I could see having a pirate ID and police IFF being a problem. I could see having a trader ID and Pirate IFF being a problem because traders are lawful and police are lawful. I could see having a smuggler id and police IFF being a problem, but not Trader/Police. Both are lawful, it doesent cross the line.
The one time I complained about it, there was someone with liberty police ID and IFF hauling diamonds. There was also someone doing the same run with a trader id and police IFF, and everyone thought I was yelling at the latter and so quickly ''corrected' me.
It says match closely as possible, not match 100%. The IFF of your ally (i.e. house traders are allied with house police) would still make you the correct color to everyone else who had their ID card in order, the bases would be the correct colors, and so would the NPC's.