Department  of Health  and Human  Services 
OFFICE OF

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OIG-05-95-00070 
3  OFFICE OF INSPE(XOR  GENERAL 
The mission of the Ofilce  of Inspector General (OIG),  as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department  of Health  and Human Services (HHS) 
programs as well as the health and welfare of beneficiaries  served by those programs.  This 
statutory mission is earned out through a nationwide network of audits, investigations,  and 
inspections  conducted  by three OIG operating components:  the Office of Audit Services, the 
Office of Investigations,  and the Office of Evaluation  and Inspections.  The OIG also informs 
the Secretary of HHS of program and management problems and recommends courses to 
correct them. 
OFFICE OF AUDIT  SERVICES 
The OIGS  Office of Audit SeMces  (OAS)  provides all auditing services for HHS, either by 
conducting  audits with its own audit resources or by overseeing  audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in 
carrying out their respective responsibilities  and are intended  to provide independent 
assessments of HHS  programs and operations  in order to reduce waste, abuse, and 
mismanagement  and to promote economy  and efficiency throughout  the Department. 
OFFICE OF INVESTIGATIONS 
The OIGS  Office of Investigations  (01)  conducts criminal, civil, and administrative 
investigations  of allegations of wrongdoing in HHS programs or to HHS beneficiaries  and of 
unjust enrichment by providers.  The investigative efforts of 01  lead to criminal convictions, 
administrative sanctions, or civil money penalties.  The 01  also oversees  State Medicaid fraud 
control units which investigate  and prosecute  fraud and patient abuse in the Medicaid program. 
OFFICE OF EVALUATION  AND  INSPECTIONS 
The OIGS  Office of Evaluation  and Inspections  (OEI)  conducts short-term management and 
program evaluations  (called inspections)  that focus on issues of concern to the Department, 
the Congress, and the public.  The findings and recommendations  contained  in these inspection 
reports generate  rapid, accurate, and up-to-date  information on the efficiency, vulnerability, 
and effectiveness  of departmental programs. 
This report was prepared under the direction of W. Mark Krushat and Joseph Penkrot, Office 
of Evaluation  and Inspections  (OEI),  Richard Mencl, Office of Audit Services (OAS)  and 
Frank Burgess, Internal Revenue  Service (IRS).  Participating in this project were the 
following people:

Michelle  Adams
 Marieann Ballerino
 Joseph Green  Gale Smith

Raymond Balandron
 Roy Carter
 Paul Nay  Joan Dean

Natalie  Coen
 Ray Cordahl
 Anita Parker

William Moran
 John Drake
 James Pervisky

Ann OConnor
 Jay Gavens
 Leon Skros

Clark Geiger
 Department  of Health  and Human  Services 
OFFICE OF

INSPECTOR GENERAL

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OIG-05-95-OO070  EXECUTIVE  SUMMARY

PURPOSE 
This  review  examines  a new method  to identify  noncustodial  parents  with  delinquent 
child  support  obligations  who incorrectly  claim  the  Earned  Income  Tax  Credit  (EITC), 
the  rates  for head  of household  tax filing status,  tax exemptions  related  to  children  no 
longer  in their  custody,  or the  child care  credit. 
BACKGROUND 
This  review  was a joint  effort  between  the  Office  of Inspector  General  (OIG)  and  the 
Internal  Revenue  Service  (IRS). 
Tu  Creds  and De&dons  Claikned by Noncustodial  Parents 
The  EITC  is a refundable  tax credit  available  to the  working  poor.  The  credit  amount 
depends  on earnings  and  the  number  of children,  and  rises with  earnings  until  a 
maximum  is reached.  Historically,  the  EITC  enjoyed  wide bipartisan  support  in 
Congress  as a means  to  assist the  working  poor  and  encourage  employment  in lieu  of 
welfare  programs. 
A taxpayer  qualifies  as head  of household  and  may use  a lower  tax rate  and  a higher 
standard  deduction  if they  provide  more  than  half the  cost of keeping  up  the  main 
home  of a child  claimed  as a dependent.  In addition  to this dependency  test,  a 
noncustodial  parent  must  pay more  than  the  combined  total  of any Aid  to Families 
With  Dependent  Children  paymentsl  and  resources  provided  by the  custodial  parent 
in keeping  up  the  home  for  the  child. 
Taxpayers  are  permitted  to claim  an exemption  for their  children  if they  provide  half 
of their  childrens  support.  The  custodial  parent  is generally  assumed  to provide  the 
majority  of a childs total  support.  However,  a noncustodial  parent  providing  support 
can  sometimes  claim  a child as a dependent  if the  custodial  parent  or the  court  has 
awarded  the  exemption  to the  noncustodial  parent. 
Federal  tax laws allow parents  a tax credit  for some  of their  child  care  expenses  if the 
expenses  are  necessa~  in allowing  them  to work  or seek  employment.  Divorced  or 
separated  parents  cannot  claim  credit  for child  care  unless  the  children  are  living with 
them. 
1 
Recent weljhre reform Iegklahonreplaces the AIWC program with Temponmy Assistance for Needy Families. 
i  cm  Supprt  collections 
Annually,  State  child  support  agencies  forward  a list of noncustodial  parents  who have

not  met  their  child  support  obligations  to the  Office  of Child  Support  Enforcement

(OCSE),  the  Federal  ageney  responsible  for  administering  the  child  support

enforcement  program,  The  OCSE  reconciles  any discrepancies,  merges  the  States

files, and  forwards  the  national  file to IRS.  The  IRS withholds  any tax refund  due

these  individuals  and  forwards  this money  to the  States  to reduce  or eliminate  the

child  support  arrears  for these  noncustodial  parents.  In  1994, OCSE  sent  3.6 million

cases  to  IRS.

We  decided  to test  the  feasibility  of using OCSE  data  to identify  the  incorrect  claiming

of child  custody  and  support  on Federal  tax returns.  We  drew  a sample  from  the  1993

OCSE  national  file of delinquent  noncustodial  parents  prepared  for  IRS.  The  OIG

examined  State  child support  enforcement  files for  2,000 randomly  selected

noncustodial  parents  from  this list, gathered  information  from  State  and  local  records,

and  sent  a comprehensive  database  to IRS  for their  analysis.

