CREDIT AND DEBT MANAGEMENT

OPERATING STANDARDS AND PROCEDURES HANDBOOK

[CHAPTER 10. WRITE-OFFS AND CLOSE-OUTS]{.underline}

[Section 1.0 General]{.underline}

This chapter establishes procedures to ensure assets are secured when 1)
complete or partial payments on uncollectible debts are obtained; 2) all
reasonable collection efforts are exhausted prior to write-off; or 3)
thorough administrative close-out of the grant, loan, loan guarantee, or
financial contract file is conducted. The write-off and close-out
process encompasses:

-   Liquidation of the assets related to the debt;

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-   Litigation of delinquent debts;

-   Write-off of uncollectible amounts owed; and

-   Administrative closure of files.

An organizational unit may follow procedures, which differ from those in
this chapter, only if approval of alternative procedures has been
granted, in writing, by the Director for the Office of Financial
Management (OFM). Any request for authority to deviate from these
procedures must be accompanied by the proposed alternative in detail.
Approved changes will be established as a supplement to this directive
by the requesting organizational unit.

[Section 2.0 Cost-Effectiveness of Collection Procedures]{.underline}

> .01 [Costs versus Amounts Collected]{.underline}

The criteria to determine the cost-effectiveness of the collectibility
of a debt will, in part, govern the course of action to be taken.
Organizational units will provide for periodic comparison of costs
incurred and amounts collected. Data on costs and corresponding recovery
rates for debts of different types and in various stages of delinquency
will be used to compare the cost-effectiveness of alternative collection
procedures. Responsible collection officials, in consultation with the
accounting or finance officer, will establish guidelines that:

> a\. Identify when further collection efforts are unlikely to result in
> cost-effective recoveries;
>
> b\. Assist in evaluating offers to compromise, including determination
> of administrative costs in continuing to pursue collection of a
> disputed debt; and
>
> c\. Establish minimum amounts below which certain specified collection
> efforts need not be taken.
>
> .02 [Alternative Collection Actions]{.underline}
>
> Estimated cost and recovery data must be used in determining the most
> cost-effective collection process. Generally, these estimates should
> be used to determine the appropriate course of action from the
> following alternatives:
>
> a\. Negotiate a compromise with the borrower or debtor;
>
> b\. Refer the debt to Treasury for cross-servicing;
>
> c\. Litigate the debt owed; or
>
> d\. Write-off and suspend action by placing a debt older than two
> years in an account entitled *Currently Not Collectible*. (See
> [Revised Circular No. A-129 - Managing Federal Credit Programs,
> Section
> V.](http://www.whitehouse.gov/omb/circulars/a129/a129rev.html))

[Section 3.0 Administration of Delinquent Debts]{.underline}

> .01 (See Chapter 9 of the [DOC Credit and Debt
> Handbook](http://www.osec.doc.gov/ofm/credit/cover.htm), Section 2 for
> definition of "delinquency"
>
> To protect the Federal government\'s interests, organizational units
> must ensure that all steps have been taken to collect a debt before it
> reaches the delinquency stage. Organizational units should use all
> appropriate debt collection tools, both before and after delinquency
> occurs, until such time as it is determined that the debt is
> uncollectible.

[Section 4.0 Workout Groups - General]{.underline}

> 01 Organizational units involved in direct loan, guaranteed loan,
> grant, and cooperative agreement programs must refer debts that are 90
> days delinquent to an organizational unit workout group for intensive
> collection action. Follow-up procedures by the workout group will be
> the same for other receivables, i.e., general or trade accounts
> receivable. See [Chapter
> 9](http://www.osec.doc.gov/ofm/credit/cover.htm) of this Handbook,
> Claims Collection Litigation Reports, for Workout Group functions.

