filed, or until the decision of the Tax Court has become 

final.

7

GAO, Tax Debt Collection: IRS Has a Complex Process to Attempt to Collect Billions of 

Dollars in Unpaid Tax Debts, GAO-08-728 (Washington, D.C.: June 13, 2008).
Page 5 GAO-12-939 Tax Debt Reporting

Table 2: IRS Collection Process Status Definitions for Tax Debts

Collection process status Definition

Notice The collection phase where IRS sends a series of notices of balances due to the taxpayer to, in 

part, prompt a reply by the taxpayer and payment.

Automated Collection System 

(ACS) 

The collection phase where IRS makes telephone contact with the taxpayer to secure payment or 

takes other action, including filing a Notice of Federal Tax Lien or enforced collection by levying 

financial assets. 

Queue In a waiting status for assignment to a revenue officer in the Collection Field Function for in-person 

contact.

Collection Field Function (CFF) The collection phase where IRS attempts in-person contact with the taxpayer to secure payment or 

takes other action, including enforced collection by levying financial assets or seizing property.

Shelved Suspended indefinitely from active collection efforts due to a lack of IRS resources in ACS and 

CFF.

Installment agreement The taxpayer has agreed to pay the debt in installments.

Adjustments Pending due to a taxpayer claim or other inquiries where the account is frozen from collection 

actions for potential adjustments to the assessment. 

Currently not collectible 

(hardship)

Have no current collection potential because of the taxpayer’s economic or financial condition but 

where future collection potential may exist if a taxpayer’s financial condition improves.

Currently not collectible (other) No current collection potential exists and collection is unlikely in the future due to taxpayer’s 

financial condition or IRS’s inability to locate the taxpayer (including cases such cases as insolvent 

or defunct businesses and deceased taxpayers).

Other The taxpayer is involved in an administrative or court action suspending normal collection action 

(e.g., bankruptcy, insolvency, offers in compromise, and criminal investigations) or where the 

balance is below IRS’s established tolerance for active collection efforts.

Source: IRS.

If a tax debtor does not pay after IRS’s initial contact to collect an 

assessed tax debt, IRS has the authority to protect the government’s 

interests by filing a Notice of Federal Tax Lien. A taxpayer must be given 

notice and an opportunity for a hearing when a federal tax lien is filed. 

Such a lien attaches a claim to all of the debtor’s property, both real and 

personal, for the amount of unpaid tax, including any interest and 

penalties. Unlike IRS’s authority to levy or seize assets, a lien does not 

authorize IRS to take possession of an asset or deprive the taxpayer of 

use of an asset. Instead, a lien publicly records the debt owed by the 

taxpayer as a notice to possible future creditors and to establish priority 

rights against certain other creditors that may also hold liens or secured 

rights against a taxpayer’s assets. IRS files liens in local recording offices, 

such as courthouses, as determined by the laws of each state. Liens 

identify the taxpayer and the amount owed at the time the lien was filed, 

but do not reflect subsequent changes in the amount owed. A lien may 

prevent tax debtors from selling assets with clear title or obtaining 

additional financing without payment of their tax debts. Circumstances do 
Page 6 GAO-12-939 Tax Debt Reporting

not warrant a lien being filed in all cases, such as when the amount of the 

debt is in dispute or when IRS determines that filing a lien would hamper 

collection of the debt because the debtor is trying to obtain a loan to pay it 

off. However, for cases in which IRS has not filed a lien, the government’s 

interest in the tax debtor’s property is not protected.

Credit bureaus are companies that collect individual consumer and 

commercial credit information, compile it, and sell credit reports to parties 

legally authorized to obtain such information. The Fair Credit Reporting 

Act (FCRA) governs credit bureaus and the reporting of consumer credit 

information. FCRA details the rights of consumers, and puts limits on who 

may access a credit report and for what reasons.8 Credit bureaus also 

sell credit scores, which are calculated based on the information 

contained in a credit report. Lenders rely on credit reports and credit 

scores when deciding whether to offer credit to an individual or business, 

and at what interest rate and other terms. Also, some employers, 

insurance underwriters, and landlords use credit reports to assess 

applicants’ creditworthiness. Credit bureaus regularly gather credit 

information from creditors, collection agencies, and public records such 

as records of bankruptcy, foreclosure, garnishments, and other civil 

judgments, as well as publicly available tax lien information (federal, 

state, or local). Federal agencies owed nontax debts are among the 

furnishers of debt information to credit bureaus, in part to encourage 

debtors to pay off their debts.9

 