FINDINGS 
An administratively simple and coordinated  approach between  OCSE  and  IRS  ean 
help identi& noneustodial  parents misrepresenting  their childrens living arrangements 
on their tax returns. 
Childrens  Social  Security  Numbers  and  related  data  routinely  collected  by child 
support  enforcement  agencies,  commonly  called  IV-D  agencies,  can be  used  effectively 
and  efficiently  by IRS.  In many  cases,  IV-D  agencies  are  aware  of the  living 
arrangements  of children  routinely  claimed  by noncustodial  parents  on their  tax 
returns.  While  it would  be  prohibitively  expensive  for IRS  itself  to collect  this data, 
IV-D  agencies  can  supply  this information  simply  and  inexpensively. 
States  currently  are  making  efforts  to comply with Federal  OCSE  requirements  to 
establish  certified  child support  enforcement  computer  systems  by the  1997 deadline. 
When  certified,  State  IV-D  agencies  can  systematically  identify  common  data  elements 
that  disclose  childrens  living arrangements  and  whether  their  parents  are  entitled  to 
claim  them  for income  tax purposes. 
In 32 pereent  of the cases reviewed  additional tax liabilities resulted from the ElTC, 
tax rates for head  of household  filing status and/or exemptions  that were  claimed 
immrrectly.  These  eases result in projeeted  additional tax liabilities  of $212 million for 
1993. 
Based  on child  support  data  obtained  by OIG  and  the  detailed  IRS  review  of the 
custodial  and  noncustodial  parents  1993 tax returns,  we estimate  there  were  over 
640,000  cases  where  noncustodial  parents  did not  meet  their  child  support  obligations. 
ii  Approximately  lin3  of these  cases  would  have  resulted  inadditional  t=liabilities 
based  on our  review.  Nationally,  IRS  and  OIG  estimate  that  $212,118,000  in 
additional  Federal  income  taxes  would  have  been  collected  in  1993 had  this  category 
of taxpayers  filed  correctly. 
It is important  to note  that  similar  incorrect  claims  could  also be  made  by a 
noncustodial  parent  not  delinquent  in child  support  payments.  We  limited  our  review 
to those  in arrears  because  there  is no readily  available  data  source  to examine  the 
broader  universe.  Additionally,  while  outside  the  scope  of this review,  this incorrect 
Federal  tax information  is often  used  in preparing  State  tax returns,  thereby depriving 
.-
States  of tax revenues  due  them. 
RECOMMENDATION 
The OCSE  and the States should work with IRS to identify data available from State 
welfare  agencies  and child support record systems which would assist in the 
identification  of inappropriate  tax benefits  claimed by noncustodial  parents. 
The  OCSE  and  the  States  should  work  with IRS  to determine  the  additional  data 
needed  and  available  from  State  welfare  agencies  and  child  support  records  systems. 
As State  data  systems  are  certified  by OCSE,  the  data  exchange  with IRS will become 
easier  and  should  minimize  the  staff work  involved  for child support  agencies.  Once 
States  have  certified  child support  enforcement  systems,  national  and  uniform 
collection  of this data  can be  easily coordinated  between  these  agencies. 
Potentikl  Savings 
It is difficult  to make  accurate  projections  because  varying  assumptions  can be  applied 
to the  broader  population.  However,  based  on the  size of this population,  the  data 
collected  here,  and  other  information  independently  developed  by IRS, we believe 
there  could  be  total  annual  tax losses  of $1.4 billion  or more  as a result  of 
noncustodial  parents  inappropriately  claiming  custody  of children  on Federal  income 
tax returns.  By applying  the  revenue  protection  strategy  used  in this review  to identi~ 
all noncustodial  parents,  not just  the  ones  known  to IV-D  agencies,  IRS  can  disallow 
incorrect  exemptions  and  tax credits. 
AGENCY  COMMENTS  AND  OIG RESPONSE 
We  received  written  comments  from  the  Administration  for Children  and  Families 
(ACF).  The ACF  favors  delaying  system  changes  pending  a possible  need  for 
legislation  to permit  the  data  exchange  we proposed.  However,  we feel  strongly  that 
States  and  OCSE  should  build  the  capacity  for this exchange  while  they  are  developing 
new systems.  We incorporated  other  technical  changes  they  suggested  into  this final 
report,  where  appropriate.  Appendix  C contains  the  ACF  response. 
111  TABLE  OF  CONTENTS

PAGE

EXECUTIVE  SUMMARY

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...6


IRS  Proposed  Adjustments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..7

.  Child  Support  Profile  ofNoncustodial  Parents  in the  Sample  . . . . . . . . . . . . . .  9

RECOMMENDATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...10

APPENDICES

k  Sampling  Methodology  and  Estimation  Procedures  . . . . . . . . . . . . . . . . . . . .  A-1

B:  Variances  and  Estimated  Confidence  Internals  . . . . . . . . . . . . . . . . . . . . . . .  B-1

c  Agency  Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..C-1
 INTRODUCTION

