IRS May Share Credit Reports for Collection But Not
Criminal Investigation Efforts
RIA Newsstand 7/11/07

Internal Legal Memorandum 200726001 


An Internal Legal Memorandum (ILM) has concluded that IRS's automated
collection system (ACS) may share a taxpayer's full credit report with IRS's
field Collection division (Collection) when the report was obtained without
a summons under the Fair Credit Reporting Act (FCRA) collection exception
and has potential indicators of fraud. However, neither ACS nor field
Collection may share the contents of the full credit report with the
Criminal Investigation (CI) division if the report was obtained under the
collection exception to the FCRA.
Notwithstanding this bar, ACS may share non-protected information with CI.

IRS's use of credit report. IRS often obtains taxpayers' credit reports
from consumer reporting agencies, including short reports and full consumer
credit reports. The short report is used primarily to verify contact
information, while a full consumer credit report provides IRS with loan,
employment, financial, and payment information about a taxpayer. IRS may
obtain and use a full credit report, without a summons, for collection of an
assessed liability. The use must meet certain criteria specified in the
Internal Revenue Manual 5.1.18.5. Some cases in ACS's collection inventory
have at least one indicator of fraud, even though a formal referral to CI is
never made in the vast majority of cases. Further, in certain cases where
the balance due exceeds an established dollar criteria, ACS generally makes
referrals to field Collection to work the case.

Law on use of credit reports. IRS's use of consumer credit reports is
limited by the FCRA 15 USCS 1681 et seq. In particular, the FCRA prevents
consumer reporting agencies from furnishing credit reports to anyone,
including IRS, except for certain specified purposes, including both
furnishing a report in response to an IRS summons and furnishing a report
without a summons in connection with a review or collection of an account.
No one, including IRS, may use or obtain a credit report unless the report
is obtained or used for one of the enumerated purposes. The person
receiving the report must also certify that the information is being sought
for one of the enumerated purposes and will be used for no other purpose.
Courts have interpreted these restrictions in favor of the consumer.

Report may go to Collection. ACS may obtain and use a full credit report in
cases with a taxpayer delinquent account balance in order to make a
collection determination. Collection of an account is one of the enumerated
purposes for which a consumer credit report may be obtained and used. Even
if there are indications of fraud present in the case, so long as ACS only
uses the consumer credit report for collection purposes, such as collecting
an assessed tax liability, the FCRA won't be violated. Thus, the ILM
concludes that, when ACS wishes to refer a taxpayer delinquent account case
to field Collection for collection action, ACS may include a copy of the
full credit report without violating the FCRA.

Sharing with CI barred. Use of a credit report outside of the scope of
collection purposes, including a fraud referral to CI, would violate the
terms of the FCRA. Thus, the ILM concludes that if CI wants access to the
full report, CI must use its summons power to do so. However, some
information may be shared with CI. Specifically, the ILM says that, ACS or
field Collection should be able to share information with CI so long as the
actual report information itself is not disclosed. Thus, ACS or field
Collection could share the taxpayer's name, the fact that a full credit
report was obtained and the date on which the full credit report was
obtained in a fraud referral. ACS or field Collection, however, could not
reveal the contents of the credit report itself in the referral.

RIA Research References: For IRS procedure for collecting tax payments
voluntarily, see FTC 2d/FIN V-5000.1; TaxDesk 901,010.

Source: Federal Taxes Weekly Alert (preview) 07/12/2007, Volume 53, No. 28
http://ria.thomson.com/default.asp