[Federal Register Volume 62, Number 122 (Wednesday, June 25, 1997)]
[Rules and Regulations]
[Pages 34175-34181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16181]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 285
RIN 1510-AA62
Offset of Tax Refund Payments To Collect Past-Due, Legally
Enforceable Nontax Debt
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Interim rule with request for comments.
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SUMMARY: Effective January 1, 1998, the Department of the Treasury
(Treasury) will merge the tax refund offset program with the
centralized administrative offset program operated by the Financial
Management Service (FMS), a bureau of the Department of the Treasury.
The merger of the two offset programs is intended to maximize and
improve Treasury's government-wide collection of delinquent nontax debt
owed to the Federal Government. FMS will administer nontax debt
collection functions that include the tax refund offset program. The
Internal Revenue Service (IRS) will remain responsible for the
administration of the internal revenue laws. To conform with the
requirements of the merged offset program, this interim rule supersedes
the tax refund offset procedures promulgated by the IRS.
DATES: This rule is effective July 25, 1997. This rule applies to tax
refund payments payable after January 1, 1998. Comments will be
received until July 25, 1997.
ADDRESSES: All comments should be addressed to Gerry Isenberg,
Financial Program Specialist, Debt Management Services, Financial
Management Service, Department of the Treasury, 401 14th Street S.W.,
Room 151, Washington, D.C. 20227. A copy of this interim rule is being
made available for downloading from the Financial Management Service
home page at the following address: http://www.fms.treas.gov.
FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program
Specialist, at (202) 874-6660; Pamela Dillon, Treasury Offset Program,
at (202) 874-8700; Ellen Neubauer or Ronda Kent, Senior Attorneys, at
(202) 874-6680.
SUPPLEMENTARY INFORMATION:
Background
FMS, as the Treasury disbursing agency, is responsible for the
implementation of centralized administrative offset of Federal payments
for the collection of delinquent nontax debt owed to Federal agencies
and to States, including past-due child support, in accordance with the
provisions of the Debt Collection Improvement Act of 1996 (DCIA),
Public Law 104-134, 110 Stat. 1321-358 et seq. (1996). In addition, FMS
disburses more than 850 million Federal payments annually, including
tax refund payments to taxpayers on behalf of the IRS.
Under 26 U.S.C. 6402(d) and 31 U.S.C. 3720A, the tax refund of a
taxpayer who owes delinquent debt to a Federal agency is reduced, or
offset, by the amounts owed by the taxpayer. The funds offset from the
taxpayers' tax refunds are forwarded to the Federal agency collecting
the delinquent debt. Since 1986, the IRS has been collecting delinquent
debt owed to Federal agencies by tax refund offset.
To improve the efficiency of Treasury's collection of delinquent
debt owed to Federal agencies, effective January 1, 1998, the tax
refund offset program will merge with the centralized administrative
offset program operated by FMS, known as the ``Treasury Offset
Program.'' The Treasury Offset Program, described below, is a
centralized offset program. Under the Treasury Offset Program, a
Federal payment to a person can be reduced, or offset, by a
[[Page 34176]]
delinquent amount owed by that person to a Federal agency or to a
State. In centralizing offset through the Treasury Offset Program, FMS
will consolidate and simplify offset procedures for the Federal
Government. The rules and procedures governing the Treasury Offset
Program will reflect statutory requirements for particular types of
payments or debts, as well as the general rules applicable to
collection of debts by offset.
The DCIA clarified that a Treasury disbursing official may conduct
tax refund offsets (see section 31001(w) of the DCIA, codified at 31
U.S.C. 3720A(h)). To conform with the requirements of the merged
program, this regulation supersedes the procedures governing the tax
refund offset program established by the IRS (codified at 26 CFR
301.6402-6), applicable to the collection of delinquent nontax debts
owed to Federal agencies. The tax refund offset procedures in this rule
supersede the procedures codified at 26 CFR 301.6402-6. Procedures for
processing claims by non-debtor spouses and for rejecting a taxpayer's
election to apply his or her refund to future tax liabilities remain
governed by IRS rules.
FMS will promulgate separate rules for the offset of tax refund
payments for the collection of past-due child support under 26 U.S.C.
6402(c) (offset of past-due support against overpayments) and 42 U.S.C.
664 (collection of past-due support from Federal tax refunds). In
addition, as authorized by the DCIA, FMS will promulgate rules for the
offset of payments other than tax refund payments for the collection of
debts owed to the United States and debts owed to States. FMS
anticipates that Part 285 of this title will contain all of the
provisions relating to offset by disbursing officials for the
collection of debts owed to the Federal Government and to State
governments, including past-due support.
Under the Treasury Offset Program, before a payment is disbursed to
a payee, FMS will compare the payee information with debtor information
in a database operated by FMS. The database contains debtor information
submitted and updated by Federal and State agencies collecting debts.