PURPOSE 
This  review  examines  a new method  to identify  noncustodial  parents  with  delinquent 
child  support  obligations  who incorrectly  claim  the  Earned  Income  Tax  Credit  (EITC), 
the  rates  for head  of household  tax filing status,  tax exemptions  related  to  children  no 
longer  in their  custody,  or the  child care  credit. 
BACKGROUND 
Earned  Tax Credii 
hC07W 
The  EITC  is a refundable  tax credit  available  to the  working  poor  even  if the  family 
has  no tax liability.  Until  1994, only working  parents  with  custody  could  qualify  for the 
EITC;  now a small  credit  is available  for those  without  dependent  children.  The 
credit  amount  depends  on earnings  and  the  number  of children  residing  at home.  The 
EITC  rises with  earnings  until  a maximum  is reached  and  is phased  out  as income 
increases.  After  the  earnings  limit  is exceeded,  no EITC  is payable.  (In  1993, working 
parents  of one  child, with  earnings  under  $23,050 could  quali&  for the  EITC.) 
Historically,  the  EITC  enjoyed  wide bipartisan  support  in Congress  as a means  to 
assist  the  working  poor  and  encourage  employment  in lieu  of welfare  programs.  In 
1993, 14.7 million  people  claimed  $15 billion  from  the  EITC.  In its current  form,  it is 
expected  to  credit  more  than  $30 billion  annually  to poor,  working  families  by the  turn 
of the  century,  more  than  the  projected  costs  of the  Food  Stamp  program,  or 
Temporary  Assistance  for Needy  Families,  which replaces  the  Aid to Families  With 
Dependent  Children  program  (AFDC)2. 
In October  1994, the  General  Accounting  Office  (GAO)  issued  a report  summarizing 
problems  with  noncompliance  with EITC  requirements.  The  GAO  reported  an IRS 
statement  that  92 percent  of  questionable  electronically-filed  returns  were  returns  with 
EITC  claims.  As  a result  of these  problems,  IRS  began  more  careful  scrutiny  of all 
tax returns  claiming  the  EITC. 
Ta  Rates for Head  of Howehoki  Filing Statur 
A taxpayer  who  qualifies  as head  of household  may use  a tax rate  that  is lower  than 
individuals  filing as single  or married  with  separate  returns.  In addition,  heads  of 
household  receive  a higher  standard  deduction.  To use  the  head  of household  filing 
status,  the  taxpayer  must  be  considered  unmarried  on the  last  day of the  year  and 
2 
Recent welfare reform legislation replaces the AFDC program with Temporary Assistance for Needy Families. 
Throughout this report, we refer to AFDC since that program was in place at the time of our study. 
1  must  have  provided  more  than  half  the  cost of keeping  up  the  main  home  of a child 
who lived with  the  taxpayer  for more  than  6 months  during  the  year.  To  achieve  head 
of household  status,  a parent  must  pay more  than  the  total  of AFDC  payments  plus 
resources  provided  by the  other  parent  in keeping  up  the  home  for the  child.  An 
unmarried  child  does  not  have  to qualify  as the  taxpayers  dependent  in order  for the 
taxpayer  to qualify  for head  of household  filing status. 
Tax Exernptiom for  Chikiren 
The  Tax  Code  generally  allows a parent  to claim  an exemption  for  a dependent  child 
if the  parent  provides  half  of the  childs total  support.  Generally,  a noncustodial 
parent  cannot  claim  children  not  living with them  as dependents  since  the  custodial 
parent  is assumed  to provide  the  majority  of a childs total  support:  However,  under 
certain  circumstances  a noncustodial  parent  providing  support  can  claim  a child  as a 
dependent. 
Most  commonly,  the  noncustodial  parent  claims  the  child  as an exemption  when: 
	 the  custodial  parent  agrees,  in writing,  not  to claim  the  child  as a tax 
exemption;  or, 
	 a pre-1985  divorce  decree  specifies  that  the  noncustodial  parent  can  claim  the 
exemption,  and  the  noncustodial  parent  contributes  at least  $600 towards  the 
childs support  that  year. 
It should  be  noted  that  subsequent  to  1985, no minimum  dollar  amount  is required. 
Hence,  the  noncustodial  parent  could  receive  the  benefit  of a tax exemption  even  if no 
support  is provided. 
Chikl  care  credit 
Federal  tax law allows parents  to deduct  some  of their  child  care  expenses  if the 
expenses  are  necessary  in allowing  them  to work  or seek  employment.  Parents  can 
claim  this  credit  for children  under  age  13.  Divorced  or separated  parents  cannot 
claim  credit  for  child  care  for  children  not  living with  them. 
cm  Supp?t  Coili?ctiom 
Title  IV-D  of the  Social  Security  Act  requires  noncustodial  parents  to support  their 
children  by paying  periodic  child support  determined  by a court  order.  Many 
3 
Payments made to the mother on behalf of the child under the Aid to Families W2thDependent Children 
(AFDC) are n@ considered support provided  by the custodial parent. 
4 
Typically, the custodial parent completes Form 8332 for IRS.  The Form 8332 does not have to be renewed, 
but a copy must be submitted with the tax return.  noncustodial  parents  have  their  child  support  automatically  withheld  from  their  wages

by their  employer.  Automatic  wage  withholding  of child support  payments  began  in

1985 on cases  in arrears.  Since  1989, on all new  and  modified  child  support  court

orders,  employers  must  withhold  child  support  due  from  wages  of noncustodial

parents.  Noncustodial  parents  who  do not  have  this automatic  wage  withholding  must

make  periodic  payments  to the  child  support  agency  themselves.

Despite  these  requirements,  child support  enforcement  agencies  report  that  $6.1

billion  of the  $13 billion  owed  for child support  went  uncollected  in 1993.  According

to U.S.  Census  Bureau  data,  only 4.5 million  of the  6.1 million  noncustodial  parents

required  to pay  child support  are  handled  by child  support  enforcement  agencies.

Child  support  enforcement  agencies,  commonly  called  IV-D  agencies,  fonvard  the

collected  child  support  to the  custodial  parent.  In the  case  of families  receiving

AFDC,  the  first  $50 of collected  child support  is forwarded  to the  custodial  parent5,

with  the  balance  used  to partially  offset  AFDC  benefits  paid  to that  family.

Annually,  the  State  IV-D  agencies  forward  lists of noncustodial  parents  in arrears  to

the  Office  of Child  Support  Enforcement  (OCSE),  the  Federal  agency  responsible  for

administering  the  child support  enforcement  program.b  This  list includes  arrears

carried  over  from  previous  years.  The  OCSE  reconciles  any discrepancies,  merges  the

States  files, and  forwards  the  national  file to the  Internal  Revenue  Service  (IRS).  In

1994, OCSE  sent  3.6 million  cases  to IRS.  The  IRS withholds  any tax refund  due

these  individuals,  deducts  costs  of collections,  and  forwards  this money  to the  States  to

reduce  or eliminate  the  child support  arrears  for these  noncustodial  parents.  In  1994,

this joint  IRS-OCSE  project  intercepted  over  one  million  tax refunds  and  recovered

$720 million in overdue  child support  payments.

METHODOLOGY 
This  review  was a joint  effort  between  the  Office  of Inspector  General  (OIG)  and

IRS.  Both  agencies  agreed  that  the  major  issues to be  resolved  by this  effort  would  be

limited  to:

