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“War Story” – – The Price of Credit-Report Errors

Editor’s Note:  this article, in the WSJ news entitled “The Price of Credit-Report Errors” brings up several good points.  In my law practice,  frequent question that comes up in the context of tax liabilities, is the issue of the effect on one’s credit, after the filing of a Federal or State Tax Lien.  The effect can be devastating to one’s business.

A “War Story” that comes to mind was some years ago, I represented a public company that had misclassified its workers as employees (they were treated as independent contractors).  There were some delinquent quarterly employment tax returns as well.  In any event, after voluntarily disclosing the above to the IRS (civil case), the IRS assigned a revenue officer to the case.  The goal or key was to get the revenue officer to accept the fact that the Notice of Filing a Federal Tax Lien would devastate the company.

Why?  The lenders would declare the “loans” in default, and would force the company into bankruptcy, something that would not work to the benefit of any creditors, IRS or otherwise.  So, we met with the IRS when they asked to meet with us; we gave them every piece of paper they requested.

The result?  After two years, IRS did NOT file a Notice of Filing of Federal Tax Lien.  The company survived, and paid off the the IRS, in full.

Here’s the article:

Recent studies indicate that the credit reports lenders rely on to make decisions about consumers’ credit worthiness frequently contain errors. Because this can raise the interest rates borrowers pay, it can be  especially painful for retirees living on a fixed income.

The solution: Check your credit report at least once a year.

While lenders rely heavily upon credit reports when making decisions about loans, there is widespread disagreement about the accuracy of credit reports. Past studies from consumer groups have found that between 30% and 80% of credit reports contain errors, up to half of which may lower consumers’ credit scores by enough to penalize them financially. A new survey of more than 150 consumers by American Consumer Credit Counseling, a nonprofit that provides free credit counseling, puts the error rate at almost 90%.

Due to errors, consumer advocates say, prospective borrowers may be turned down for loans or forced to pay higher interest rates. Inaccurate credit reports also can lead to higher premiums for homeowners and automobile insurance or losing out on apartments and jobs, says Chi Chi Wu, an attorney at the National Consumer Law Center.

The companies that compile credit reports say these figures are inflated. They point to a May 2011 report underwritten by the Consumer Data Industry Association, an industry trade group, that concludes that about 20% of consumers have errors on credit reports and fewer than 1% see their credit scores reduced by enough to push them into a riskier tier of borrowers.

Still, those on both sides of the debate agree that consumers should regularly order (at AnnualCreditReport.com or 1-877-322-8228) the one free credit report they are entitled to annually from each of the three major credit-reporting companies: TransUnion, Experian and Equifax. Aside from catching errors, the benefits include protecting against identity theft.

Those who find an error should contact the company that furnished the report, using the instructions on its website. The company has 30 days to investigate, says Norm Magnuson, spokesman at the Consumer Data Industry Association.

To get your FICO credit score, the score most commonly used by lenders, go to myfico.com. You also can buy scores at one of the credit-reporting companies – you’ll pay about $10. Be aware that some lenders use their own proprietary formulas to produce their own credit scores. As a result, about 20% of consumers receive a “meaningfully different” number than the one a lender would use, according to a new report by the federal Consumer Financial Protection Bureau.

On Sept. 30, the bureau began regulating many of the credit-reporting companies.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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