[Section 5.0 Legal Counsel Advice and Levels of Authority for Compromise
and Suspension or Termination of Collection of Debt]{.underline}

The workout group(s) will consult with the bureau's legal counsel to
determine whether the documentary evidence collected is sufficient to
warrant compromise, termination, or suspension of the debt under the
terms of the [Federal Claims Collection Standards, Chapter
IX](http://www.access.gpo.gov/nara/cfr/waisidx_03/31cfrv2_03.html).
Legal counsel will evaluate the evidence and advise the workout
group(s).

The workout group(s) will consult the bureau's legal counsel to advise
on all requests to compromise, terminate, or suspend collection action
on a debt. All recommendations for compromise, suspension, or
termination of a claim shall specifically identify the reasons for such
actions. Valid reasons for compromise, suspension, or termination of a
claim are set forth in the [Federal Claims Collection Standards, Chapter
IX](http://www.access.gpo.gov/nara/cfr/waisidx_03/31cfrv2_03.html) , and
recapitulated in Sections 6.0 and 7.0 of this Chapter. Upon approval by
the head of the organizational unit, the workout group(s) will forward
all proposed compromises, suspensions, or termination actions of the
debt to the Department's General Counsel for disposition.

The organizational unit's Secretarial Officer, or in the case of the
Minority Business Development Agency, the Director, shall have the
authority to review and approve any claim up to \$100,000, exclusive of
any interest, penalties, and administrative charges. This authority may
be re-delegated to other designees. The bureau's legal counsel's written
concurrence must accompany any recommendation to the Secretarial
Officer. Organizational units must obtain the concurrence of the
Department's Assistant General Counsel for Finance and Litigation on any
proposed compromise, suspension, or termination of a claim over
\$25,000.

Except as otherwise provided by law, any action to compromise, suspend,
or terminate collection of a debt in the amount of \$100,000 or greater
must be submitted for approval to the U. S. Department of Justice (DOJ).
Prior to such submission to DOJ, the proposed action first shall have
received the concurrences of the Department's Assistant General Counsel
for Finance and Litigation, the Director for Financial Management, and
the Department's Chief Financial Officer or designee. The organizational
unit shall provide a completed Claims Collection Litigation Report,
([see](http://www.osec.doc.gov/ofm/credit/cover.htm) [Chapter
9](http://www.osec.doc.gov/ofm/credit/cover.htm) of this Handbook,
Claims Collection Litigation Reports) a complete and concise statement
of the reasons for requesting authority to take such action, all
necessary documentation, and the bureau's legal counsel's written
concurrence in such action. The request for authority to take such
action shall be submitted to DOJ on behalf of the organizational unit by
the Assistant General Counsel for Finance and Litigation.

The delegations of authority are to be complied with unless otherwise
authorized by law. In all cases, bureau's legal counsel should assure
that the proposed actions are consistent with the [Federal Claims
Collection Standards, Chapter
IX](http://www.access.gpo.gov/nara/cfr/waisidx_03/31cfrv2_03.html). The
Office of the Assistant General Counsel for Finance and Litigation
should be consulted on questions regarding the compromise, suspension,
or termination of collection of a debt.

As a practical matter, an organizational unit does not need to refer a
debt for concurrence for termination of collection action if the bureau
referred the debt to DOJ for litigation and DOJ determines that
litigation is not appropriate and returns the account to the Department.
Nor does the organizational unit need to refer accounts on which it
wants to terminate collection action because the debt is legally without
merit or cannot be substantiated.

In some instances, certain organizational units may have independent
statutory authority to compromise claims of any amount.

A Claims Collection Litigation Report (CCLR) (see Section 11.06 of this
Chapter) shall be used when referring claims to the DOJ. (A copy of the
CCLR and instructions can be found in Chapter 8.)

# Section 6.0 Compromise of Claims

A claim may be compromised if the organizational unit cannot collect the
full amount because:

-   of the debtor's inability to pay the full amount in a reasonable
    time, as verified through credit reports or other financial
    information;

-   of the Federal government\'s inability to enforce collection in full
    within a reasonable time, at reasonable cost, by enforced collection
    proceedings;

-   of the cost of collecting the debt does not justify the enforced
    collection of the full amount; or

-   there is significant doubt concerning the Federal government's
    ability to prove its case in court.