  how many  delinquent  noncustodial  parents  incorrectly  claim  the  EITC,  child 
care  credit,  head  of household  filing status,  and  exemptions  for children; 
	 what  is the  extent  of loss to the  Federal  Government  as a result  of these 
incorrect  claims;  and, 
5  Beginning in October Z99~ States no longer are required to @ss through the first $50 collected. 
6 
For AFDC  cases, the amount in arrears must be over $150, for non AFDC cases, the amount must exceed 
$500. 
-J  s	 whether  it is practical  to use  OCSE  data  on delinquent  noncustodial  parents  to 
identify  and  prevent  tax losses  that  would  result  from  inappropriate  claiming  of 
child  custody  and  support. 
It is important  to note  that  similar  incorrect  claims  could  also be  made  by a 
noncustodial  parent  not  delinquent  in child support  payments.  We  limited  our  review 
to those  in arrears  because  there  is no readily  available  data  source  to examine  the 
broader  universe.  Additionally,  while  outside  the  scope  of this review,  this incorrect 
Federal  tax information  is often  used  in preparing  State  tax returns,  thereby  depriving 
States  of tax revenues  due  them. 
The  OIG  also  enlisted  OCSE  support  in gaining  State  cooperation.  The  OCSE 
provided  the  tax refund  intercept  tape.  Also, the  OCSE  sent  a letter  to the  sample-
selected  States  explaining  the joint  OIG-IRS  efforts  and  requesting  their  help.  All of 
these  States  cooperated  in the  project. 
Sampling Rocedhres 
We  initially  selected  2,000 child  support  obligors  from  lists submitted  by the  States  to 
IRS  for income  tax refund  offset,  using a two stage  random  sample.  The  1993 tax 
refund  offset  lists were  used  since  they were  the  most  recent  lists available  at  the  time 
of this review.  We  first selected  eight  States  (New  York,  Pennsylvania,  Florida, 
Georgia,  North  Carolina,  Michigan,  Iowa  and  Texas)  with probability  proportional  to 
the  number  of obligors  per  State.  By accessing  the  Social  Security  earnings  records 
for  1993, we eliminated  those  obligors  with less than  $3,000 in earned  income.  From 
among  the  remaining  individuals,  we selected  250 per  State  using  simple  random 
sampling. 
We  collected  detailed  case  information  in the  eight  States  about  each  obligor  selected 
(described  in the  next  section.)  The  IRS was able  to identify  1,390 noncustodial 
parents  for whom  1993 tax returns  were  filed.  This  is in keeping  with  IRS  experience 
which  has  found  that  first, up  to 30 percent  of taxpayers  subjected  to offsets  fail to file 
subsequent  returns,  second,  this is a low income  population  that  may not  need  to file, 
and  finally, it is a population  that  has  already  demonstrated  noncompliance  with 
Federal  rules.  Of these  noncustodial  parents,  the  IRS  reviewed  698 returns  where  the 
noncustodial  parent  was delinquent  for child  support  in  1993.  An  additional  344 
returns  for  custodial  parents  associated  with noncustodial  cases were  identified  and 
reviewed  to  determine  whether  duplicate  exemptions  were  claimed.  Of the  remaining 
692 noncustodial  parents,  129 returns  were  not  available  and  563 had  arrearages  from 
previous  years.  See  Appendix  A for a detailed  description  of the  sampling 
methodology. 
4
 Gatherihg Data 
The  OIG  reviewed  child support  records  at State  IV-D  offices  during  April  and  May 
1995.  Specifically,  recollected  infomation  about  eve~noncustodial  parent,  custodial 
parent  andchild  involved  with the  case.  Redetermined  the  amount  ofchild  support 
owed  and  collected  from  the  noncustodial  parent  for each  child in  1993.  We 
examined  whether  the  child lived with the  noncustodial  parent  at any time  during  1993 
and  if any events  took  place  that  year  that  would  affect  child  support  obligations,  like 
the  child marrying  or reaching  the  age  of majority.  We  traced  the  custodial  parents 
AFDC  status  during  1993 as well. 
We  sent  a database  with  this comprehensive  child support  information  to IRS  for their 
analysis.  The  IRS  reviewed  the  tax returns  for both  custodial  and  noncustodial 
parents  and  calculated  the  tax liability  based  on our  four  criteria.  The  results  were 
used  for research  purposes  only, not  for enforcement. 
Rojectiom 
To  account  for  the  sampling  plan  and  provide  results  that  accurately  reflect  the 
distribution  of cases  in the  population  studied,  all percentages  in the  report  reflect  the 
proper  weighting  of the  data.  This will also be  true  of the  totals  presented.  When 
sample  based  results  are  presented,  we will identi&  them. 
Our  review  was conducted  in accordance  with  the  QualdyStandardsfor Inspections 
issued  by the  Presidents  Council  on Integrity  and  Efficiency. 
5
 FINDINGS

An administratively simple and coordinated  approach between  OCSE  and IRS can 
help identi@ noncustodial  parents misrepresenting  their childrens living arrangements 
on their tax returns. 
Childrens  Social  Security  Numbers  and  related  data  routinely  collected  by IV-D 
agencies  can be  used  effectively  and  efficiently  by IRS.  In many  cases,  IV-D  agencies 
are  aware  of the  living arrangements  of children  routinely  claimed  by noncustodial 
parents  on their  tax returns.  While  it would  be  prohibitively  expensive  for  IRS itself 
to collect  this  data,  IV-D  agencies  can  supply  this information  simply  and 
inexpensively. 
States  currently  are  making  efforts  to comply with Federal  OCSE  requirements  to 
establish  certified  child  support  enforcement  computer  systems  by the  1997 deadline. 
When  certified,  State  IV-D  agencies  can  systematically  identi&  many  of the  data 
elements  needed  to  disclose  childrens  living arrangements  and  whether  their  parents 
are  entitled  to  claim  them  for income  tax purposes. 
In 32 percent  of the cases reviewe~  additional tax liabilities resulted from the EITC, 
tax rates for head  of household  filing status and/or exemptions  that were  claimed 
incorrectly.  These  cases result in projected  additional tax liabilities  of $212 million for 
1993. 
Based  on child  support  data  obtained  by OIG  and  the  detailed  IRS  review  of the 
custodial  and  noncustodial  parents  1993 tax returns,  we estimate  there  were  over 
640,000  cases where  noncustodial  parents  did not  meet  their  child  support  obligations. 
Approximately  1 in 3 of these  cases would  have  resulted  in additional  tax liabilities 
based  on our  review. 
Nationally,  IRS  and  OIG  estimate  that  $212,118,000  in additional  Federal  income 
taxes  would  have  been  collected  in 1993 had  this category  of taxpayers  filed  correctly. 
The  appendices  following  the  body  of this report  provide  details  regarding  the 
projections.  The  breakout  for the  adjustment  projections  is depicted  in Table  A on 
the  following  page. 
The  scope  of this review  was limited  to Federal  tax loss projections.  However,  States 
also use  Federal  tax data  to calculate  State  tax liability.  Accordingly,  these  States  may 
be  losing  substantial  State  tax revenues  as well. 
6
 IRS Ikyxwd  Adjwtnwrm 
In accomplishing  this review,  IRS  intensively  reviewed  698 tax returns  (and  344 returns 
of related  custodial  parents)  of the  1,390 cases.  When  possible  IRS  made  side by side 
analyses  of noncustodial  and  custodial  parents  returns.  The  IRS found  that  475 cases 
appeared  to have  correctly  handled  the  issues  related  to the  children.  The  IRS 
projected  tax adjustments  for the  223 remaining  returns,  32 percent  of the  sample 
reviewed.  The  returns  with  erroneous  handling  of the  child-related  issues  showed  a 
total  of $233,075  in tax adjustments,  equating  to an  average  adjustment  of $1,045. 
It was apparent  from  the  review  that  the  erroneous  dependency  exemptions,  which 
serve  as the  basis  for each  of the  adjustments  described  below,  were  almost  entirely 
claimed  as Children  at Home.  This  claim  avoids  the  extra  documentation  required  if 
the  dependents  are  claimed  Children  Away from  Home.  In fact,  88 percent  of the 
cases  resulting  in tax adjustments  claimed  the  dependents  lived  at home  in error.  This 
figure  was 98 percent  for those  claiming  the  EITC  in error,  85 percent  for those  cases 
on AFDC,  95 percent  for those  with no valid  documentation,  96 percent  for those 
claiming  head  of household  status  in error,  and  100 percent  for those  claiming  child 
care  credits  in error.  It is apparent  that  the  self-reporting  compliance  features  on the 
IRS  tax forms  are  not  being  consistently  followed  by taxpayers  in this population  of 
child  support  delinquents. 
Table A 
Number  Projected  Projected  Percentof 
cases+  Population+  Revenues  Total 
Total  223  202.703  $212.118.892 
NoneustodiaRl eturns 
Disallow EITC claim.  119  104,362  $100,371,530  47 % 
Disallow exemptions due to AFDC  96  85,387  $42,949,588  2070 
payments for child. 
Disallow exemption due to lack of  80  75,044  $35,138,845  16 YO 
documentation. 
Disallow head of household status.  78  72,546  $20,777,243  1070 
Disallow child care credit.  7  5,170  $2,605,1O9*  1 
fzo 
CustodialReturns