8

FCRA, 15 U.S.C. § 1681 – 1681x, applies only to consumer reporting and does not apply 

to commercial credit reporting. FCRA provides consumers with rights and protections, 

including the right to be told if information in a consumer report has been used to take 

adverse action against a consumer; to see the contents of the report; to dispute inaccurate 

or incomplete information with the credit bureau; to have inaccurate information corrected 

or deleted; to dispute inaccurate items with the furnisher or source of the information; and 

to have outdated information excluded from a consumer report. FCRA also puts limitations 

on access to consumer reports, including a requirement for consumer consent to furnish 

reports to employers or to furnish reports containing medical information. 

9

The Debt Collection Improvement Act of 1996, Pub. L. No. 104-134, § 31001,110 Stat. 

1321 (Apr. 26, 1996), as codified at 31 U.S.C. § 3711(e) requires federal agencies to 

report information on all delinquent federal consumer debts to credit bureaus. Federal 

agencies have been required, as a matter of policy, to report all (current and delinquent) 

commercial debts since September 1983. 
Page 7 GAO-12-939 Tax Debt Reporting

Evaluation of a proposal to report tax debts to credit bureaus would 

necessarily involve decisions about which particular debts should be 

reported. One key consideration could be whether debts of all sizes 

should be reported, or only those above a certain threshold. To the extent 

that policymakers consider credit bureau reporting to have potentially 

serious negative consequences for taxpayers, they may determine that 

smaller debts do not warrant reporting. If, however, a primary purpose of 

such reporting were to be to provide the users of credit bureau 

information with information about all tax debts, smaller debts might be 

reported along with larger ones. The aggregate amount of outstanding tax 

debt at the end of 2011 was $373.2 billion. As shown in figures 1 and 2, 

tax debts ranged from very small to over $100 million. For example, in 

2011, 8.3 million individuals and 1.9 million businesses (well over half of 

all tax debtors) owed a total of $15.7 billion on debts of less than 

$5,000.10 Fewer taxpayers had larger debts but the aggregate amount 

was larger. For debts of $25,000 or greater, 2.1 million taxpayers owed a 

total of $310 billion.

 

10The data presented for individuals and businesses are from, respectively, IRS’s 

Individual Master File and Business Master File databases. The Individual Master File 

data include some taxes based on business income (such as when a taxpayer is selfemployed) and the Business Master File data include some taxes on individuals (for 

example, estate and gift taxes).

Of the Overall Billions 

of Dollars in Federal 

Tax Debts, Some 

Debts Are Small, 

Subject to Dispute or 

Change, Not 

Considered 

Collectible, or Already 

Known to Credit 

Bureaus 
Page 8 GAO-12-939 Tax Debt Reporting

Figure 1: Tax Debt Inventory in Ranges of Total Debt Owed by an Individual, as of the End of Fiscal Year 2011

Note: Numbers may not add to total due to rounding.
Page 9 GAO-12-939 Tax Debt Reporting

Figure 2: Tax Debt Inventory in Ranges of Total Debt Owed by a Business, as of the End of Fiscal Year 2011

Note: Numbers may not add to total due to rounding.

The status of tax debts would also likely be an important consideration. 

One reason for this is that tax debts in the “notice” status are generally 

still in the phase where IRS is notifying the taxpayer of the debt and the 

taxpayer may respond by disputing the validity of the debt, and FCRA 

prohibits credit bureaus from including disputed information in credit 

reports. To the extent that encouraging payment is an important purpose 

behind a debt reporting proposal, the statuses indicating collectibility 

would also be important. Some taxpayers have agreed to installment 

agreements, so reporting their debts may not influence their willingness to 

pay because they are already making payments. IRS classifies other 
Page 10 GAO-12-939 Tax Debt Reporting

debts as uncollectible, and reporting those debts may not make the debts 

any more collectible. On the other hand, if the purpose of a proposal is to 

have more complete information in credit bureau files, both active 

installment agreements and debts considered uncollectible may be worth 

reporting. Table 3 shows the dollar value of debts owed in the different 

IRS collection statuses.