> .01 [Inability to Pay]{.underline}
>
> In determining the debtor\'s inability to pay, the following factors,
> among others, may be considered: age and health of the debtor; present
> and potential income; inheritance prospects; the possibility that
> assets have been concealed or improperly transferred by the debtor;
> and the availability of assets or income which may be realized upon
> enforced collection proceedings.
>
> The workout group(s) will give consideration to the exemption(s)
> available to the debtor under State or Federal law in determining the
> Federal government\'s ability to enforce collection. Uncertainty as to
> the price which collateral or other property will bring at forced sale
> may properly be considered in determining the Federal government\'s
> ability to enforce collection. A compromise effected under this
> section should be for an amount which bears a reasonable relation to
> the amount which can be recovered by enforced collection procedures
> giving due regard for any exemptions that may be available to the
> debtor and the time and cost of collection. Compromises payable in
> installments are discouraged. However, if payment of a compromise by
> installments is necessary, an agreement for the re-installment of the
> prior indebtedness less sums already paid and acceleration of the
> balance due upon delinquency in the payment of any installment should
> be obtained.
>
> If the organizational unit\'s files do not contain reasonably
> up-to-date credit and financial information for assessing a compromise
> proposal, such information may be obtained from the individual debtor
> by obtaining a statement executed under penalty of perjury showing the
> debtor\'s assets and liabilities, income and expenses. Additional data
> may be obtained from the audited financial statements of corporate
> debtors. Additional information may also be obtained from a credit
> reporting bureau, in the form of a commercial or consumer credit
> report or the bureau\'s investigative report showing the debtor\'s
> assets, liabilities, income and expenses.
>
> .02 [Installment Payments]{.underline}
>
> If the debtor is financially unable to pay the indebtedness in one
> lump sum, payment may be accepted in regular installments. The size of
> such installment payments should have a reasonable relation to the
> size of the debt and the debtor\'s ability to pay. Installment
> payments should be sufficient in size and frequency to liquidate the
> Federal government\'s claim in not more than three years. For loans,
> repayment in installments should normally be no longer than the time
> period remaining for payment of the debt plus three years, or in
> accordance with appropriate statutes. Installment payments of less
> than \$50 per month should be accepted in only the most unusual
> circumstances. An organizational unit holding an unsecured claim for
> administrative collection should attempt to obtain with assistance
> from legal counsel an executed confess-judgment note, from a debtor
> when the total amount of the deferred installments will exceed \$750.
> Such notes may also be sought when an unsecured obligation of a lesser
> amount is involved. Security for deferred payments, other than a
> confess-judgment note, may be accepted in appropriate cases. An
> organizational unit may accept installment payments notwithstanding
> the refusal of a debtor to execute a confess-judgment note or to give
> other security, at the organizational unit\'s option.
>
> .03 [Litigative Probabilities]{.underline}
>
> A claim may be compromised if there is doubt concerning the Federal
> government\'s ability to prove its case in court, either because of
> the legal issues involved or as a result of a bona fide dispute as to
> the facts surrounding the claim. In such cases, the amount accepted in
> compromise, should fairly reflect the probability of prevailing on the
> legal question(s) involved, as well as the probabilities with respect
> to full or partial recovery of a judgment having due regard to the
> availability of witnesses and other evidentiary support for the
> Federal government\'s claim. In determining the litigation risks and
> costs involved, proportionate weight should be given to the probable
> amount of court costs that may be assessed against the Federal
> government if it is unsuccessful in litigation.
>
> .04 [Cost of Collecting Claim]{.underline}
>
> A claim may be compromised if the cost of collecting the claim does
> not justify the enforced collection of the full amount. The amount
> accepted in compromise in such cases may reflect an appropriate
> discount for the administrative and litigation costs of collection,
> giving due consideration for the time which it would take to effect
> collection. Collection costs may be a substantial factor in the
> settlement of small claims. The cost of collecting claims normally
> will not carry great weight in the settlement of large claims.
>
> .05 [Enforcement Policy]{.underline}
>
> Certain organizational units employ economic penalties as enforcement
> mechanisms to achieve program objectives. These mechanisms may be in
> the form of statutory fines, penalties, forfeitures, or debts
> established as an aid to enforcement and to compel compliance. Such
> debts may be compromised if the organizational unit\'s enforcement
> policy in terms of deterrence and securing compliance, both present
> and future, will be adequately served by accepting the agreed upon
> sum. Mere accidental or technical violations by an individual or
> commercial entity may be dealt with less severely than willful and/or
> substantial violations.
>
> .06 [Joint and Several Liability]{.underline}
>
> When two or more debtors are jointly and severally liable, collection
> action should proceed against all debtors. The organizational unit
> should not attempt to allocate the burden of paying such a claim among
> the debtors but should proceed to liquidate the indebtedness as
> quickly as possible and in a cost-effective manner. Care should be
> taken so that a compromise with one debtor does not release the
> organizational unit\'s claim against the remaining debtor(s). The
> amount of a compromise with one debtor will not be considered a
> precedent, or as morally binding, in determining the amount which will
> be required from other debtors jointly and severally liable on the
> claim.
>
> .07 [Compromise for Combination of Reasons]{.underline}
>
> A claim may be compromised for one or more reasons authorized in this
> section.
>
> .08 [Department of Justice (DOJ), Civil Division Review]{.underline}
>
> If an organizational unit holds a debtor\'s firm written offer of
> compromise for a substantial amount and the organizational unit is
> uncertain as to whether the offer should be accepted, it may refer the
> offer, the supporting data, and particulars concerning the claim to
> the Civil Division or other appropriate litigating division of the DOJ
> for review and guidance. The referral shall be cleared with the
> General Counsel of the Department or his/her designee. The DOJ may act
> upon the offer or return it to the organizational unit with
> instructions or advice. (See [31 C.F.R. §
> 902.5](http://www.access.gpo.gov/nara/cfr/waisidx_04/31cfr902_04.html).)