Disallow exemption due to AFDC  29  24,884  $9,688,103  570 
payments for child. 
Deny custodial exemption,  2  1,675  $588,466  <1 70 
noncustodial parent exemption 
allowed. 
*The95percent confidence interval includes the value O. 
+ Due tothepossibiloiftmyu ltiplaed justmenptesr caset,h esumoftheindividuvaall uedsonot 
addtothetotal, 
7  EITCAdjmtments 
We  found  that  37 percent  of the  noncustodial  parents  whose  1993 tax returns  were 
reviewed  claimed  the  EITC.  However,  over  44 percent  of those  cases who  claimed 
the  EITC,  had  an  error  in the  amount  of the  EITC  claimed.7  We  projected  the  EITC 
adjustments  to exceed  $100 million  based  on the  number  and  magnitude  of the  errors 
IRS  identified.  The  EITC  errors  represent  the  most  significant  dollar  adjustments 
noted  in this review.  We  estimated  that  the  total  EITC  claimed  by this population 
exceeded  $270 million;  thus,  at least  37 percent  of the  total  EITC  claimed  by this 
population  was in error.  The  remainder  of the  EITC  which was allowed  in this review 
was based  on children  other  than  those  owed  the  delinquent  child  support;  therefore, 
additional  EITC  errors  could  exist in the  cases. 
Adjustments  for Parent Exernpticw  for Children 
Overall,  58 percent  of the  noncustodial  parents  (An  estimated  375,494 cases)  claimed 
children  for tax exemptions,  In 48 percent  of these  cases,  the  claim was not  allowable 
because  either  the  child was supported  by AFDC,  the  child did not  live with  the 
noncustodial  parent,  or there  was no valid  evidence  allowing  the  noncustodial  parent 
to  claim  the  exemption,  such  as an IRS Form  8332.  We  also estimate  that  in over 
24,000 cases,  custodial  parents  claimed  children  for tax exemptions  that  were 
unallowable  due  to AFDC  support. 
Adjw~  for Head  of Howehokl  jiling status 
We estimate  that  in about  one-third  (over  209,000)  of the  cases  with  arrearages  in 
1993, the  noncustodial  parents  filed  using the  tax rates  associated  with  head  of 
household  status.  In over  34 percent  of those  cases,  noncustodial  parents  claimed 
head  of household  status  erroneously  because  the  children  did not  live in their 
household  for more  than  6 months.  We  did not  challenge  the  claim  of head  of 
household  status  if other  children  (for  example,  by a subsequent  marriage)  were  shown 
on the  return;  therefore,  overall  compliance  on this issue  can  not  be  determined. 
Adjustments  for  Chiki Care Credits 
Although  we looked  for noncustodial  parents  claiming  the  child  care  credit  incorrectly, 
we found  very few instances  where  this took  place.  Errors  associated  with  claiming 
the  child  care  credit  for  the  sampled  noncustodial  children  only constitute  an 
estimated  one  percent  of the  total  error  amount. 
7 
In their 1994 report, Earned Income  Credit --Data on Noncompliance  and Illegal Alien Recipient% the 
General Accounting  Ofice  estimated that 29 percent of all EITC claims were in ewor.  (GA O/GGD-95-27)  ChiM Suppmt  Ik@e  of Noncustodial  Pare@  in the Sampik 
The  1,390 noncustodial  parents  in our  sample  paid  66 percent  of the  $3,388,356  in 
child  support  they  owed  for their  2,420 children  in  1993.  On  average,  they  have  child 
support  orders  covering  1.47 children,  44 percent  of whom  receive  AFDC  payments. 
These  noncustodial  parents  averaged  $922 in payments  of the  $1,400 in child support 
they  owed  per  child in  1993.  Roughly,  they  paid just  $77 of the  $117 in child  support 
they  owed  each  month. 
Table  B provides  the  distribution  of the  cases  reviewed,  by the  reported  Adjusted 
Gross  Income.  The  figures  are  projected  to the  studied  population.  The  data  shows 
that  the  majority  of the  adjustments  are  in the  income  catego~  of $5,000 to $14,999 
per  year. 
Table B 
AdjusteGdr
 oss  Projected  Projected  TaxAdjustments