Table 3: Tax Debt Inventory by Collection Process Status, as of End of Fiscal Year 2011

Individual tax debts owed Business tax debts owed Total tax debts owed

Collection process 

status 

Dollars 

(in billions)

Percentage

of total 

individual debt

Dollars 

(in billions)

Percentage

of total 

business debt

Dollars

(in billions)

Percentage 

of total debt

Notice $16.3 6.3% $5.7 4.9% $22.0 5.9%

Automated Collection 

System

34.6 13.4 2.9 2.5 37.5 10.0

Queue 56.5 21.9 10.7 9.4 67.2 18.0

Collection Field 

Function

20.9 8.1 10.4 9.0 31.2 8.4

Shelved 15.4 6.0 4.9 4.3 20.3 5.5

Installment agreement 30.6 11.8 8.1 7.1 38.7 10.4

Adjustments 10.2 3.9 6.2 5.4 16.4 4.4

Currently not 

collectible (hardship)

33.7 13.1 6.3 5.4 40.0 10.7

Currently not 

collectible (other)

22.5 8.7 47.4 41.3 69.9 18.7

Other 17.6 6.8 12.3 10.7 29.9 8.0

Total $258.4 100% $114.8 100% $373.2 100%

Source: IRS.

Note: Totals may not add due to rounding.

Another indication of the extent to which tax debts have been validated 

and their collectibility can be found in IRS’s financial reports. IRS reports 

on taxes receivable for financial reporting purposes, including estimates 

of how much of the unpaid tax is agreed to and collectible. Under federal 

accounting standards, to be considered federal taxes receivable, unpaid 

assessments must have taxpayer or court agreement and have future 

collection potential. As of the end of fiscal year 2011, federal taxes 

recorded as receivable were about $158 billion of the $373 billion owed. 

The rest of the total amount owed included about $98 billion in 

compliance assessments. Compliance assessments are debts that do not 

have taxpayer or court agreements and are made through IRS 
Page 11 GAO-12-939 Tax Debt Reporting

enforcement programs, such as IRS’s Automated Substitute for Return 

program. Although not recorded as federal taxes receivable, some of 

these debts may eventually be collected. However, because the debts are 

estimates and may overstate the taxpayer’s true liability, they would not 

be appropriate to report to credit bureaus under current law. Also, about 

$117 billion was classified by IRS as write-offs—debts considered to have 

no future collection potential.11 According to IRS officials, most debts in 

the write-off classification are in one of the currently not collectible 

collection statuses. Table 4 presents more detail on the amounts of debt 

owed in each classification using available IRS data.12

 

11The balance in the write-off classification includes “memo” balances, which includes 

amounts owed by federal government agencies and assessments recorded based on 

fraudulent or frivolous tax returns. While these debts are included in IRS’s unpaid 

assessments inventory, IRS does not include them on its financial statements.

12For purposes of comparison with other data in this report the data presented in this table 

are from IRS’s unadjusted data, and therefore do not match amounts IRS reports in its 

fiscal year 2011 financial statements. We have determined that IRS’s systems cannot 

classify its unpaid assessments inventory for financial reporting without material 

inaccuracies. As a result, IRS uses a statistical estimation process to adjust for errors, 

misclassifications, and duplicate assessments in its systems. These adjustments are 

made to aggregate-level summary data rather than to the raw data. As we reported in our 

most recent audit of IRS financial statements (see GAO-12-165), after such adjustments, 

as of the end of fiscal year 2011, unpaid tax debts (to include debts in IRS master files for 

individual and businesses as well as other debts) totaled $356 billion, consisting of $103 

billion in compliance assessments, $106 billion in write-offs, and $147 billion in gross 

taxes receivable; after an allowance for uncollectible taxes receivable ($112 billion), net 

taxes receivable was $35 billion. 
Page 12 GAO-12-939 Tax Debt Reporting

Table 4: Tax Debt Inventory by Financial Reporting Classification, as of the End of 