[Section 7.0 Suspension or Termination of Collection Action]{.underline}

Prior to suspending or terminating collection action, an organizational
unit is required to take all reasonable collection actions and fully
document the appropriate information concerning the debtor and the
claim. Suspensions and terminations of collection activity must be
approved as cited in this section of the chapter.

> .01 [Suspension of Collection Activity]{.underline}
>
> a\. Inability to locate debtor. Collection action may be suspended
> temporarily on a claim when:
>
> 1\. The debtor cannot be located after diligent effort;
>
> 2\. There is reason to believe that future collection action may be
> sufficiently productive to justify periodic review and action on the
> claim. Due consideration must be given to the size and amount of the
> debt the collection of which may be realized because of the continued
> collection action; and
>
> 3\. The debtor has requested a waiver or review of the debt.
>
> b\. Financial condition of the debtor. Collection action may be
> suspended temporarily on a claim when the debtor owns no substantial
> equity in realty or personal property and is unable to make payments
> on the Federal government\'s claim or effect a compromise at the time,
> but the debtor\'s future prospects justify retention of the claim for
> periodic review and action, and:
>
> 1\. The Federal government is not prevented from taking action by the
> applicable statute of limitations; or
>
> 2\. Future collection can be effected by administrative offset,
> notwithstanding the expiration of the applicable statute of
> limitations for litigation of claims, with due regard to the 10-year
> limitation. (See [31 U.S.C. §
> 3716(e)(1)](http://uscode.house.gov/download/pls/31C37.txt)); or
>
> 3\. The debtor agrees to pay interest on the amount of the debt on
> which collection action will be temporarily suspended and this time
> period is likely to enhance the debtor\'s ability to pay the principal
> amount of the debt with any accrued interest at a later date.

c\. During the time required for consideration of the debtor's request
for waiver or administrative review of the debt if the statute under
which the request is sought prohibits collection of the debt during that
time.