If the payee's name (or derivation of the name, known as a ``name
control'') and taxpayer identifying number (TIN) match the name control
and TIN of a debtor, the payment will be offset to satisfy the debt, to
the extent allowed by law, including applicable regulations. The
delinquent debt information will remain in the debtor database for
continuous offset of tax refund and all other eligible Federal payments
until debt collection activity for that debt is terminated because of
payment, compromise, write-off or other reasons justifying termination.
After January 1, 1998, tax refund payments will be offset as part
of the Treasury Offset Program, subject to the requirements of 26
U.S.C. 6402 and 31 U.S.C. 3720A. Since FMS issues different payment
types daily, a nontax delinquent debt could be satisfied by the offset
of a variety of Federal payment types, including vendor, salary,
retirement and certain benefit payments, as well as tax refund
payments.
As required by IRS regulation codified at 26 CFR 301.6402-6, under
the Treasury Offset Program and this rule, before submitting the debt
to FMS for offset, creditor agencies are responsible for notifying
debtors that their debt is delinquent and that the creditor agency
intends to collect the debt by offset. In the notice, the creditor
agency must inform debtors of their right to review applicable records
and to seek a review of the determination of the debt. The creditor
agency will certify to FMS that the requirements of this regulation and
applicable Federal law have been met.
After a tax refund offset occurs, FMS will notify the debtor that
the offset has occurred. FMS will provide information to the debtor
regarding the amount and date of the offset, the creditor agency to
which the amount offset was paid or credited, and a contact within the
creditor agency that will handle concerns or questions regarding the
offset. The notice also will advise any non-debtor spouse who may have
filed a joint tax return with the debtor of the steps that a non-debtor
spouse may take to secure his or her proper share of the tax refund.
IRS will continue to be responsible for reviewing refund claims by non-
debtor spouses. FMS will provide creditor agencies with sufficient
information to identify the debt for which amounts have been collected,
but will not disclose the payment source for the amounts collected. FMS
also will report offset information to the IRS at least weekly.
Procedural Changes Under Treasury Offset Program
As described in detail below, this rule supersedes certain
procedures established by the IRS (codified at 26 CFR 301.6402-6)
applicable to the collection of delinquent nontax debts owed to Federal
agencies. The procedural changes do not affect the rights of the debtor
to dispute the nature or amount of the debt or method of collection;
they only reflect the changes necessitated by the merger of tax refund
offset with the Treasury Offset Program and/or enactment of the DCIA.
For example, since FMS will implement tax refund offset, under this
rule, agencies are required to refer delinquent debts and provide
information and certification to FMS, instead of IRS. FMS, rather than
IRS, will provide post-offset notices and information to debtors and
agencies. Under the Treasury Offset Program, agencies will submit debts
for offset on an ongoing basis, rather than annually. Therefore,
agencies may report, as needed, routine increases to the amount of the
debt (such as those resulting from interest, penalties, and costs)
subject to notice and certification requirements.
Under the IRS regulation (codified at 26 CFR 301.6402-6(c)), prior
to referring a debt for tax refund offset, among other things, agencies
are required to attempt to collect the debt by administrative and
salary offset. FMS' Treasury Offset Program implements the DCIA mandate
to conduct centralized administrative offset (31 U.S.C. 3716(c)) and
salary offset (5 U.S.C. 5514(a)). Therefore, when an agency refers a
debt to FMS' Treasury Offset Program, the debt automatically will be
subject to collection by administrative offset, salary offset, and tax
refund offset. Under the IRS regulation (codified at 26 CFR 301.6402-
6(c)), prior to referring a debt for tax refund offset, agencies are
required to report the debt to a consumer reporting agency. The DCIA
requires that agencies report delinquent consumer debt to credit
bureaus, which agencies may do prior to or after submitting a debt to
the Treasury Offset Program. Although agencies are encouraged to report
delinquent debt early in the collection process, credit bureau
reporting is not a prerequisite to tax refund offset under this rule.
Creditor agencies are required to provide the same due process
rights to debtors under this rule as required by the IRS regulation
(codified at 26 CFR 301.6402-6) and agency-specific regulations. Under
the IRS regulation codified at 26 CFR 301.6402-6(d)(1), agencies are
required to mail the pre-offset notice to a debtor at the mailing
address obtained by the IRS. Although agencies may continue to use the
IRS mailing address, this rule allows agencies the flexibility to use
current address information contained in an agency's records, which may
include address information obtained from the debtor, public databases,
and other means. Since 1992, when the IRS promulgated its final rule,
access to address information databases has become widely available at
reasonable
[[Page 34177]]
costs. Also, based on their experience as participants in the tax
refund offset program over the last 10 years, some agencies have
indicated that the debtor address in their files is a more appropriate
mailing address for due process notification than the IRS address. The
change contained in this rule recognizes the fact that, for the purpose
of providing pre-offset notice to the taxpayer, the address obtained by
a creditor agency may be more recent than the address that the IRS can
provide based on a prior year's tax return.