Income  Total  Total  Projected  Projected Percent

Category  Number  AGI  Number  Amount  ofAGI

Total  640,162  $11,206,393,398202,704 $212,118,8921.9%

$1-$4,999  36,204  $146,600,226  5,885  $2,562,670 1.7%

$5,000-$14,999 285,957  $2,819,643,842 91,103  $117,022,6364.2%

$15,000-$24,999198,877  $3,892,242,070 65,494  $61,962,027 1.6%

$25,000-$34,999 69,386  $2,052,079,020 23,452  $16,913,046 0.8%

$35JIOO+  49,738  $2.295,828.240 16.770  $13.658.513 0.6%

9
 RECOMMENDATION

Over  the  years,  IRS  offset  of income  tax refunds  recovered  millions  in unpaid  child 
support,  benefiting  children,  custodial  parents,  State  IV-D  agencies  and  the  Federal 
Government.  The  IRS/OCSE/State  partnership  should  be  reviewed  to  determine  the 
feasibility  of expanding  the  exchange  of information  so that  noncustodial  parents  not 
meeting  their  child support  obligations  cannot  benefit  from  their  delinquency  when 
they file their  income  tax returns. 
Besides  IRS  collections  increasing  as a result  of fewer  incorrect  claims  for  the  EITC, 
head  of household,  exemptions,  and  child care,  we believe  child  support  enforcement 
may be  enhanced  as a result.  Some  noncustodial  parents  may be  deterred  from  falling 
behind  in child  support  payments  if they  realize  that  IRS  scrutiny  of their  tax returns 
will increase. 
At  present,  taxpayers  in this population  of child support  delinquents  do not 
consistently  provide  the  accurate,  self-reporting  compliance  data  required  on the  IRS 
tax forms.  This  speaks  for  the  need  of an IRS return  processing  mechanism  to protect 
government  revenue.  In the  absence  of timely  and  effective  data  sharing,  these 
parents  may  continue  to claim  they  are  providing  support  for their  children  (44 
percent  of whom  receive  welfare),  or otherwise  claim  certain  tax advantages  that  IRS 
cannot  easily verify  or disprove. 
THE OCSE AND  THE  STATES  SHOULD  WORK WITH IRS TO IDENTIFY 
DATA  AVAILABLE  FROM  STATE  WELFARE  AGENCIES  AND  CHILD 
SUPPORT  RECORD  SYSTEMS  WHICH  WOULD  ASSIST IN THE 
IDENTIFICATION  OF INAPPROPRIATE  TAX BENEFITS  CLAIMED  BY 
NONCUSTODIAL  PARENTS. 
The  identification  of additional  data  that  would  be  useful  to the  IRS would  improve 
the  collection  of delinquent  child  support.  However,  for this proposed  exchange  to be 
effective,  it must  be  fair  and  work  to the  mutual  benefit  of both  the  Department  of 
Treasury  and  the  Department  of Health  and  Human  Services  (DHHS).  For  example, 
once  the  data  elements  have  been  identified  and  the  appropriate  system  approved  and 
in place,  OCSE  could  provide  the  data  for IRS  enforcement  purposes  without  charge. 
The  IRS,  in turn,  could  provide  tax refund  offset  services  using  OCSE  data  without 
charge.  In this fashion,  both  Departments  could  economically  meet  their  fiscal 
collection  obligations. 
Some  examples  of data  that  IRS will need  to identi&  incorrect  returns  include  the 
custodial  parents  Social  Security  Number  (SSN),  the  childs SSN, welfare  status  and 
amounts,  and  the  child support  owed  and  paid  by a noncustodial  parent  in a calendar 
year.  This  data  already  is available  routinely  now to the  State  IV-D  agencies,  and  will 
be  an integral  part  of the  OCSE-designated  certified  data  systems  scheduled  to be 
fully operational  by October  1, 1997, 
10  As State  data  systems  are  certified  by OCSE,  the  data  exchange  with  IRS will become 
easier  and  should  minimize  the  staff work  involved  for  child support  agencies.  Once 
States  have  certified  child support  enforcement  systems,  national  and  uniform 
collection  of this  data  can be  easily coordinated  between  the  two Departments.  The 
OCSE  will generate  data  to assist the  IRS in identifying  tax filers  claiming  dubious 
exemptions  or head  of household  status. 
Potential  Savin@ 
We estimate  a potential  1 year  savings of just  more  than  $212 million  based  on our 
results.  According  to data  provided  by the  Bureau  of the  Census,  there  were 
approximately  6.1 million  noncustodial  parents  with  court  orders  for  child  support  in 
1991.  Based  upon  this, the  data  collected  here  and  other  information  independently 
developed  by IRS, we believe  there  could  be  total  annual  tax losses  of $1.4 billion  or 
more  as a result  of noncustodial  parents  inappropriately  claiming  custody  of children 
on Federal  income  tax returns. 
Whether  this amount,  or any fraction  of this money,  can be  collected  will depend  on 
many  factors.  For  instance,  since  most  of the  cases  involve  low income  tax payers,  it 
may not  be  effective  to conduct  audits  and  attempt  to collect  taxes  due.  The  most 
cost  efficient  revenue  protection  strategy  would  be  to intercept  a tax refund,  if one 
exists.  We  recognize  that  our  projection  may  overestimate  the  actual  amounts  that  are 
available  to be  collected  using this method. 
However,  the  amounts  we project  may  also represent  a lower  limit.  For  one  thing, we 
only reviewed  a population  of noncustodial  cases  that  have,  or had,  arrears  at one 
time,  and  were  above  the  IRS intercept  dollar  thresholds.  The  larger  population  of 
noncustodial  parents  may also include  inappropriate  claims  like we found.  For 
example,  a non  custodial  parent  not  delinquent  in paying  child  support  could  falsely 
claim  the  child  as a dependent.  This  could  happen  if the  child is not  residing  in the 
taxpayers  home.  Furthermore,  we did not verify the  validity  of other  children  in the 
household.  In addition,  IRS  only reviewed  tax returns  for  cases with  arrears  for  1993. 
About  half  the  cases  in the  sample  did not  have  arrears  for that  specific  year  and  may 
represent  additional  errors  should  they  be reviewed.  Also,  the  knowledge  that  tax 
returns  claiming  the  EITC  are  subject  to this level  of review  may provide  a sentinel 
effect  for this population.  Although  no funds  may be  collected  in the  first year  of such 
scrutiny,  subsequent  filings may be  more  accurate  and  we thus  avoid  future  losses. 
With  the  recent  passage  of the  Personal  Responsibility  and  Work  Opportunity 
Reconciliation  Act  (Act),  Congress  established  a Federal  Case  Registry  of Child 
Support  Orders  (Section  311 of the  Act).  This  regist~  will include  a minimum  set  of 
data  as prescribed  by regulations  established  by the  Secretary  of DHHS.  With  the 
proper  data  elements  outlined  here,  and  by applying  the  revenue  protection  strategy 
used  in this review  to identify  all noncustodial  parents,  not just  the  ones  known  to 
IV-D  agencies,  IRS  could  use  this data  to disallow  incorrect  exemptions  and  tax 
credits.  In doing  so, we believe  that  additional  annual  tax loses  can be  prevented.  (It 
11  should  be  noted  that  any pending  legislation  would  need  to be  reviewed  to insure  that 
it presents  no legal  impediments  to IRS  access  to the  data  for  this purpose.) 
In any event,  this review  demonstrates  the  feasibility  of an administrative  approach  to 
increase  tax compliance  without  the  need  for extensive  and  expensive  IRS  auditing. 
Besides  potentially  saving  substantial  funds  for the  U.S. Treasury,  we believe  we have 
found  an economical  incentive  to increase  child support  payments  and  enhance 
responsible  behavior  by noncustodial  parents. 
Agency Response 
In their  response  to our  draft  report,  staff from  the  Administration  for Children  and 
Families  (ACF)  provided  a number  of technical  corrections  and  other  suggestions. 
Where  appropriate,  we incorporated  these  changes  into  this final  report. 
The  ACF  referred  us to recommendations  in a  1996 Office  of Management  and 
Budgets  Benefit  Systems  Review  Team  report.  These  recommendations  suggest  that 
any system  changes  calling  for matches,  such  as proposed  here,  be  delayed  until  after 
implementation  of the  expanded  Federal  Parent  Locator  System. 
We  defer  to  IRS  as to whether  legislative  action  may be  necessary  to allow the  IRS  to 
obtain  custodial  data  in a revenue  protection  program.  However,  we believe  that 
action  to pursue  such legislation  and  to make  any necessary  adaptations  to the  Federal 
Parent  Locator  system  or any other  data  system  should  take  place  as soon  as possible. 
Once  States  and  OCSE  implement  new data  collection  systems,  it may be  a very 
difficult,  costly, and  lengthy  process  to change  the  components  of those  systems.  A 
better  approach  is to incorporate  identified  needs  at the  design  stage  and  save  future 
costs  as well as the  inevitable  inertia  that  accompanies  ad hoc  system  changes. 
A key element  in the  design  of all the  underlying  data  systems  is the  inclusion  of the 
SSN of each  child for whom  child  support  payments  have  been  ordered.  It is crucial 
that  this  data  element  be  included  to perform  the  matches  that  will be  needed--not 
only to prevent  inappropriate  income  tax deductions  which we have  described  in this 
report,  but  for  other  potential  matches  that  might  be  designed  in the  future  to help  in 
the  child  support  collection  process.  This  step  alone  would  go a long way to insuring 
the  feasibility  of efficacious  data  matches  in the  future,  but  if not  tended  to now, could 
forestall  important  matches  for many  years  to come. 
We  have  identified  a substantial  loss to the  U.S. Treasury  as a result  of this lack  of 
custodial  data  for  IRS.  The  sooner  we can halt  these  losses,  the  sooner  we can boost 
the  integrity  of the  EITC  program.  Finally,  by halting  these  inappropriate  deductions 
and  credits,  non  custodial  parents  will be  encouraged  to fulfill their  child  support 
obligations. 
12
 APPENDIX  A 
SAMPLING METHODOJX)GY  AND ESTIMATION  PROCEDURES 
A-1  To identi&  noncustodial  parents,  in arrears  for their  child  support  payments,  we