> d\. Interest, penalties, and administrative costs will continue to
> accrue during the period of suspension. Bureaus may suspend accrual of
> any or all of these charges when accrual would be against equity and
> good conscience or not in the Federal government's best interest.
>
> .02 [Termination of Collection Activity]{.underline}
>
> A workout group(s) may recommend that collection activity be
> terminated and consider the organizational unit\'s file on the claim
> closed when:
>
> a\. It becomes clear that the Federal government cannot collect or
> enforce the collection of any significant sum from the debtor, after
> consideration of the following:
>
> 1\. Judicial remedies;
>
> 2\. The debtor\'s future financial prospects; and
>
> 3\. Exemptions available to the debtor under State and federal law;
>
> b\. The debtor cannot be located, and either:
>
> 1\. There is no security remaining to liquidate; or
>
> 2\. The applicable statute of limitations has run out and the
> prospects of collecting by administrative offset (see [31 C. F. R. §
> 901.3](http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/julqtr/pdf/31cfr901.3.pdf))
> are too remote to justify retention of the claim;

i\. Cost of further collection action will likely exceed amounts that
may be recovered;

ii\. It is determined that the claim is plainly erroneous or legally
without merit; or

iii\. It is determined that the evidence necessary to prove the claim
cannot be produced or the necessary witnesses are unavailable and
efforts to induce voluntary payment would be unavailing.

> .03 [Termination of Collection Activity on Audit-Related
> Debts]{.underline}
>
> Each determination within an organizational unit to terminate
> collection action on audit-related debts, unless made with the DOJ
> concurrence, shall be fully justified and documented by the
> appropriate organizational unit official and must be approved by the
> appropriate legal officer with responsibility for the type of debt in
> the affected organizational unit. A complete copy of each such
> determination (with copies of notices to the debtor, supporting
> justifications, explanations, clearances, and approvals) shall be
> forwarded to the Office of Inspector General and to the audit action
> official within ten working days of any such decision.

[Section 8.0 Partially or Completely Uncollectible Debts]{.underline}

Debts that cannot be collected in full by an organizational unit's
collection efforts should be compromised, suspended, or terminated in
accordance with Sections 6.0 and 7.0 of this Chapter, or if such actions
cannot be taken, reported to DOJ in accordance with Section 9.0 below
for further collection/legal action. As a general rule, since workout
group(s) are required to take all reasonable collection actions short of
legal action (including attempts to locate the debtor and determination
of ability to pay), the determination as to whether or not a debt should
be forwarded to the DOJ for further collection action should be governed
by the potential for collection through the eventual use of legal
action.

[Section 9.0 Referral of Delinquent Debts to DOJ]{.underline}

This section describes the procedures for referrals of delinquent debts
to DOJ. Such referrals by organizational units will be in accordance
with the following:

-   31 U.S.C., § 3711, Collections and Compromise of Claims;

-   [Federal Claims Collection Standards, Title 31]{.underline}, [Code
    of Federal Regulations]{.underline}, Part 904, (Referrals to
    Department of Justice);

-   OMB [Revised Circular
    A-129](http://www.whitehouse.gov/omb/circulars/a129/a129rev.html#nine),
    \"Managing Federal Credit Programs;\" and

-   Treasury's guidance on \"[Managing Federal
    Receivables](http://fms.treas.gov/scripts/search/redirect.asp?ciURL=/debt/guidance_mfr.html&CiUserParam1=Managing Federal Receivables).\"