Section Analysis
(a) Definitions
Creditor agency. The term ``creditor agency'' has the same meaning
as found at 31 U.S.C. 3701(e)(1) and includes a Federal agency seeking
to collect a claim through tax refund offset.
Debt or claim. For the purposes of this rule, the terms ``claim''
and ``debt'' are synonymous and interchangeable and have the same
meaning as found at 31 U.S.C. 3701(b). The term includes debt
administered by a third party acting as an agent for the Federal
Government as set forth in 31 U.S.C. 3720A(a).
Tax refund offset. For purposes of this rule, the term ``tax refund
offset'' means withholding or reducing a tax refund payment by an
amount necessary to satisfy a debt owed by the payee(s) of a tax refund
payment. This rule governs the offset of tax refund payments under 26
U.S.C. 6402(d), 31 U.S.C. 3720A and agency regulations promulgated in
accordance with the requirements of this rule. This rule does not cover
the offset of payments other than tax refund payments, nor does it
cover tax refund offset for the collection of past-due support. The
offset of tax refund payments to collect past-due child support is
governed by 26 U.S.C. 6402(c), 42 U.S.C. 664, and additional
regulations issued by FMS and the Department of Health and Human
Services. The offset of other types of Federal payments to collect
delinquent debt is governed by 31 U.S.C. 3716, 5 U.S.C. 5514, and
related regulations issued by FMS, Office of Personnel Management, and
agencies collecting debt.
Tax refund payment. The tax refund payment is the amount to be
refunded to the taxpayer after the IRS has applied the taxpayer's
overpayment to the taxpayer's past-due tax liabilities in accordance
with 26 U.S.C. 6402(a) and 26 CFR 6402-3(a)(6)(i).
(b) General Rule
Paragraph (b)(1) states the general rule that Federal agencies,
except the Tennessee Valley Authority (TVA), are required to submit
nontax delinquent debt information to the Secretary of the Treasury for
purposes of tax refund offset. TVA may, but is not required to, submit
its delinquent debt information for tax refund offset. Under the IRS
regulation codified at 26 CFR 301.6402-6(a), agencies submit debt
information to the IRS. Under this rule, agencies will submit debt
information to FMS, a bureau of the Treasury. FMS will operate the
delinquent debtor database and agencies are required to submit debtor
information to FMS for offset purposes. Federal agencies will submit
delinquent debtor information to FMS for purposes of tax refund offset
and administrative offset simultaneously. Thus, agencies will not have
to submit duplicate information to the IRS (for tax refund offset) and
FMS or other Federal agencies (for administrative offset).
Paragraph (b)(2) describes the offset process.
Paragraph (b)(3) identifies the types of debts that this rule does
not cover. Tax debts are collected in accordance with the Internal
Revenue Code and related regulations. As noted above, the IRS deducts
any tax liabilities owed by the taxpayer before authorizing the
issuance of the tax refund payment.
Paragraph (b)(4) describes the rules applicable to tax refund
offset for the purpose of collecting Federal Old Age, Survivors and
Disability Insurance (OASDI) overpayments. These rules have not changed
as a result of the merger of the tax refund offset program with the
administrative offset program.
Paragraph (b)(5) clarifies that an agency is not precluded from
using other debt collection tools, such as wage garnishment, after
submitting a debt to FMS for purposes of tax refund and administrative
offset.
(c) Regulations
This paragraph requires agencies to promulgate temporary or final
regulations for administrative and tax refund offset. Agencies that
previously participated in the tax refund offset program may need to
revise existing regulations to conform with the revised requirements in
this rule. Regulations for administrative offset under 31 U.S.C. 3716
are required since any debt submitted to the FMS debtor database will
be subject to administrative and tax refund offset simultaneously (to
the extent that payments are available for offset). Therefore, in
addition to tax refund offset requirements, a creditor agency must meet
the prerequisites for administrative offset before submitting debts for
collection by offset. FMS anticipates that Federal employee salary
offsets (whereby salary payments payable to Federal employees who owe
Federal debt are reduced to satisfy the outstanding obligations) will
be part of the Treasury Offset Program.
(d) Agency Certification and Referral of Debt
This paragraph describes the procedures related to the collection
of past-due legally enforceable debt owed to Federal agencies by tax
refund offset.