Fiscal Year 2011

Dollar in billions

Financial reporting 

classification

Individual tax 

debts owed

Business tax 

debts owed

Total tax 

debts owed 

Write-offs $55.3 $62.1 $117.4

Compliance assessments 85.3 12.6 97.9

Federal financial receivables 117.7 40.2 157.9

Total $258.4 $114.8 $373.2

Source: IRS data.

a

Note: Numbers may not add to total due to rounding.

a

The amount of total tax debts includes duplicate assessments. Duplicate assessments are assessed 

against multiple parties to protect the government’s interest, but can be collected only once. While 

these debts are included in IRS’s unpaid tax debt inventory, IRS does not include them on its financial 

statements.

Another debt inventory characteristic that may be relevant to a proposal 

to report tax debts to credit bureaus is the extent to which information 

about tax debts is already known to credit bureaus because of tax liens. 

Lien filing is not necessarily incompatible with IRS directly reporting 

information about tax debts to credit bureaus, but policymakers may want 

to consider whether liens, which are public records that credit bureaus 

pick up, are already doing much of what direct reporting of debts might 

do. Table 5 shows the extent of lien coverage for debts in each collection 

status. As shown in the table, liens have been filed on over half of all of 

the dollars owed in tax debts; liens are generally not filed until after the 

debt has moved out of the notice status.
Page 13 GAO-12-939 Tax Debt Reporting

Table 5: Tax Debt Inventory for Individuals and Businesses for Which Liens Had or 

Had Not Been Filed by Collection Process Status, as of the End of Fiscal Year 2011

Source: IRS data.

Note: Totals may not add due to rounding.

Subject matter specialists offered insights and comments about important 

factors to consider should policymakers decide to develop or evaluate a 

proposal to directly report unpaid federal tax debts to credit bureaus. 

Important observations raised in our discussions include the following:

• A proposal to report tax debts to credit bureaus would need to be 

clear about the specific information about taxpayers and their debts 

that would be reported. Information about individual consumers that is 

furnished to credit bureaus is typically transmitted in an industrystandard format and includes sufficient identifying data such that the 

information can be associated with the right person.

• Federal agencies currently report nontax debts to five designated 

nationwide credit bureaus. This could be a likely approach under a tax 

debt reporting proposal, but Congress could consider other 

alternatives. We limited our discussions to policy scenarios wherein 

credit bureaus would incorporate and use tax debt information from 

IRS consistent with current practice for debt information reported by 

Dollars in billions

Individual and business tax debts

Collection process status

Total liens 

filed

Total liens 

not filed Total 

Notice $1.5 $20.5 $22.0

Automated Collection System 13.8 23.7 $37.5

Queue 37.3 29.9 $67.2

Collection Field Function 24.6 6.6 $31.2

Shelved 10.3 10.0 $20.3

Installment agreement 14.3 24.4 $38.7

Adjustments 6.0 10.4 $16.4

Currently not collectible 

(hardship) 35.6 4.4 $40.0

Currently not collectible 

(other) 52.9 17.0 $69.9

Other 14.6 15.3 $29.9

Total $210.9 $162.3 $ 373.2

Experts Suggested 

That Data Accuracy, 

Alternatives, and 

Expected Benefits 

Are among the 

Important Factors to 

Consider 
Page 14 GAO-12-939 Tax Debt Reporting

other federal agencies and private creditors. This would mean that 

credit bureaus would redisclose the information to other entities 

consistent with current legal requirements regarding consumer debt 

contained in FCRA.

• Specifying the purpose of a privacy exception proposal and estimating 

the associated expected benefits are important considerations. 

Among the possible expected benefits that some specialists identified 

were (1) giving tax debtors an incentive to pay their tax debts and (2) 

encouraging taxpayers in general to stay out of debt in the first place. 

Another possible benefit identified by the experts was having more 

complete credit history information available to entities that currently 

are allowed to use credit bureau information, including government 

entities, for improved lending or other business decisions. Some other 

possible benefits that came up in our discussions and our review of 

Treasury Financial Management Service guidelines were (1) 

enhanced tax enforcement capability by barring parties owing 

selected thresholds of federal taxes from receiving certain benefits, 

such as contracts, grants, or loans, and (2) better protection against 

loan applicants taking on new debts when they are already unable to 

pay their existing debts.

