No, an IRS audit does not directly affect your credit score. Unlike other types of debt like credit cards or loans, tax debt is not reported to credit bureaus by the Internal Revenue Service (IRS), so it will not affect your credit.
Even if you owe money to the government, your credit score won’t fall. Furthermore, an audit does not always indicate that you owe money; the IRS may be verifying that you have made the necessary payments.
If you’ve recently checked your credit report and noticed an inquiry from the IRS, don’t panic. It’s not necessarily a bad thing. In fact, it’s becoming increasingly common for the IRS to use credit bureau information to verify identities and prevent fraud.
What Does an IRS Inquiry on My Credit Report Mean?
An IRS inquiry on your credit report typically indicates that the agency has requested information from a credit bureau to help verify your identity This is often done as a security measure to ensure that your tax information is not being accessed or used by someone else,
Why Would the IRS Need to Verify My Identity?
There are several reasons why the IRS might need to verify your identity:
- To prevent tax fraud: The IRS is constantly on the lookout for fraudulent activity, and verifying identities is one way to help prevent criminals from filing false tax returns or stealing refunds.
- To protect your privacy: The IRS wants to make sure that your personal tax information is only being accessed by you. By verifying your identity, they can help to prevent unauthorized access to your data.
- To improve customer service: Verifying identities can help the IRS to provide better customer service by ensuring that they are communicating with the correct person.
What Happens When the IRS Verifies My Identity?
You will usually be asked to respond to a series of questions based on your credit report when the IRS contacts a credit bureau to obtain information in order to verify your identity. These questions might include things like:
- Your previous addresses
- The names of lenders you have borrowed from in the past
- The dates you opened certain accounts
If you can answer these questions correctly, it helps to confirm that you are who you say you are. The IRS will not see your actual credit report, and the credit bureau will not see your tax information.
Should I Be Worried About an IRS Inquiry on My Credit Report?
Generally speaking, an IRS inquiry on your credit report is not something you should be concerned about. It’s just a security precaution the agency is taking to safeguard your tax information and identity.
However, if you are concerned about identity theft or if you believe that the IRS inquiry may be related to fraudulent activity, you should contact the IRS directly to report the issue.
Does an IRS Inquiry Affect My Credit Score?
No, an IRS inquiry will not affect your credit score. Soft inquiries, such as those the IRS does to confirm identity, have no effect on your credit score.
If I notice an IRS inquiry on my credit report, what should I do?
If you see an IRS inquiry on your credit report, there’s no need to take any action unless you are concerned about identity theft or fraudulent activity. However, you may want to consider the following:
- Review your credit report: Make sure that all of the information on your credit report is accurate and up-to-date.
- Enroll in identity theft protection: There are a number of identity theft protection services available that can help to monitor your credit report and alert you to any suspicious activity.
- Contact the IRS: If you have any questions or concerns about the IRS inquiry, you can contact the IRS directly for more information.
Additional Resources:
- Experian: Why Is There an Inquiry From the IRS on My Credit Report?
- Avvo: I Was Taking a Look at My Credit Report, I Noticed an Inquiry From the IRS, What Does This Mean?
An IRS inquiry on your credit report is usually nothing to worry about. It’s simply a security measure that the agency is taking to protect your identity and your tax information. However, if you have any concerns, you can always contact the IRS directly for more information.
Can taxes impact your credit score?
Taxes don’t impact your credit score, even if unpaid, unless they affect your other finances. You should be good if you can make your loan and credit card payments on time. However, if your unpaid taxes put a strain on your finances and cause you to miss payments, your credit score may suffer. If you use credit to pay your tax bills, it could impact your credit as well.
What is a tax audit?
The IRS examines some taxpayer returns to confirm that they were reported legally. The IRS chooses returns to audit by random and by algorithm. It also may audit returns that are related to other returns already selected for an audit.
The IRS can examine returns filed up to six years ago, but the majority of audits are carried out on returns filed within the last two years.
Here’s how the audit process generally plays out:
- You’ll receive a letter about the audit. In the event that you are chosen for an audit, you will receive correspondence from the IRS. There won’t ever be a call beginning an audit; those could be scams.
- The IRS will review your information. This step might take some time, depending on the volume and complexity of your tax returns. The agency closely examines your return. If you would like assistance during an audit, think about hiring a tax professional as you have the right to representation during this process.
- You’ll provide tax documentation. The IRS will frequently ask you to provide more documentation about your earnings, outlays, and possible deductions.
- The IRS will notify you about the results. Any potential adjustments to your tax return will eventually be communicated to you, and you’ll have the option to accept or contest them. It’s also possible that your return will be accepted by the IRS without any modifications.
- If needed, you’ll have to pay any extra taxes. You must pay any taxes you owe if the IRS changed your return; if you don’t, a tax lien may eventually be put on your property.
What the IRS is actually looking for that could trigger a tax audit
FAQ
Do credit companies report to IRS?
Can IRS see your credit card?
How do you know if you are being audited by IRS?
Does IRS debt appear on your credit report?
In the past, your IRS debt may have appeared on your credit report if the IRS filed a Notice of Federal Tax Lien against you. Starting in 2018, the three major credit bureaus removed tax liens from consumer credit reports. However, lenders may still search public records for tax liens.
Does the IRS check a taxpayer’s credit report?
While the IRS itself doesn’t check a taxpayer’s credit report, they may use a third party to perform a soft credit check on taxpayers who are selected for audit. Each year, the IRS singles out about 1 percent of tax returns for audit.
Can the IRS access my credit report?
While the IRS has the legal authority to access your credit file for reasons related to collections investigations, it’s common for the agency to request help from a credit bureau simply to verify a person’s identity. If an IRS inquiry on your credit report concerns you, it’s best to consult a tax professional.
Does a payment plan with the IRS trigger a credit report?
Taking the step of setting up a payment arrangement with the IRS does not trigger any reports to the credit bureaus. As mentioned above, the IRS is restricted from sharing your personally identifiable information. While a Notice of Federal Tax Lien could be discoverable by lenders, the payment plan itself would not.