Paragraph (d)(1) outlines the certification required by an agency
submitting debt to FMS for tax refund offset. Section 3720A(b) of title
31 requires that, before collecting a debt by tax refund offset, an
agency must certify that reasonable efforts to collect the debt have
been made by the agency. Under the IRS regulation codified at 26 CFR
301.6402-6(c), before referring a debt for tax refund offset agencies
are required, among other things, to report the debt to a credit bureau
and attempt collection by salary and administrative offset. This rule
no longer requires credit bureau reporting and offset collection as
prerequisites to tax refund offset because the DCIA mandates that
agencies submit their delinquent debts to Treasury for administrative
offset and participate in matches for salary offset purposes. FMS'
Treasury Offset Program will implement the DCIA mandates to conduct
centralized administrative (31 U.S.C. 3716(c)) and salary offset (5
U.S.C. 5514(a)). Therefore, when an agency refers a debt to FMS'
Treasury Offset Program, the debt automatically will be subject to
collection by administrative offset, salary offset, and tax refund
offset. Under this rule, by complying with the DCIA, agencies will meet
the ``reasonable efforts'' requirement since, before submitting a debt
for tax refund offset, agencies will have demanded payment, notified
the debtor that the agency intends to collect the debt by offset
through FMS' Treasury Offset Program if payment is not received when
due, and provided the debtor with an opportunity for review of the debt
and to enter into a reasonable repayment plan. The DCIA further
requires that agencies report delinquent consumer debt to credit
bureaus, which agencies may do prior to or after submitting a debt to
FMS' Treasury Offset Program. Although agencies are encouraged to
report delinquent debt early in the collection process, credit bureau
reporting is not a prerequisite to tax refund offset under this rule.
Paragraph (d)(1)(iv) requires agencies to certify that the debt is
at least $25. If a debt referred to FMS is over $25 at the time it is
referred, the debt will remain
[[Page 34178]]
subject to collection by offset until it is paid in full even if it
falls below the $25 minimum.
Paragraph (d)(2) governs pre-offset notice and consideration of
evidence. Under the IRS regulation codified at 26 CFR 301.6402-6(d)(1),
agencies are required to mail a pre-offset notice to a debtor at the
mailing address obtained from the IRS. Paragraph (d)(2)(i) of this rule
modifies this requirement. As noted above, many agencies can obtain
updated address information from credit reports, public record
databases and the debtor. In many cases, the address obtained by the
agency is more recent than the address that the IRS can provide based
on a prior year's tax return. Therefore, agencies may mail the required
pre-offset notice to the debtor at the most current address contained
in the agency's records related to the debt. An agency may, but is not
required to, obtain address information from the IRS pursuant to 26
U.S.C. 6103(m)(2), (4), or (5) in accordance with IRS procedures.
Paragraph (d)(2)(ii) requires that agencies provide debtors with at
least 30 days to request review by the agency when an agent of the
creditor agency has handled the review. This requirement is the same as
contained in the IRS regulation codified at 26 CFR 301.6402-6(d)(2).
Paragraph (d)(3) governs referral of past-due, legally enforceable
debt. This paragraph describes the information that agencies must
include for each debt submitted to FMS for purposes of tax refund
offset.
Paragraph (d)(4) describes the procedures for correcting and
updating information transmitted to FMS by a creditor agency. Under the
IRS regulation codified at 26 CFR 301.6402-6(f), agencies are not
permitted to increase the amount of debt after they refer a debt to the
IRS for tax refund offset. Under the Treasury Offset Program and this
rule, agencies may increase the amount of the debt owed, subject to
compliance with certification requirements. As operated by the IRS,
agencies submit debts annually for tax refund offset. Since, in
addition to tax refunds, other types of payments will be offset under
the Treasury Offset Program, agencies will submit debts to the debtor
database, and offsets will occur, on an ongoing basis. Payments will be
offset and applied to a debtor's debt in the order in which the
payments are issued. A tax refund payment is one of many types of
payments that may be offset. Therefore, agencies may increase the
amount of the debt owed if the offset prerequisites have been met.
(e) Priorities for Offset
This paragraph describes how a tax refund payment is applied when a
taxpayer owes multiple debts. The priorities as stated in the IRS
regulation codified at 26 CFR 301.6402-6 have not changed. Before
authorizing FMS to disburse a tax refund payment, the IRS will apply
any amount of overpayment by the taxpayer to tax liabilities of the
taxpayer (see definition of ``tax refund payment'' in paragraph (a) of
this section).
Paragraph (e)(1) states that the tax refund payment will be reduced
and applied to a taxpayer's debts in the following order of priority:
First by the amount of any past-due support assigned to a State;
second, by the amount of any past-due, legally enforceable debt owed to
a Federal agency; and third, by the amount of any qualifying past-due
support not assigned to a State.
Paragraph (e)(2) states that if a debtor owes more than one past-
due, legally enforceable debt to a Federal agency or agencies, the tax
refund payment shall be credited against the debts in the order in
which the debts accrued. A debt shall be considered to have accrued at
the time at which the agency determines that the debt became past due.
FMS notes that for payments other than tax refunds that are offset
under the Treasury Offset Program, debts not subject to any time
limitation for enforcement will be paid after debts subject to such
limitations. One of the purposes of the DCIA is ``to maximize
collections of delinquent debts owed to the Government by ensuring
quick action to enforce recovery of the debts and the use of all
appropriate collection tools.'' DCIA, Section 31001(b)(1). Generally,
Government policy requires that agencies apply amounts recovered by
offset to debts owed to Federal agencies in accordance with the best
interests of the United States, considering the applicable statute of
limitations. See Federal Claims Collection Standards at 4 CFR Part
102.3(g). It is in the best interests of the United States to first
collect debts that are subject to time limitations restrictions.