• Some subject matter specialists we spoke to said it would be 

important to consider a proposal to report tax debts directly to credit 

bureaus in light of the alternative present in IRS’s current use of tax 

liens, which are already known to credit bureaus. Credit bureau 

officials noted that only the initial dollar amount of the tax debt that is 

the subject of the lien and the identity of the debtor are publicly 

reported and picked up and included in credit bureau files. Changes in 

tax debts over time, such as if a tax debt grows (because of penalties 

and interest) or is reduced (because the debtor pays IRS some of 

what is owed), are not included with tax liens or known to credit 

bureaus. For this reason, direct reporting could involve more current 

information than what is available from tax liens and provide an 

incentive to taxpayers to pay down their debts because their declining 

balance due would be reflected on their credit histories. On the other 

hand, some subject matter specialists noted that direct reporting of tax 

debts to credit bureaus along with lien filings would increase the risk 

of reporting duplicative negative information on a taxpayer’s credit 

report.

• Any reporting will necessarily involve costs. It is possible that a higher 

volume of reporting (in terms of either the number of debts being 

reported or the frequency of reporting) will result in higher costs, but 
Page 15 GAO-12-939 Tax Debt Reporting

the mix of fixed and variable costs could mean that the cost per report 

decreases with higher volume. Costs to IRS would likely include startup and recurring information system costs, including devoting 

additional staff to manage the transmission of information and deal 

with taxpayers’ disputes, inquiries, and other activities resulting from 

debts reported. Such costs could mean IRS would have to reallocate 

resources from collections operations or other areas. However, credit 

bureau reporting may enhance the efficiency of IRS collections, to the 

extent that such reporting obviates the need for more costly debt 

collection tools. Costs to IRS would also be affected by how a 

proposal assigns IRS’s responsibilities for accounting for disclosures 

and providing oversight to ensure that taxpayer information is 

safeguarded by credit bureaus.

• Several specialists we talked to stressed that the accuracy of any 

information reported to credit bureaus is of paramount importance. 

They said if inaccurate data are provided to credit bureaus, this 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’s financial 

statements found that IRS experienced errors and delays in recording 

taxpayer information, payments and other tax assessment related 

activities.13 Subject matter specialists commented that to help ensure 

that a reported tax debt is valid, IRS would need to ensure that 

taxpayers are provided opportunities to dispute tax assessments 

before reporting debts to credit bureaus.14 Also, under FCRA, should 

policymakers choose to apply it, there could be financial liability for 

IRS associated with reporting debt information inaccurately.

• The frequency of reporting is another important consideration as it 

would have implications for the currency and accuracy of data. Credit 

bureau officials told us that many data furnishers report information 

monthly, but others report information only when something changes. 

FCRA requires that furnishers of information update information on a 

 

13GAO-12-165. 

14Before filing a tax lien, IRS procedures gives taxpayers notice of the amount of the debt 

and opportunity to dispute it. 
Page 16 GAO-12-939 Tax Debt Reporting

regular basis, but does not specify the timing for such reporting. Credit 

bureau and financial industry representatives observed that regular 

reporting of tax debts by IRS would mean that the bureaus would 

have more up-to-date information than what is currently available from 

filed tax liens and data about debts for which liens have not been filed.

• Amending section 6103 of the Internal Revenue Code in order to 

authorize disclosure of tax information to credit bureaus may not be 

the only change needed to implement a debt reporting proposal. 

Potential statutes likely to be included in consideration of legal 

implications include FCRA, the Debt Collection Improvement Act, 

Freedom of Information Act, and Privacy Act. Discussions with 

officials from federal agencies that report nontax debts to credit 

bureaus suggest that, while there would be costs associated with any 

IRS tax debt reporting, there are not specific obstacles that would 

prevent such reporting.

• Subject matter specialists offered differing perspectives on the effect 

that directly reporting tax debt information would have on privacy. 

