To amend the Internal Revenue Code of 1986 to expand the offset against overpayments to include all State and local taxes owed by any person, whether or not a resident of the State seeking the offset, and for other purposes.

Summary: Amends the Internal Revenue Code to expand the offset against overpayments of past-due legally enforceable tax obligations to local as well as State governments. Provides that offsets are not limited to residents of a State seeking the offset.

SECTION 1. EXPANSION OF OFFSETS AGAINST OVERPAYMENTS.

    (a) Offsets Not Limited to Residents of State Seeking Offset.--
Subsection (e) of section 6402 of the Internal Revenue Code of 1986 
(relating to collection of past-due legally enforceable State income 
tax obligations) is amended by striking paragraph (2) and by 
redesignating paragraphs (3) through (7) as paragraphs (2) through (6), 
respectively.
    (b) Collection of All State and Local Government Tax Obligations.--
            (1) In general.--Paragraph (1) of section 6402(e) of such 
        Code is amended to read as follows:
            ``(1) In general.--Upon receiving notice from any State or 
        local government that a named person owes a past-due, legally 
        enforceable tax obligation to such government, the Secretary 
        shall, under such conditions as may be prescribed by the 
        Secretary--
                    ``(A) reduce the amount of any overpayment payable 
                to such person by the amount of such tax obligation;
                    ``(B) pay the amount by which such overpayment is 
                reduced under subparagraph (A) to such government and 
                notify such government of such person's name, taxpayer 
                identification number, address, and the amount 
                collected; and
                    ``(C) notify the person making such overpayment 
                that the overpayment has been reduced by an amount 
                necessary to satisfy a past-due, legally enforceable 
                tax obligation.
        If an offset is made pursuant to a joint return, the notice 
        under subparagraph (B) shall include the names, taxpayer 
        identification numbers, and addresses of each person filing 
        such return.''
            (2) Conforming amendments.--
                    (A) Subsection (e) of section 6402 of such Code is 
                amended by striking ``State income tax'' each place it 
                appears and inserting ``State or local tax''.
                    (B) The last sentence of paragraph (2) of section 
                6402(e) of such Code, as redesignated by subsection 
                (a), is amended by striking ``the State'' and inserting 
                ``the State or local governments of such State''.
                    (C) Paragraph (3) of section 6402(e) of such Code, 
                as redesignated by subsection (a), is amended--
                            (i) by striking the material preceding 
                        subparagraph (A) and inserting the following:
            ``(3) Notice; consideration of evidence.--No State or local 
        government may take action under this subsection until such 
        government--'', and
                            (ii) by striking ``the State'' in 
                        subparagraphs (A) and (D) and inserting ``such 
                        government''.
                    (D) Paragraph (4) of section 6402(e) of such Code, 
                as redesignated by subsection (a), is amended by 
                striking the last sentence.
                    (E) Paragraph (5) of section 6402(e) of such Code, 
                as redesignated by subsection (a), is amended--
                            (i) by striking ``States'' each place it 
                        appears and inserting ``State and local 
                        governments'', and
                            (ii) by striking ``State income taxes'' and 
                        inserting ``State or local taxes''.
                    (F) Paragraph (6) of section 6402(e) of such Code, 
                as redesignated by subsection (a), is amended--
                            (i) by striking ``state'' in the heading 
                        and inserting ``state or local government'',
                            (ii) by striking ``Any State'' and 
                        inserting ``Any State or local government'', 
                        and
                            (iii) by striking ``such State'' each place 
                        it appears and inserting ``such government''.
                    (G) Subsection (f) of section 6402 of such Code is 
                amended by striking ``or State'' and inserting ``, 
                State, or local government''.
                    (H) Subsection (h) of section 6402 of such Code is 
                amended--
                            (i) by striking ``States'' in the heading 
                        and inserting ``State and Local Governments'', 
                        and
                            (ii) by striking ``State'' in the text and 
                        inserting ``State or local government''.
    (c) Use of First Class Mail on Tax Judgments.--Paragraph (3) of 
section 6402(e) of such Code, as redesignated by subsection (a), is 
amended by adding at the end the following new flush sentence:
        ``In the case of a debt described in paragraph (4)(A)(i)(I), 
        the requirement in subparagraph (A) to use certified mail shall 
        be treated as met by using first-class mail sent to the 
        taxpayer's last known address.''
    (d) Effective Date.--The amendments made by this section shall 
apply to refunds payable after December 31, 2002.