Tax Farming in America

Kenneth H. Ryesky
One piece of tax legislation introduced by Senator Ron Wyden after he took the helm of the Senate Finance Committee is the EXPIRE Act, whose primary purpose is to extend various expiring provisions of the Internal Revenue Code. The proposed legislation, however, contains several non-extender revenue provisions, one of which, Section 304, would require the IRS to use private collectors for certain types of tax debts.

Section 304 is couched in the imperative mandatory language of "shall," thereby removing much discretion from the IRS.  From the accompanying Finance Committee Report, one must inescapably infer that the nondiscretionary mandate of the bill is deliberate and intentional:

"The Committee believes that the use of private debt collection agencies will help facilitate the collection of taxes owed to the Government.  The Committee also believes that the safeguards it has incorporated, such as narrowing the class of receivables subject to collection and giving priority to previously approved contractors, will protect taxpayers’ rights and privacy."

It is true that amongst the millions of taxpayers subject to the taxes, there are sure to be some recalcitrant cases where the IRS's engagement of private debt collectors is appropriate.  But many feel that Section 304 goes too far.

In Ancien Régime France, King Louis and his predecessors did not care to be bothered with the cares of tax administration as they partied at Versailles, so they periodically sold the rights to the tax collection function to the highest bidders. The concession was known as the Ferme Générale ("Tax Farm" in English).  The Ferme Générale system proved to be quite oppressive and abusive in its tax enforcement methods. Taxation is never popular even in its most benign manifestations, but so publicly despised were the fermiers who invested in the last tax collection contract that they lost their heads in French Revolution's reign of terror.  [Among those fermiers who died on the guillotine was the great scientist Antoine-Laurent Lavoisier, the father of modern chemistry, who invested in the Ferme Générale to finance his scientific experiment activities.].

And abuses no less grievous arise when the private tax collectors are given monopolies in the items that are subject to the tax.  This is what occurred in India with the salt monopoly during the British Raj.

Some consumer and civil rights groups have cosigned a letter to Senator Wyden opposing the mandatory nature of Section 304. These groups include Americans for Financial Reform, the National Consumer Law Center, Appleseed, the Center for Digital Democracy, the Center for Economic Justice, Consumer Action, the Consumer Federation of America, the Consumers Union, and the NAACP, among others. To say the least, these signatory organizations lean predominately towards the political left.

But history has shown that one need not frequent the leftward side of the political spectrum to be alarmed over the prospect of abuses by private tax collectors.  

The IRS's demonstrated abuses of the public trust have made the public and elected officials quite chary about entrusting the IRS with any degree of untethered discretion. On the other hand, the mandatory nature of Section 304 is cause for concern in all reaches of the political spectrum.

The Finance Committee's belief that the "safeguards" incorporated into the legislation "will protect taxpayers’ rights and privacy" belies a severe underestimation of the damage potential posed by rogues who are clothed with the uniform of the tax collector.  As long as private debt collectors are compensated on a commission basis, the pressure to step across the fuzzy, blurry line that separates assertive collection tactics from abuse will always be present.  And as long as the private debt collection program brings more dollars into the Treasury's coffers (or at least gives IRS managers and executives a basis to show favorable statistics from the program), nobody in the IRS will have any incentive to rein in the hired goons.

Kenneth H. Ryesky is a lawyer who teaches Business Law and Taxation at Queens College CUNY.  He formerly served as an attorney for the IRS.

One piece of tax legislation introduced by Senator Ron Wyden after he took the helm of the Senate Finance Committee is the EXPIRE Act, whose primary purpose is to extend various expiring provisions of the Internal Revenue Code. The proposed legislation, however, contains several non-extender revenue provisions, one of which, Section 304, would require the IRS to use private collectors for certain types of tax debts.

Section 304 is couched in the imperative mandatory language of "shall," thereby removing much discretion from the IRS.  From the accompanying Finance Committee Report, one must inescapably infer that the nondiscretionary mandate of the bill is deliberate and intentional:

"The Committee believes that the use of private debt collection agencies will help facilitate the collection of taxes owed to the Government.  The Committee also believes that the safeguards it has incorporated, such as narrowing the class of receivables subject to collection and giving priority to previously approved contractors, will protect taxpayers’ rights and privacy."

It is true that amongst the millions of taxpayers subject to the taxes, there are sure to be some recalcitrant cases where the IRS's engagement of private debt collectors is appropriate.  But many feel that Section 304 goes too far.

In Ancien Régime France, King Louis and his predecessors did not care to be bothered with the cares of tax administration as they partied at Versailles, so they periodically sold the rights to the tax collection function to the highest bidders. The concession was known as the Ferme Générale ("Tax Farm" in English).  The Ferme Générale system proved to be quite oppressive and abusive in its tax enforcement methods. Taxation is never popular even in its most benign manifestations, but so publicly despised were the fermiers who invested in the last tax collection contract that they lost their heads in French Revolution's reign of terror.  [Among those fermiers who died on the guillotine was the great scientist Antoine-Laurent Lavoisier, the father of modern chemistry, who invested in the Ferme Générale to finance his scientific experiment activities.].

And abuses no less grievous arise when the private tax collectors are given monopolies in the items that are subject to the tax.  This is what occurred in India with the salt monopoly during the British Raj.

Some consumer and civil rights groups have cosigned a letter to Senator Wyden opposing the mandatory nature of Section 304. These groups include Americans for Financial Reform, the National Consumer Law Center, Appleseed, the Center for Digital Democracy, the Center for Economic Justice, Consumer Action, the Consumer Federation of America, the Consumers Union, and the NAACP, among others. To say the least, these signatory organizations lean predominately towards the political left.

But history has shown that one need not frequent the leftward side of the political spectrum to be alarmed over the prospect of abuses by private tax collectors.  

The IRS's demonstrated abuses of the public trust have made the public and elected officials quite chary about entrusting the IRS with any degree of untethered discretion. On the other hand, the mandatory nature of Section 304 is cause for concern in all reaches of the political spectrum.

The Finance Committee's belief that the "safeguards" incorporated into the legislation "will protect taxpayers’ rights and privacy" belies a severe underestimation of the damage potential posed by rogues who are clothed with the uniform of the tax collector.  As long as private debt collectors are compensated on a commission basis, the pressure to step across the fuzzy, blurry line that separates assertive collection tactics from abuse will always be present.  And as long as the private debt collection program brings more dollars into the Treasury's coffers (or at least gives IRS managers and executives a basis to show favorable statistics from the program), nobody in the IRS will have any incentive to rein in the hired goons.

Kenneth H. Ryesky is a lawyer who teaches Business Law and Taxation at Queens College CUNY.  He formerly served as an attorney for the IRS.