Therefore, if a debtor owes multiple debts to the United States,
amounts offset under 31 U.S.C. 3716 will be applied first to older
debts subject to a time limitation, and last to debts for which there
is no limitation to when legal action to collect the debt may be
initiated. See e.g., 20 U.S.C. 1091a (no limitation terminates the
period within which legal action, including offset, may be taken to
collect a student loan). However, unlike 31 U.S.C. 3716, 26 U.S.C.
6402(d)(2) states that a tax refund payment shall be applied to
multiple debts owed to Federal agencies by a taxpayer in the order in
which such debts accrued.
Paragraph (e)(3) reiterates that the tax refund payment will be
applied to the outstanding debts of a taxpayer prior to the taxpayer's
future estimated tax liabilities. Any amounts remaining after offset
shall be applied to estimated tax, or will be refunded to the taxpayer.
(f) Post-Offset Notice to the Debtor, the Creditor Agency, and the IRS
As provided by the IRS under the IRS regulation codified at 26 CFR
301.6402-6(h), under this paragraph (f), once an offset of a tax refund
payment has occurred, FMS will provide notice to the payee and the
creditor agency collecting the debt. FMS will not inform the creditor
agency of the payment source of the amounts collected. Since FMS and
other disbursing agencies will be conducting offsets of various payment
types, debt repayment may result from any one of a number of payment
sources. In its notice to the payee, FMS also will notify a non-debtor
spouse who files a joint income tax return with a debtor and who is
entitled to a tax refund of the procedures that may be taken to secure
his or her proper share of the tax refund. FMS will notify the IRS of
any offsets.
(g) Offset Made With Regard to a Tax Refund Payment Based Upon Joint
Return
This paragraph states that a non-debtor spouse who files a joint
income tax return with a debtor should take appropriate action to
secure his or her proper share of a tax refund from which an offset was
made. Such procedures are governed by IRS rules and are not affected by
this rule.
(h) Disposition of Amounts Collected
This paragraph describes how amounts collected from tax refund
payments will be transmitted to creditor agencies.
(i) Fees
As did the IRS, FMS will charge a fee to cover the costs of the tax
refund offset program incurred by FMS and IRS. FMS will deduct the fee
from the amount offset before that amount is transmitted to the
creditor agency. The creditor agency may add this fee to the amount of
the debt as an administrative cost if permitted by law. FMS may adjust
the amount of the fee annually to ensure that the fee adequately covers
the
[[Page 34179]]
administrative costs of the tax refund offset program.
(j) Review of Tax Refund Offsets
As provided in the IRS regulation codified at 26 CFR 301.6402-6(l)
and not changed by this rule, the reduction of a taxpayer's refund made
pursuant to 26 U.S.C. 6402(d) shall not be subject to review by any
court of the United States or by the Secretary of the Treasury, FMS or
IRS in an administrative proceeding. Any action taken to recover the
amount of a tax refund offset must be taken against the Federal
creditor agency to which the amount of the reduction was paid. With
respect to recoveries of overpayments of benefits under 42 U.S.C. 404,
any action to recover the amount of the tax refund offset must be taken
against the Commissioner of Social Security.
(k) Access to and Use of Confidential Tax Information
Since creditor agencies will not receive information identifying
the payment source of an offset, FMS does not anticipate that creditor
agencies will have access to and use of confidential tax information
under the merged offset programs. If any such information is disclosed,
however, access to and use of such information is restricted and
governed by 26 U.S.C. 6103.
(l) Effective Date
The merger of the tax refund offset program with the administrative
offset program conducted by FMS will be effective for all tax refund
payments payable after January 1, 1998. Before that date, Federal
agencies must publish or amend tax refund offset regulations and
otherwise comply with tax refund offset prerequisites, such as
providing notice to debtors, to participate in the merged program for
tax refund payments payable after January 1, 1998. Therefore, although
this rule applies to tax refund payments payable after January 1, 1998,
agencies are required to comply with the requirements of this rule on
July 25, 1997.
Regulatory Analyses
This interim rule is not a significant regulatory action as defined
in Executive Order 12866. Because no notice of proposed rulemaking is
required for this interim rule, the provisions of the Regulatory
Flexibility Act do not apply.
Special Analyses
FMS is promulgating this interim rule without opportunity for prior
public comment pursuant to the Administrative Procedure Act, 5 U.S.C.
553, because FMS has determined that a comment period would be
unnecessary, impractical, and contrary to the public interest. A
comment period is unnecessary because this interim rule does not
contain any significant, substantive changes from the IRS regulations
and does not change how the tax refund offset program affects the
taxpayer who owes delinquent nontax debt. This interim rule reflects
changes to procedures under which creditor agencies submit debt
information to Treasury because of DCIA requirements and the merger of
the tax refund offset program with other Federal offset programs. Under
this regulation, creditor agencies will submit delinquent debt
information to FMS, instead of the IRS. Creditor agencies remain
responsible for providing debtors with the same pre-offset notice,
opportunities, and rights to dispute the debt as required under
existing IRS regulations.
