To amend the Internal Revenue Code of 1986 to allow certain local tax debts to be collected through the reduction of Federal tax refunds.

Summary: Amends the Internal Revenue Code to direct the Secretary of the Treasury, upon receiving notice from a state or local government that a named individual owes a past-due legally enforceable tax obligation to a local goverment, to pay such tax debt from any federal tax refund due to such individual, after notifying such individual of the offset.

SECTION 1. COLLECTION OF PAST-DUE LEGALLY ENFORCEABLE LOCAL GOVERNMENT 
              TAX OBLIGATIONS.

    (a) In General.--Section 6402 of the Internal Revenue Code of 1986 
(relating to authority to make credits or refunds) is amended by 
redesignating subsections (g) through (l) as subsections (h) through 
(m), respectively, and by inserting after subsection (f) the following:
    ``(g) Collection of Past-Due Legally Enforceable Local Government 
Tax Obligations.--
            ``(1) In general.--Upon receiving notice from any State on 
        behalf of a local government, or from any eligible local 
        government, that a named person owes a past-due, legally 
        enforceable local government tax obligation to the local 
        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)--
                            ``(i) to such State for purposes of payment 
                        by the State to the local government on behalf 
                        of which such State submitted the notice; or
                            ``(ii) to the eligible local government 
                        that submitted the notice;
                    ``(C) notify the State or eligible local government 
                of the person's name, taxpayer identification number, 
                address, and the amount collected; and
                    ``(D) 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.
            ``(2) Priorities for offset.--Any overpayment by a person 
        shall be reduced pursuant to this subsection--
                    ``(A) after such overpayment is reduced pursuant 
                to--
                            ``(i) subsection (a) with respect to any 
                        liability for any internal revenue tax on the 
                        part of the person who made the overpayment;
                            ``(ii) subsection (c) with respect to past-
                        due support;
                            ``(iii) subsection (d) with respect to any 
                        past-due, legally enforceable debt owed to a 
                        Federal agency;
                            ``(iv) subsection (e) with respect to any 
                        past-due, legally enforceable State income tax 
                        obligation; and
                            ``(v) subsection (f) with respect to any 
                        covered unemployment compensation debt; and
                    ``(B) before such overpayment is credited to the 
                future liability for any Federal internal revenue tax 
                of such person.
        If the Secretary receives notice from one or more States or 
        eligible local governments of more than one tax obligation 
        subject to paragraph (1) that is owed by such person to any 
        local government, any overpayment by such person shall be 
        applied against such debts in the order in which such notices 
        were filed.
            ``(3) Notice; consideration of evidence.--
                    ``(A) State.--No State may take action under this 
                subsection (on behalf of a local government) until the 
                local government certifies to the State that the local 
                government--
                            ``(i) has notified the person owing the 
                        past-due, legally enforceable local government 
                        tax obligation by certified mail with return 
                        receipt that the State (on behalf of the local 
                        government) proposes to take action pursuant to 
                        this section;
                            ``(ii) has given such person at least 60 
                        days to present evidence that all or part of 
                        such liability is not past-due or not legally 
                        enforceable;
                            ``(iii) has considered any evidence 
                        presented by such person and has determined 
                        that an amount of such debt is past-due and 
                        legally enforceable; and
                            ``(iv) has satisfied such other conditions 
                        as the Secretary may prescribe to ensure that 
                        the determination made under clause (iii) is 
                        valid and that the local government has made 
                        reasonable efforts to obtain payment of such 
                        tax obligation.
                    ``(B) Eligible local government.--No eligible local 
                government may take action under this subsection until 
                the local government--
                            ``(i) has notified the person owing the 
                        past-due, legally enforceable local government 
                        tax obligation by certified mail with return 
                        receipt that the local government proposes to 
                        take action pursuant to this section;
                            ``(ii) has given such person at least 60 
                        days to present evidence that all or part of 
                        such liability is not past-due or not legally 
                        enforceable;
                            ``(iii) has considered any evidence 
                        presented by such person and has determined 
                        that an amount of such debt is past-due and 
                        legally enforceable; and
                            ``(iv) has satisfied such other conditions 
                        as the Secretary may prescribe to ensure that 
                        the determination made under clause (iii) is 
                        valid and that the local government has made 
                        reasonable efforts to obtain payment of such 
                        tax obligation.
            ``(4) Past-due, legally enforceable local government tax 
        obligation.--In this subsection, the term `past-due, legally 
        enforceable local government tax obligation' means a tax debt--
                    ``(A)(i) which resulted from--
                            ``(I) a judgment rendered by a court of 
                        competent jurisdiction which has determined an 
                        amount of tax to be due to a local government; 
                        or
                            ``(II) a determination after an 
                        administrative hearing which has determined an 
                        amount of tax to be due to a local government; 
                        and
                    ``(ii) which is no longer subject to judicial 
                review; or
                    ``(B) which resulted from a tax imposed by a local 
                government which has been assessed but not collected, 
                the time for redetermination of which has expired, and 
                which has not been delinquent for more than 10 years.
            ``(5) Eligible local government.--For purposes of this 
        subsection, the term `eligible local government' means a 
        municipality described in clause (ii) of section 6103(b)(5)(A).
            ``(6) Regulations.--The Secretary shall issue regulations 
        prescribing the time and manner in which States (on behalf of 
        local governments) and eligible local governments must submit 
        notices of past-due, legally enforceable local government tax 
        obligations and the necessary information that must be 
        contained in or accompany such notices. The regulations shall 
        specify the types of taxes and the minimum amount of debt to 
        which the reduction procedure established by paragraph (1) may 
        be applied. The regulations may require States (on behalf of 
        local governments) and eligible local governments to pay a fee 
        to reimburse the Secretary for the cost of applying such 
        procedure. Any fee paid to the Secretary pursuant to the 
        preceding sentence shall be used to reimburse appropriations 
        which bore all or part of the cost of applying such procedure.
            ``(7) Erroneous payment to state or local government.--Any 
        State or eligible local government receiving notice from the 
        Secretary that an erroneous payment has been made to such State 
        or eligible local government with respect to a notice by the 
        State (on behalf of a local government) or notice by the 
        eligible local government under paragraph (1) shall pay 
        promptly to the Secretary, in accordance with such regulations 
        as the Secretary may prescribe, an amount equal to the amount 
        of such erroneous payment (without regard to whether any other 
        amounts payable to such State or eligible local government 
        under such paragraph have been paid to such State or eligible 
        local government).''.
    (b) Disclosure of Return Information.--Section 6103(l)(10) of the 
Internal Revenue Code of 1986 (relating to disclosure of certain 
information to agencies requesting a reduction under subsection (c), 
(d), or (e) of section 6402) is amended by striking ``or (f)'' each 
place it appears in the text and heading and inserting ``(f), or (g)''.
    (c) Conforming Amendments.--
            (1) Section 6402(a) of the Internal Revenue Code of 1986 is 
        amended by striking ``and (f)'' and inserting ``(f), and (g)''.
            (2) Paragraph (2) of section 6402(d) of such Code is 
        amended by striking ``and (f)'' and inserting ``, (f), and 
        (g)''.
            (3) Section 6402(h) of such Code, as so redesignated, is 
        amended by striking ``or (f)'' and inserting ``(f), or (g)''.
            (4) Section 6402(j) of such Code, as so redesignated, is 
        amended by striking ``or (f)'' and inserting ``(f), or (g)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to refunds payable after the date of the enactment of this Act.