> .01 [Prompt Referral to DOJ]{.underline}
>
> Delinquent debts shall be promptly referred to the DOJ for litigation
> when:
>
> a\. Aggressive collection action has been taken; and
>
> b\. Consideration has been given to whether or not the claim should be
> compromised, or collection action should be suspended or terminated,
> and there is sufficient reason to conclude that full or partial
> recovery of the debt would be best achieved through litigation.
>
> .02 [Referral Procedure to DOJ]{.underline}
>
> Claims for which the gross original amount is over \$1,000,000 must be
> referred to the Commercial Litigation Branch, [Civil Division,
> Department of Justice](http://www.justice.gov/civil/home.html) (DOJ),
> Washington, D.C. 20530. Claims for which the gross original amount is
> \$1,000,000 or less shall be referred to DOJ's Nationwide Central
> Intake Facility, as required by the
> [CCLR](http://www.fms.treas.gov/debt/mfr/appendix10b.pdf)
> instructions. All referrals to DOJ must be made through the
> Department\'s Office of General Counsel. Organizational units, through
> the Office of General Counsel, should clear referrals to the U.S.
> Attorney Offices with the Commercial Litigation Branch.
>
> .03 [Minimum Amount of Referrals]{.underline}
>
> Debts with a principal amount of less than \$2,500 will not be
> forwarded to DOJ for litigation unless: (a) litigation to collect such
> smaller claims is important to ensure compliance with the agency's
> policies or programs; (b) the claim is being referred solely for the
> purpose of securing a judgment against the debtor, which will be filed
> as lien against the debtor's property pursuant to 28 U.S.C. § 3201 and
> returned to the forwarding agency for enforcement; or (c) the debtor
> has the clear ability to pay the claim and the government effectively
> can enforce payment with due regard for the exemptions available to
> the debtor under state and Federal law and the judicial remedies
> available to the Government. Seek legal advice before forwarding such
> a claim, as DOJ will need to be contacted ahead of time.
>
> .04 [Preservation of Evidence]{.underline}
>
> Care will be taken by organizational unit collection officials to
> preserve all original files, records, and exhibits relating to claims
> referred to the DOJ. Certified copies of documents will be forwarded
> to DOJ with the litigation referral. Unless specifically requested by
> the DOJ, original documents should never be forwarded to the U.S.
> Attorney\'s Office handling the litigation.
>
> .05 [Claims Collection Litigation Report
> (CCLR)](http://fms.treas.gov/debt/crosserv/cclrform.pdf)
>
> This report shall be used for all referrals to the Department of
> Justice A CCLR should be prepared for and accompany any referral to
> DOJ, whether for administrative action (e.g. compromise or termination
> of collection of claims) or for litigation.
> ([See](http://www.osec.doc.gov/ofm/credit/cover.htm) [Chapter
> 9](http://www.osec.doc.gov/ofm/credit/cover.htm) of this Handbook,
> Claims Collection Litigation Reports.)
>
> The following information will be included in the report:
>
> a\. Documentation of Prior Collection Actions
>
> A brief summary or checklist of the actions previously taken to
> collect or compromise a claim will be forwarded with the claim upon
> its referral. If any of the administrative collection actions required
> in the [Federal Claims Collection Standards, Chapter
> IX](http://www.access.gpo.gov/nara/cfr/waisidx_04/31cfrv2_04.html)
> have been omitted, the reason for omission must be provided. Claims
> may be returned to the organizational unit if insufficient
> justification for the omission is not provided.
>
> b\. [Identifying Information on the Debtor]{.underline}
>
> Such information will include the TIN or EIN and the organizational
> unit\'s file/claim number.
>
> c\. [Current Address of Debtor]{.underline}
>
> The current address of the debtor or the name and address of the agent
> for a corporation upon who service may be made. Reasonable and
> appropriate steps will be taken to locate missing parties in all
> cases. Referrals to the DOJ for the institution of foreclosure or
> other proceedings, in which the current address of any party is
> unknown, will be accompanied by a listing of the prior known addresses
> of the debtor and a statement of the steps taken to locate the debtor.