The purpose of a delayed effective date is to afford persons
affected by a rule a reasonable time to prepare for compliance.
However, in this case, many agencies have participated in the tax
refund offset program over the last 10 years. Procedures affecting
debtors remain substantially unchanged. The procedural changes in this
rule affect how agencies will participate in the offset program. In
order to implement the merged offset programs for tax refund payments
made after January 1, 1998, agencies may need to modify and/or
promulgate their own offset regulations and provide debtors with pre-
offset notice prior to October 1997. This interim rule provides
critical guidance that will facilitate creditor agencies' participation
in the tax refund offset program in 1998.
The merged offset programs will improve the efficiency of
Treasury's government-wide collection of nontax delinquent debts.
Therefore, FMS believes that good cause exists and that it is in the
public interest to issue the interim rule without opportunity for prior
public comment.
The public is invited to submit comments on the interim rule which
will be taken into account before a final rule is issued.
List of Subjects in 31 CFR Part 285
Administrative practice and procedure, Claims, Privacy, Taxes.
Authority and Issuance
For the reasons set forth in the preamble, part 285 is added to 31
CFR chapter II, subchapter A, to read as follows:
PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION
IMPROVEMENT ACT OF 1996
Subpart A--Disbursing Official Offset
Sec.
285.1 [Reserved]
285.2 Offset of tax refund payments to collect past-due, legally
enforceable nontax debt.
Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3720A.
Subpart A--Disbursing Official Offset
Sec. 285.1 [Reserved]
Sec. 285.2 Offset of tax refund payments to collect past-due, legally
enforceable nontax debt.
(a) Definitions. For purposes of this section:
Creditor agency means a Federal agency owed a claim that seeks to
collect that claim through tax refund offset.
Debt or claim refers to an amount of money, funds, or property
which has been determined by an agency official to be due the United
States from any person, organization, or entity, except another Federal
agency. For the purposes of this section, the terms ``claim'' and
``debt'' are synonymous and interchangeable and includes debt
administered by a third party acting as an agent for the Federal
Government.
Debtor means a person who owes a debt or claim. The term ``person''
includes any individual, organization or entity, except another Federal
agency.
FMS means the Financial Management Service, a bureau of the
Department of the Treasury.
IRS means the Internal Revenue Service, a bureau of the Department
of the Treasury.
Tax refund offset means withholding or reducing a tax refund
payment by an amount necessary to satisfy a debt owed by the payee(s)
of a tax refund payment.
Tax refund payment means any overpayment of Federal taxes to be
refunded to the person making the overpayment after the IRS makes the
appropriate credits as provided in 26 U.S.C. 6402(a) and 26 CFR 6402-
3(a)(6)(i) for any liabilities for any tax on the part of the person
who made the overpayment.
(b) General rule. (1) A Federal agency (as defined in 26 U.S.C.
6402(g)) that is owed by a person a past-due, legally enforceable
nontax debt shall notify FMS of the amount of such debt for collection
by tax refund offset. However, any agency subject to section 9 of the
Act of May 18, 1933 (16 U.S.C. 831h) owed such a debt may, but is not
[[Page 34180]]
required to, notify FMS of the amount of such debt for collection by
tax refund offset.
(2) FMS will compare tax refund payment records, as certified by
the IRS, with records of debts submitted to FMS. A match will occur
when the taxpayer identifying number (as that term is used in 26 U.S.C.
6109) and name (or derivation of the name, known as a ``name control'')
of a payment certification record are the same as the taxpayer
identifying number and name control of a debtor record. When a match
occurs and all other requirements for tax refund offset have been met,
FMS will reduce the amount of any tax refund payment payable to a
debtor by the amount of any past-due, legally enforceable debt owed by
the debtor. Any amounts not offset will be paid to the payee(s) listed
in the payment certification record.
(3) This section does not apply to any debt or claim arising under
the Internal Revenue Code.
(4)(i) This section applies to Federal Old Age, Survivors and
Disability Insurance (OASDI) overpayments provided the requirements of
31 U.S.C. 3720A(f)(1) and (2) are met with respect to such
overpayments.
(ii) For purposes of this section, ``OASDI overpayment'' means any
overpayment of benefits made to an individual under title II of the
Social Security Act (42 U.S.C. 401 et seq.).
(5) A creditor agency is not precluded from using debt collection
procedures, such as wage garnishment, to collect debts that have been
submitted to FMS for purposes of offset under this part. Such debt
collection procedures may be used separately or in conjunction with
offset collection procedures.