obtained  the  1993 Office  of Child  Support  Enforcement  (OCSE)/Internal  Revenue

Service  (IRS)  Tax  Offset  file.  This file is generated  by the  OCSE  from  data  provided

by the  States.  This  file provides  IRS with the  means  to identi~  individuals  who  are

delinquent  in child  support.  The  IRS  intercepts  any Federal  income  tax refunds  to

offset  arrearages  in child  support  payments.  The  cases  are  identified  by their  Social

Security  Numbers  and were  verified  as present  on the  IRS Master  File.

There  were  3,282,960  cases  listed  on the  Tax Offset  file.  However,  since  a

noncustodial  parent  may be  identified  as delinquent  in more  than  one  State  or

multiple  times  within  a State,  we created  an unduplicated  count  by consolidating

occurrences  of the  same  SSN within  the  database.  This left  us with  2,762,398

unduplicated  Social  Security  Numbers.  Based  on the  unduplicated  counts  in each

State,  we then  drew  a sample  of eight  States  with probability  proportional  to size using

the  Rao-Hartley-Cochran  method  (RAO).8  These  eight  States  produced  a list of

937,534 unduplicated  SSNS.  We  then  submitted  this list of SSNS to the  Social  Security

Administration  to determine  the  earned  income  associated  with  each  of these  SSNS for

1993.  All individuals  with less than  $3,000 in earned  income  were  eliminated  as these

individuals  were  considered  unlikely  to file a tax return.  The  results  of this procedure

are  presented  in the  following  table.

Table  1 
TotalNumberof  NumberwithEarned  Proportiowni
th

CasesonOffset Pereent  Incomeof$3,000+  $3,000+Earned

State  File  ofTotal  (SourceS:S
A)  Income

Texas
 132,901  4.81%  92,715  69.76% 
Iowa
 43,970  1.59%  34,703  78.92% 
Georgia
 74,323  2.69%  51,713  69.58% 
Pennsylvania
 134,776  4.88%  87,970  65.27% 
Florida
 126,742  4.59%  85,912  67.78% 
Michigan
 204,076  7.39%  145,594  71.34% 
NorthCarolina
 62,950  2.28%  57,440  91.25% 
New York
 157,7%  5.71%  79,070  50.11% 
Total
 937,534  33.9470  635,117  67.74% 
PopulatioTno
tal
 2,762,398  1,871,200 
Overall,  roughly  two-thirds  of the  unduplicated  cases were  found  to have  a reported 
earned  income  of over  $3,000.  For  purposes  of our  projections,  we are  accounting  for 
8  CochrW  W?G. (1977). Somulin~ Technimes.  John UWeyand Sons, New York  third editio~ p.266 
A-2  approximately  1,871,200 noncustodial  parents  appearing  on the  refund  offset  file 
produced  by OCSE. 
At  the  second  stage  of sampling,  we drew  a simple  random  sample  of 250 Social 
Security  Numbers  from  each  of the  eight  selected  States.  Each  of these  represents  a 
case  for  our  purposes.  For  each  of the  individuals  associated  with  each  number,  we 
went  to the  appropriate  State  or local  Child  Support  Enforcement  Office  and 
obtained,  among  other  data,  the  name  and  Social  Security  Number  of all custodial 
parents  and  children  associated  with  each  noncustodial  parent  and  information  on the 
arrears  related  to  1993.  Therefore,  each  case  selected  for this review  will have  one 
noncustodial  parent,  one  or more  custodial  parents  and  one  or more  children  included 
in the  case  file.  All results,  including  any estimated  potential  losses,  are  calculated  on 
a case  basis.  The  results  of this second  stage  sampling  are  presented  in Table  2. 
Table  2 
SSNS  Returns  Returns 
State  Sampled  Found  Reviewed 
Texas
 250  179  140 
Iowa
 250  172  67 
Georgia
 250  178  84 
Pennsylvania
 250  184  72 
Florida
 250  166  72 
Michigan
 250  171  77 
North  Carolina
 250  164  113 
New York
 250  176  73 
Total  2,000  1,390  698 
The  data  gathered  from  the  case  files was automated  and  given to the  National  Office 
for Research  and  Analysis,  Office  of Tax  Compliance,  IRS.  The  IRS  reviewers  located 
1,390 of the  2,000 returns  called  for.  They  reviewed  the  1993 tax returns  for each 
noncustodial  parent  and  all corresponding  custodial  parents  where  the  parent  had 
child support  arrears  related  to  1993.  A total  of 698 cases  out  of the  1,390 met  this 
criteria.  For  the  698 cases  where  tax returns  were  reviewed  for the  noncustodial 
parent,  an  additional  344 tax returns  for the  custodial  parent  were  identified,  found 
and  reviewed. 
Projections  were  made  appropriate  to the  sampling  methodology  using the  Two-stage 
RHC  subroutine  from  the  RAT-STATS  Statistical  Software.g 
9 
Department  of Health and Human Services, Ofice  of Inspector General, Ojj%e of Audit  Services, RAT-STATS 
Statktical  Software. 
A-3
 APPENDIX  B 
VARIANCE  AND ESTIMATED  CONFIDENCE  INTERVALS 
B-1  Variancesand EstimatedConfidenceIntervals 
Foreachoftheestimatetdo talpsr esenteidn Table A in the report,we providteh es tandarderrors and the95percencto nfidenicnet
 ervals. 
We alsoprovidaen estimatoef theprecisioofnt hesteo talTsh.e precisiiosdne finaesdt hesemi-widotfthh econfidenicnet ernaaslapercent

oftheestimate.