d\. [Credit Data]{.underline}

> Claims referred to the DOJ for litigation will be accompanied by
> reasonably current credit data indicating that there is a reasonable
> prospect of collecting from the debtor by judicial proceedings, having
> due regard for the exemptions available to the debtor under State and
> federal law and the judicial remedies available to the Federal
> government. Such credit data may take the form of one or more of the
> following:
>
> 1\. A commercial or consumer credit report;
>
> 2\. An investigative report of an organizational unit, or [private
> collection agency](http://fms.treas.gov/debt/pca.html#pcalistl)
> approved by Treasury, showing the debtor\'s assets, liabilities,
> income and expenses;
>
> 3\. The individual debtor\'s own financial statement executed under
> penalty of perjury reflecting his/her assets, liabilities, income, and
> expenses; and
>
> 4\. An audited balance sheet of a corporate debtor.
>
> e\. [Omission of Credit Data]{.underline}
>
> Such credit data [may]{.underline} be omitted if:
>
> 1\. A surety bond is available in an amount sufficient to satisfy the
> claim in full;
>
> 2\. The forced sale value of the security available for application to
> the Federal government\'s claim is sufficient to satisfy the claim in
> full;
>
> 3\. The organizational unit wishes to liquidate loan collateral
> through judicial foreclosure but does not desire a deficiency
> judgment;
>
> 4\. The debtor is in bankruptcy or receivership;
>
> 5\. The debtor\'s liability to the Federal government is fully covered
> by insurance, in which case the organizational unit will furnish such
> information as it can develop concerning the identity and address of
> the insurer and the type and amount of insurance coverage; or
>
> 6\. The legal nature of the debtor is such that credit data is
> normally not available or cannot reasonably be obtained (e.g., a unit
> of State or local government).

[Section 10.0 Write-Off Procedures]{.underline}

> .01 The workout group(s) will set forth in a memorandum the action
> taken to recover the debt, the collectibility of the debt and the
> reason(s) the debt should be written-off and submit the memorandum to
> the appropriate Department official for approval.

.02 After proper clearances and authorization, organizational units
shall write-off uncollectible debts from receivable accounts. Accounts
shall be written-off when one or more of the following criteria apply:

-   The organizational unit is unable to locate the debtor and finds
    that either there is no security to be liquidated to recover the
    amount owed, or the federal statute of limitations has expired for
    litigation and administrative offset and the statutes of the State
    in which the debtor resides preclude further collection;

-   The debt cannot be substantiated because an organizational unit does
    not have, or cannot produce, evidence or witnesses to validate the
    claim (such a debt cannot be referred to the Internal Revenue
    Service (IRS) as taxable income and the credit bureau shall be
    notified to reflect the change in status if previously reported as a
    delinquent debt);

-   The debt is considered to be legally without merit upon the
    organizational unit\'s determination that the debt was never owed
    and was erroneously classified as a debt. (The credit bureau shall
    be notified to reflect the change in the status if previously
    reported as a delinquent debt.);

-   The costs of further collection action will probably exceed the
    amount which could be recovered; or

-   The organizational unit is unable to collect any substantial amount
    of the debt because: 1) a judgment has been obtained and the
    application of all collection techniques failed to produce full
    collection, 2) a collection agency has been unable to collect the
    debt and has returned it with sufficient documentation to
    demonstrate the debt is uncollectible, or 3) the borrower has been
    declared bankrupt and no further prospects for worthwhile recovery
    are available.