(c) Regulations. Prior to submitting debts to FMS for collection by
tax refund offset, Federal agencies shall promulgate temporary or final
regulations under 31 U.S.C. 3716 and 31 U.S.C. 3720A, governing the
agencies' authority to collect debts by administrative offset, in
general, and offset of tax refund payments, in particular.
(d) Agency certification and referral of debt--(1) Past-due,
legally enforceable debt eligible for tax refund offset. For purposes
of this section, when a Federal agency refers a past-due, legally
enforceable debt to FMS for tax refund offset, the agency will certify
to FMS that:
(i) The debt is past-due and legally enforceable in the amount
submitted to FMS and that the agency will ensure that collections are
properly credited to the debt;
(ii) Except in the case of a judgment debt or as otherwise allowed
by law, the debt is referred for offset within ten years after the
agency's right of action accrues;
(iii) The creditor agency has made reasonable efforts to obtain
payment of the debt in that the agency has:
(A) Submitted the debt to FMS for collection by administrative
offset and complied with the provisions of 31 U.S.C. 3716(a) and
related regulations, to the extent that collection of the debt by
administrative offset is not prohibited by statute;
(B) Notified, or has made a reasonable attempt to notify, the
debtor that the debt is past-due, and unless repaid within 60 days
after the date of the notice, will be referred to FMS for tax refund
offset;
(C) Given the debtor at least 60 days to present evidence that all
or part of the debt is not past-due or legally enforceable, considered
any evidence presented by the debtor, and determined that the debt is
past-due and legally enforceable; and
(D) Provided the debtor with an opportunity to make a written
agreement to repay the amount of the debt;
(iv) The debt is at least $25; and
(v) In the case of an OASDI overpayment--
(A) The individual is not currently entitled to monthly insurance
benefits under title II of the Social Security Act (42 U.S.C. 401 et
seq.);
(B) The notice describes conditions under which the Commissioner of
Social Security is required to waive recovery of the overpayment, as
provided under 42 U.S.C. 404(b); and
(C) If the debtor files a request for a waiver under 42 U.S.C.
404(b) within the 60-day notice period, the agency has considered the
debtor's request.
(2) Pre-offset notice and consideration of evidence for past-due,
legally enforceable debt. (i) For purposes of paragraph (d)(1)(iii)(B)
of this section, a creditor agency has made a reasonable attempt to
notify the debtor if the agency uses the current address information
contained in the agency's records related to the debt. Agencies may,
but are not required to, obtain address information from the IRS
pursuant to 26 U.S.C. 6103(m)(2), (4), or (5).
(ii) For purposes of paragraph (d)(1)(iii)(C) of this section, if
the evidence presented by the debtor is considered by an agent of the
creditor agency, or other entities or persons acting on the agency's
behalf, the debtor must be accorded at least 30 days from the date the
agent or other entity or person determines that all or part of the debt
is past-due and legally enforceable to request review by an officer or
employee of the agency of any unresolved dispute. The agency must then
notify the debtor of its decision.
(3) Referral of past-due, legally enforceable debt. A Federal
agency will submit past-due, legally enforceable debt information for
tax refund offset to FMS in the time and manner prescribed by FMS. For
each debt, the creditor agency will include the following information:
(i) The name and taxpayer identifying number (as defined in 26
U.S.C. 6109) of the debtor who is responsible for the debt;
(ii) The amount of such past-due and legally enforceable debt;
(iii) The date on which the debt became past-due;
(iv) The designation of the Federal agency or subagency referring
the debt; and
(v) In the case of an OASDI overpayment, a certification by the
Commissioner of Social Security designating whether the amount payable
to the agency is to be deposited in either the Federal Old-Age and
Survivors Insurance Trust Fund or the Federal Disability Insurance
Trust Fund, but not both.
(4) Correcting and updating referral. If, after referring a past-
due, legally enforceable debt to FMS as provided in paragraph (d)(3) of
this section, a creditor agency determines that an error has been made
with respect to the information transmitted to FMS, or if an agency
receives a payment or credits a payment to the account of a debtor
referred to FMS for offset, or if the debt amount is otherwise
incorrect, the agency shall promptly notify FMS and make the
appropriate correction of the agency's records. Creditor agencies will
provide certification as required under paragraph (d)(1) of this
section for any increases to amounts owed.
(5) FMS may reject a certification which does not comply with the
requirements of paragraph (d)(1) of this section. Upon notification of
the rejection and the reason for the rejection, a creditor agency may
resubmit the debt with a corrected certification.
(e) Priorities for offset. (1) A tax refund payment shall be
reduced first by the amount of any past-due support assigned to a State
under section 402(a)(26) or section 471(a)(17) of the Social Security
Act (42 U.S.C. 602(a)(26) or 42 U.S.C. 671(a)(17)) which is to be
offset under 26 U.S.C. 6402(c), 42 U.S.C. 664 and the regulations
thereunder; second, by the amount of any past-due,
[[Page 34181]]
legally enforceable debt owed to a Federal agency which is to be offset
under 26 U.S.C. 6402(d), 31 U.S.C. 3720A and this section; and third,
by the amount of any qualifying past-due support not assigned to a
State which is to be offset under 26 U.S.C. 6402(c), 42 U.S.C. 664 and
the regulations thereunder.