95% Confiden@Interval

Classo
fError
 Estimate  StandarEdr
 ror  LowerLimit  UpperLimit  Precision

NonCustodiaPlarentsReturnx 
DisalloEwI
 TCclaims.
 $100,371,530  27,246,178  $46,970,111  $153,772,948  53.2% 
w 
Disalloewx emptiondsu
etoAFDC
 $42,949,588  6,289,626  $30,621,921  $55,277,255  28.7% 
I 
payments.

N 
Disalloewx emptiodnu
 etolackof
 $35,138,845  9,284,912  $16,940,417  $53,337,273  51.8% 
documentation.

Disallohwe adofhouseholsdt
 atus.
 $20,777,243  4,460,100  $12,035,625  $29,518,861  42.1% 
Disallocwh ilcda
 recredit.
 $2,605,109  1,632,034  ($593,678)  $5,803,896  1228% 
CustodiaPla
rentaRe-
Disalloewx emptiodnu
 etoAFDC payments.  $9,688,103  3,148,093  $3,517,841  $15,858,365  63.7%

Disallocwu stodieaxle mptionn,o
ncustodial  $558,466  489,614  ($401,177)  $1,518,109  171.8%

exemptioanl
 lowed.
 APPENDIX  C 
AGENCY  COMMENTS 
c-1  ,. .-*IQ,  <
*0+ 4% 
~  DEPARTMENT  OF HEALTH&  HUMAN SERVICES 
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ADMINiSmATKIN  FORCHILDRENANDFAMILIE: 
Office of the AssistantSecretary,,Suite 600 
370LEnfant Promenade, S.Vd 
WasWwton,  D.C.20447 
September  24,  1996 
TO:	 June  Gibbs  Brown 
Inspector  General 
FROM :  Mary  Jo  Bane 
Assistant  Secretary 
for  Children  a 
SUBJECT :	 OIG  Draft  Report  C~Unpaid  Child  Support  and  Income  Tax 
Deductions,  -(O105z95900070)O)  -

Thank  you  for  the  opportunity  to respond
 to your  draft  report  of

findings  concerning  unpaid  Child  Support
 and  Income  Tax

Deductions.  If you  have  questions,  please  contact  David  Ross  of

my  staff  at  (202)  401-9370.

General  Comments:

This  draft  report  presents  findings  that  cross-matching  data

sources  to  identify  federal  tax-filing  errors  among  noncustodial

parents  in child  support  cases  can  yield  savings to the  federal

treasury.

We  would  defer  to the  Department  of the  Treasury,  and  especially

the  Office  of the  Assistant  Secretary  for Tax  Policy,  in

estimating  the  impact  of the  proposed  course  of action  on the

federal  treasury.

From  a timing  standpoint,  we would  also  note,  as referenced

below,  the  views  of the  Benefit  Systems  Review  Team  convened  by  .

the  Office  of Management  and  Budget.

Technical  Comments:

Page  iii  says  the  annual  IRS  offset  file  may  have  to be  expanded

to  accommodate  IRS  needs.
 We recommend  the  report  delete

specific  reference  to  the
 IRS  tax  offset  file  and  not  specify  the

means  by which  IRS  obtain
 these  data.  Further  research  i.sneeded

on the  restrictions  on use
 of data  in State  and  Federal  Case

Registries,  and  in Federal
 New  Hire  provisions  of  statute,  before

these  data  sources  should
 be promoted.

Page  iii  also  says  that  legislation  now  pending  i.nCongress

includes  establishing  a national  registry  of child  support  court

orders.  When  the  final  report  is updated  to reflect  passage  of

the  Personal  Responsibility  and  Work  Opportunity  Reconciliation

c-2  Page  2  - June  Gibbs  Brown 
Act  (PRWORA),  we  ask  that  you  note  that  data  of  use  to  IRS  reside 
in the  State  Child  Support  Case  Registries  -- which  includes  non-
IV-D  cases  -- not  necessarily  the  Federal  Case  Registry. 
Section  316  (f) of PRWORA  gives  the  Secretary  of the  Treasury 
access  to  information  in the  National  Directory  of New  Hires  for 
the  purposes  of  administering  section  32 of the  Internal  Revenue 
Code  of  1986  (the advance  payment  of the  earned  income  tax credit 
under  section  35o7  of  such  Code,  and  verifying  a claim  with 
respect  to employment  in a tax  return) . 
The  Office  of  Management  and  Budget  issued  a  report  by  the 
Benefit  Systems  Review  Team  (BSRT),  Inmrovinq  the  Coordination  of

.Government  Information  Resources,  (June  1996)  .  In  Chapter  4:

Data  Resources  --The  Tools  to  Fight  Fraud  and  Reduce  Error,  the

BSRT  noted  that  the  National  Directory  of  New  Hires  and  the

companion  Federal  Case  Registry,  are  powerful  tools  to  ensure

payment  accuracy  and  maintain  overall  program  integrity  in

Federally-sponsored  income  maintenance,  annuity,  disability

benefit,  and  student  loan  programs.  The  BSRT  recommended  that

the  FPLS  consider  permitting  Federally-sponsored  income  support

programs  with  the  opportunity  to  verify  their  benefit  payments

and  debt  collection  efforts  with  data  contained  in  Expanded  FPLS.

The  report  noted  that  the  recommendation  should  be  considered  for

legislative  action  after  the  initial  Directory  has  been

implemented  and  should  be  given  careful  congressional

deliberation,  similar  to  the  review  given  by  Congress  to  proposed

modifications  to  access  to  IRS  databases.

Page  2 says  income  withholding  by employers  began  in 1989.  In

1985,  states  were  required  to withhold  earning  for  arrearages

equal  to  one  month~s  worth  of support,  or  less,  and  in IV-D

cases, they were to do so without returning to court to file a

withholding  order.  In  1989, in all new and modified IV-D  orders,

withholding  was  required whether there was an arrearage or not. 
Exceptions were permissible where the parties agreed otherwise or

a court found good cause to waive the withholding requirement.  - -

c-3