If it's Good Enough for the British?

This week, Her Majesty’s Revenue and Customs (HMRC) – the British equivalent of the IRS – announced that it would begin a six-month trial program that will see it outsource select tax debt to private ARM firms for collection.

What??? Don’t they know that doesn’t work? Perhaps they should have consulted with their counterparts across the Pond before embarking on such a crazy scheme.

Speaking of the IRS, Commissioner Shulman offered a feeble defense for the U.S. tax agency’s decision to cut its ties with private collectors. Speaking before the House Appropriations Subcommittee on Financial Services Tuesday (he was there to implore Congress to increase the IRS budget for 2010), Shulman said that the program was shuttered in the interest of a “unified collection program.”

He insisted that the decision to kill the program wasn’t political.

Shulman explained that IRS employees had a lot more power than the private collection agencies they hired. So the IRS decided to get rid of the collection agencies. He also noted that the private debt-collection initiative was created when IRS had a backlog of $7.3 billion in collections, which has since shrunk to about $3.6 billion (a sidenote: I love that the IRS commissioner thinks that a backlog of “only” $3.6 billion is a solid reason for abandoning a program specifically designed to whittle away at the backlog).

It’s bizarre that at a time when more governments in the U.S. – and the world – are turning to private collectors to help with revenue issues, the IRS has suddenly fallen in love with the concept of keeping it all in-house.

But before we call the British program a success, it should be noted that their initiative certainly has its detractors. The London Times reported this week that consumer groups in the UK have already voiced their displeasure. “Debt collection is still an industry that, with some notable exceptions, in many ways seems to thrive and function by creating a climate of fear,” said Chris Tapp of debt charity CreditAction.

It will be interesting to see how the pilot goes and if success could lead to the IRS rethinking their stance on private collectors.