> .03 The workout group will forward a memorandum to the accounting or
> finance office, which shall make appropriate adjustments in the
> organizational unit\'s accounting records, including the allowance for
> uncollectible loans account.
>
> .04 The accounting or finance officer will record the write-off and
> report the amount written-off on the appropriate reports as required.
>
> .05 [Currently Not
> Collectible](http://www.whitehouse.gov/omb/circulars/a129/a129rev.html#nine)
>
> As a result of the DCIA and the OMB [Revised Circular
> A-129](http://www.whitehouse.gov/omb/circulars/a129/a129rev.html),
> Treasury has revised its write-off policy to provide for the
> establishment of a standard to write off delinquent debt older than
> two years. While a significant portion of delinquent debt would be
> written off, cost effective collection efforts will continue.
> Specifically, if an agency determines that continued collection
> efforts after mandatory write-off is likely to yield higher returns
> (than the existing write-off and close-out process) then this
> written-off debt is not closed-out but treated as *currently not
> collectible* (CNC). (See [OMB Revised Circular A-129, Section
> V.](http://www.whitehouse.gov/omb/circulars/a129/a129rev.html)) While
> CNC debts are not accounts receivables on financial statements, the
> CNC process permits and encourages the use of tools of DCIA allowing
> delinquent debt to be pursued until the end of its statutory
> collection life-cycle.

[Section 11.0 Administrative Close-Outs]{.underline}

> .01 [Physical Close-Out]{.underline}
>
> When the loan is completely paid in full or written-off, the project
> file is prepared for record storage. There are two sources of files,
> one maintained by the program officials servicing and monitoring the
> loan and one by the accounting or finance officer.
>
> a\. Each office should establish a checklist of required documents to
> be maintained.
>
> b\. Each office will establish its own time frame for record retention
> and disposal procedures in accordance with [DAO
> 205-1](http://204.193.232.34/cgi-bin/doit.cgi?204:112:c1f0b671ae0443de8921a300d0b9c658bf59b8819cdefbdb0a69384006864482:120),
> \"Records and Other Documents Disposition Management Program\" and its
> legislative authority.
>
> .02 [Administrative Actions]{.underline}
>
> a\. Despite write-off, it may be appropriate for organizational units
> to maintain inactive debt files of individual accounts that may be
> collected subsequently by administrative offset against future benefit
> claims or used for future credit pre-screening purposes.
>
> Organizational units may re-institute collection action on written-off
> accounts if there is subsequent evidence that a debtor has new ability
> to repay.

b\. The IRS will recognize amounts that have been written-off and
closed-out as taxable income to debtors classified as individuals,
partnerships, sole proprietorships, and corporations. Organizational
units must report any debt with a principal amount exceeding \$600.
Organizational units may report debts for amounts less than \$600.
Amounts to be written-off and reported to the IRS shall be recorded with
debtor identifying information in an IRS referral log maintained by each
organizational unit.

> By February 28th of the year following the organizational unit\'s
> determination that no further collection action will be taken on a
> debt, the organizational unit must report to the IRS on IRS Form
> 1099-C all amounts written-off. By January 31 of the same year, the
> organizational unit must have provided the debtor with a copy of IRS
> Form 1099-C, or a written statement of the impending IRS 1099-C
> report. The organizational unit is not obligated to wait until the
> statute of limitations expires before reporting a debt. In addition to
> reporting the principal amount owed, the organizational unit must also
> report all administrative costs and interest.
>
> The amount discharged in a compromise is reportable if the debt is
> compromised because: 1) the debtor is unable to pay the debt within a
> reasonable period of time or refuses to pay the debt in full and the
> Federal government is unable to enforce collection in full within a
> reasonable time; or 2) the cost of collecting the claim does not
> justify the enforced collection of the full amount.
>
> The amount discharged in a compromise should not be reported if the
> debt is compromised because there is doubt as to the Federal
> government\'s ability to prove its case in court for the full amount
> claimed.
>
> Organizational units must report all written-off amounts over \$600
> discharged in bankruptcy proceedings on a 1099-G. The IRS will make
> the determination of whether the amount written off is considered
> income.
>
> See the [IRS website](http://www.irs.gov/) for information returns and
> backup withholding.