Some specialists said that reporting tax debts to credit bureaus would 

be significantly different from other disclosures of federal tax 

information. Current authorizations to disclose tax information 

generally are to government agencies for tax and other limited, 

specific uses by the government. In contrast, reporting tax debts to 

credit bureaus would involve disclosure of federal tax information to 

private sector companies. However, some specialists also noted that 

some tax debts are already subject to public disclosure in the notice of 

federal tax lien, and that credit bureaus routinely identify and report 

the information from such notices.

• Experts observed that policymakers may wish to consider applying 

the requirements of FCRA to a tax debt reporting program, as doing 

so could address concerns about giving taxpayers the opportunity to 

dispute negative information and ensuring transparent and limited use 

of information about them. Policymakers may also wish to consider 

applying the requirements of the Debt Collection Improvement Act, 

which governs debt reporting by other federal agencies and gives 

taxpayers the opportunity to dispute negative information about 

nontax federal debts before a federal agency reports it. Several 

specialists stressed the importance of IRS having an effective process 

for giving taxpayers adequate notice before information is reported 

and for timely response and resolution of taxpayers’ inquiries or 

disputes. Notice, access, and correction opportunities could be 
Page 17 GAO-12-939 Tax Debt Reporting

addressed by incorporating those concepts into existing IRS 

procedures or possibly developing new procedures.

• Most IRS disclosures of federal tax information include strict 

requirements to prevent subsequent redisclosure of the federal tax 

information, but reporting tax debts to credit bureaus would be 

different. Inherent in any likely proposal to report tax debt information 

to credit bureaus would be the understanding that the information 

would be redisclosed to other parties as permitted by federal law.15

• Some specialists suggested the possibility that the threat of credit 

bureau reporting could increase compliance because people would 

seek to avoid incurring reportable debts or hurry to pay off their 

existing debts to improve their credit scores. The National Taxpayer 

Advocate, however, suggested that any proposal should be evaluated 

in light of the possibility that reporting tax debts to credit bureaus may 

result in some people choosing to not file or file inaccurately if they 

know they owe money to IRS.

Some specialists noted that once credit bureau information is 

redisclosed, it is less subject to controls on its use and more open to 

possible misuse. They noted that this would be a very serious 

consideration in light of the high level of protection typically given to 

federal tax information and taxpayers’ expectation that information 

about them will be protected by IRS. However, some specialists also 

noted that information about many tax debts is already made public 

through tax liens and available in credit bureau files.

16

• Finally, experts observed that experience with tax liens may provide a 

useful analogue for considering potential effects of direct tax debt 

reporting on voluntary compliance. Studies by IRS and the Taxpayer 

Advocate have revealed desired and undesired compliance effects of 

liens in some cases. For example, the Taxpayer Advocate Service 

has conducted research that raises concerns about potential negative 

effects associated with liens. A 2011 study found that lien filing was 

associated with declines in taxpayers’ compliance and reported 

 

15Credit bureaus are required by FCRA to protect the consumer information they maintain 

from unauthorized disclosures or uses not allowed by federal law.

16The National Taxpayer Advocate is appointed by the Secretary of the Treasury and 

reports to the Commissioner of Internal Revenue. The Taxpayer Advocate presents an

independent taxpayer perspective that does not necessarily reflect the position of the IRS, 

the Treasury Department, or the Office of Management and Budget.
Page 18 GAO-12-939 Tax Debt Reporting

income.17 In the years studied, taxpayers subject to liens were less 

likely to reduce their initial tax debt, file required returns, and have 

increased income than other similarly situated taxpayers without liens 

filed. However, the study also found lien filing was associated with 

better payment compliance behavior among these same taxpayers in 

subsequent years. IRS studies have also found that liens had positive 

compliance effects for cases studied, such as increasing the likelihood 

that a collection case would be resolved if a lien is filed sooner.

The IRS provided technical comments after viewing a draft of this report, 

which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to interested congressional 

committees, Secretary of the Treasury, Commissioner of Internal 

Revenue, and other interested parties. In addition, the report will be 

available at no charge on the GAO website at http://www.gao.gov. 

 

17 National Taxpayer Advocate, “Estimating the Impact of Liens on Taxpayer Compliance 

Behavior and Income,” 2011 Annual Report to Congress, Volume Two: TAS Research 

and Related Studies, (Dec.31, 2011) p. 94.