(2) If a debtor owes more than one past-due, legally enforceable
debt to a Federal agency or agencies, the tax refund payment shall be
credited against the debts in the order in which the debts accrued. A
debt shall be considered to have accrued at the time at which the
agency determines that the debt became past due.
(3) Reduction of the tax refund payment pursuant to 26 U.S.C.
6402(a), (c), and (d) shall occur prior to crediting the overpayment to
any future liability for an internal revenue tax. Any amount remaining
after tax refund offset under 26 U.S.C. 6402 (a), (c), and (d) shall be
refunded to the taxpayer, or applied to estimated tax, if elected by
the taxpayer pursuant to IRS regulations.
(f) Post-offset notice to the debtor, the creditor agency, and the
IRS. (1)(i) FMS will notify the payee(s) to whom the tax refund payment
is due, in writing of:
(A) The amount and date of the offset to satisfy a past-due,
legally enforceable nontax debt;
(B) The creditor agency to which this amount has been paid or
credited; and
(C) A contact point within the creditor agency that will handle
concerns or questions regarding the offset.
(ii) The notice in paragraph (f)(1)(i) of this section will also
advise any non-debtor spouse who may have filed a joint tax return with
the debtor of the steps which a non-debtor spouse may take in order to
secure his or her proper share of the tax refund. See paragraph (g) of
this section.
(2) FMS will advise each creditor agency of the names, mailing
addresses, and identifying numbers of the debtors from whom amounts of
past-due, legally enforceable debt were collected and of the amounts
collected from each debtor for that agency. FMS will not advise the
creditor agency of the source of payment from which such amounts were
collected. If a payment from which an amount of past-due, legally
enforceable debt is to be withheld is payable to two individual payees,
FMS will notify the creditor agency and furnish the name and address of
each payee to whom the payment was payable.
(3) At least weekly, FMS will notify the IRS of the names and
taxpayer identifying numbers of the debtors from whom amounts of past-
due, legally enforceable debt were collected and the amounts collected
from each debtor.
(g) Offset made with regard to a tax refund payment based upon
joint return. If the person filing a joint return with a debtor owing
the past-due, legally enforceable debt takes appropriate action to
secure his or her proper share of a tax refund from which an offset was
made, the IRS will pay the person his or her share of the refund and
request that FMS deduct that amount from amounts payable to the
creditor agency. FMS and the creditor agency will adjust their debtor
records accordingly.
(h) Disposition of amounts collected. FMS will transmit amounts
collected for past-due, legally enforceable debts, less fees charged
under paragraph (i) of this section, to the creditor agency's account.
If an erroneous payment is made to any agency, FMS will notify the
creditor agency that an erroneous payment has been made. The agency
shall pay promptly to FMS an amount equal to the amount of the
erroneous payment (without regard to whether any other amounts payable
to such agency have been paid).
(i) Fees. The creditor agency will reimburse FMS and the IRS for
the full cost of administering the tax refund offset program. FMS will
deduct the fees from amounts collected prior to disposition and
transmit a portion of the fees deducted to reimburse the IRS for its
share of the cost of administering the tax refund offset program. To
the extent allowed by law, creditor agencies may add the offset fees to
the debt.
(j) Review of tax refund offsets. Any reduction of a taxpayer's
refund made pursuant to 26 U.S.C. 6402(d) shall not be subject to
review by any court of the United States or by the Secretary of the
Treasury, FMS or IRS in an administrative proceeding. No action brought
against the United States to recover the amount of this reduction shall
be considered to be a suit for refund of tax. Any legal, equitable, or
administrative action by any person seeking to recover the amount of
the reduction of the overpayment must be taken against the Federal
creditor agency to which the amount of the reduction was paid. Any
action which is otherwise available with respect to recoveries of
overpayments of benefits under 42 U.S.C. 404 must be taken against the
Commissioner of Social Security.
(k) Access to and use of confidential tax information. Access to
and use of confidential tax information in connection with the tax
refund offset program are restricted by 26 U.S.C. 6103. Generally,
agencies will not receive confidential tax information from FMS. To the
extent such information is received, agencies are subject to the
safeguard, recordkeeping, and reporting requirements of 26 U.S.C.
6103(p)(4) and the regulations thereunder. The agency shall inform its
officers and employees who access or use confidential tax information
of the restrictions and penalties under the Internal Revenue Code for
misuse of confidential tax information.
(l) Effective date. This section applies to tax refund payments
payable under 26 U.S.C. 6402 after January 1, 1998.
Dated: June 6, 1997.
Russell D. Morris,
Commissioner, Financial Management Service.
[FR Doc. 97-16181 Filed 6-24-97; 8:45 am]
BILLING CODE 4810-35-P
