April 15th, 2013…affectionately referred to as “tax day.” Not only is today a Monday but it’s also the day we have to either file our tax returns or an extension. And for those of us who owe more taxes than we’ve already paid, today is the day we have to send our checks or so starts the interest clock. And for those of us who run our own businesses not only are we writing checks to the U.S. Treasury to cover our Federal tax obligation and the state to cover our state tax obligation…but we’re doing it twice because today is also the day payment for 2013 Q1 estimated taxes are due. All in all…it’s been a lousy day. What if we just threw up our arms and said, I’m not paying my taxes! Not much causes more confusion in the world of credit reporting as the issue of public records and how they make their way to consumer credit reports. While there are many different types of public records, there are only 3 as it relates to credit reports; judgements, bankruptcy, and tax liens. It’s the tax lien that I’d like to address.
If you choose to not pay your taxes you might get away with it for a few years but eventually the IRS is going to figure out that something is wrong. Either your 1099s aren’t adding up to the amount of money you say your company made last year or you’re earning an income but getting large refunds year over year. Or, worst case scenario…maybe you’ve dropped off the map and haven’t filed returns. Regardless, you’re likely to get some form of communication from the IRS.
If they determine you have not paid the appropriate amount of taxes then they’ll ask, nicely, for you to settle up with them, plus interest. If you still thumb your nose at your tax obligation then eventually they’ll file a lien against you. That gives them the right to take “stuff” from you…either money or property.
Credit Reporting Confusion
Here’s where the confusion begins. Tax liens are commonly reported on consumer credit report but they aren’t reported to the credit bureaus by the IRS or any state department of revenue. So, if you ever year anything suggesting the IRS reported a lien to the credit bureaus or that the IRS was going to correct something on a credit report…nope, ain’t going to happen.
The IRS is not a “furnisher” of information to the credit bureaus (I’ve heard this might change so stay tuned) like a bank or a collection agency. So if the IRS isn’t sending anything to the credit bureaus, how are the credit bureaus getting their hands on tax lien information? The answer is simple…“public” record. The credit bureaus actually go out and proactively retrieve the public record data in the credit file database. Because the data is public anyone, including me and you, can go down to the courthouse and grab it.
And, when you challenge public record information on your credit report the credit bureaus aren’t calling the courthouse and speaking to the clerk. They’re having to go back to the courthouse, electronically or in person, to verify the validity of your dispute claim.
Unpaid tax liens can remain on credit reports forever, although the credit bureaus can choose to remove them sooner than forever.
Released tax liens can remain on credit reports for 7 years from the date released.
Withdrawn tax liens are removed immediately, as soon as the credit bureaus become aware of the withdrawal.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here.