Agency Comments
Page 19 GAO-12-939 Tax Debt Reporting

If you have any questions about this report, please contact me at (202) 

512-9110 or whitej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this guide are listed in appendix III.

James R. White, Director

Tax Issues

Strategic Issues
Page 20 GAO-12-939 Tax Debt Reporting

Tax policy and tax administration

• Office of Tax Policy, Department of the Treasury

• Internal Revenue Service

Reporting nontax debts to credit bureaus

• Financial Management Service, Department of the Treasury

• Department of Education

• Small Business Administration

Regulating credit bureaus

• Federal Trade Commission

• Consumer Financial Protection Bureau

Taxpayer and practitioner interests

• National Taxpayer Advocate 

• American Institute of Certified Public Accountants

• National Association of Tax Professionals

Privacy interests

• American Civil Liberties Union

• Center for Democracy & Technology

• Robert Gellman, Information Policy and Privacy Consultant

Credit bureaus and credit reporting

• Equifax

Appendix I: External Parties Contacted
Page 21 GAO-12-939 Tax Debt Reporting

• Experian

• TransUnion

• Innovis

• Dun & Bradstreet

• FICO

• Consumer Data Industry Association

Financial business concerns

• Financial Services Roundtable

• American Bankers Association
Page 22 GAO-12-939 Tax Debt Reporting

Threshold questions

1. Does the proposal have a clear purpose and description of how the 

tax information will be used?

• What specific information will be disclosed?

• To whom will the information be disclosed?

• What category or categories of taxpayers will be affected?

• How will the information be used?

• What purpose will be achieved?

2. Does the proposal consider reasonable alternatives?

3. Is the tax information accurate, complete, and current enough for the 

stated purpose?

4. Is the tax information to be disclosed relevant and the minimum 

needed to achieve the stated purpose?

5. Does the proposal address any other statutory, regulatory, or logistical 

issues necessary for its implementation?

• Will the proposal require additional legislation besides modifying 

section 6103 to accomplish the desired result?

• Does the proposal conflict with existing regulations, rules, or 

statutes other than section 6103?

• How will any logistical or practical barriers or hindrances to 

implementing the proposed disclosure and use of information for 

the stated purpose be resolved?

Appendix II: List of Threshold and Policy 

Factor Questions and Subquestions That 

Guided Our Discussions with Subject Matter 

Specialists
Page 23 GAO-12-939 Tax Debt Reporting

Policy factor questions

Expected benefits and costs

1. What are the expected benefits of the proposal to disclose tax 

information?

• What are the estimated financial benefits, if any, to be achieved by 

using tax data?

• What are the nonfinancial benefits that are expected, if any?

2. What are the expected costs of obtaining and using the tax 

information to be disclosed?

• What are the estimated costs for IRS to provide the tax data?

• What are the estimated costs to the entity receiving the 

information?

• What are the expected costs for others affected by the taxdisclosure proposal?

Privacy effect and safeguards

3. What is the potential effect on privacy?

• To what extent will the proposal adversely affect taxpayer privacy?

• Is the use of the information transparent and limited?

• Will sufficient notice and control be provided to individuals?

4. What risks of improper use or unauthorized disclosure does the 

proposal create and how well does the proposal address those risks?

• Does the proposal adequately take into account risks of 

unauthorized use or redisclosure associated with the disclosure?
Page 24 GAO-12-939 Tax Debt Reporting

• Does the proposal provide adequate safeguards to mitigate those 

risks? 

Effects on the tax system 

5. What is the potential effect on voluntary taxpayer compliance?

• What is the potential effect on voluntary compliance by taxpayers 

whose tax information will be disclosed?

• What is the potential effect on general voluntary compliance for 

other taxpayers?

6. What is the potential effect on tax administration?

• How much will implementing the proposal affect current IRS 

activities or performance?

• How much will any related safeguard responsibilities add to IRS’s 

current responsibilities?
Page 25 GAO-12-939 Tax Debt Reporting

James R. White, (202) 512-9110 or whitej@gao.gov

In addition to the contact named above, David Lewis, Assistant Director; 

Ronald W. Jones, Analyst-in-Charge; Ellen Rominger; Cynthia Saunders; 

and Sabrina Streagle made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(450958)
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