Private Debt Collector Success in UK Should Provide Guidance for IRS

Her Majesty’s Revenue and Customs (HMRC), the UK equivalent to the US Internal Revenue Service (IRS), said that the group of private debt collection agencies working on its behalf recovered £464,058,131 ($750.3 million) in back taxes over the first two years of the full implementation of the program.

In the post-financial crisis austerity move, HMRC launched a private debt collectors tax recovery trial in 2009. After the success of the trial, the program expanded to full implementation with 10 contractors in 2011. The recent HMRC report noted that the $750.3 million collected covered the period from July 1, 2011 to July 26, 2013.

If the structure of the UK’s trial and launch sound familiar, then you’ve been reading insideARM.com for a while. The IRS launched its trial with three private debt collectors in 2004, with plans to expand to 10 contractors after the trial period. But the program never made it out of trial.

Heavy opposition to the use of private collectors — primarily from the union representing IRS workers, the National Treasury Employees Union – created massive roadblocks to full implementation. The ARM community didn’t help matters when several collection agencies not chosen for the contract launched formal complaints against the procurement process.

When Democrats regained control of Congress after the 2006 mid-term elections, there were several efforts to defund the program. The final blow came in early 2009 when the IRS opted to not renew the contracts of the two remaining debt collection agencies doing work on its behalf.

Under full implementation of the private debt collectors program, HMRC was so satisfied that it added two additional contractors, bringing the total number to 12. It has also formally extended the contracts through October 2014.

The release from the UK tax office adds more credence to a recent call from a supporter of the IRS program to reconsider it. U.S. Senator Chuck Grassley (R-Iowa) sent a formal letter to IRS Commissioner nominee John Koskinen asking him to define his position on the Internal Revenue Service’s use of private debt collection agencies to recover back taxes. For at least a decade, Sen. Grassley has been the strongest Congressional proponent of the private debt collection program.

“Instead of raising taxes, as the president and his supporters want, we need to do a better job of collecting taxes that are already due and owed,” Grassley said.

If the U.S., like the UK and rest of Europe, decides to launch more austere budget measures, perhaps the IRS could heed the words of Senator Grassley and use the HMRC model as guidance for restarting its own private debt collection program.