U n i t e d St a t e s G o v e r n m e n t FORM 0-1111 (1-13)

R a i l r o a d R e t i r e m e n t b o a r d M e m o r a n d u m

£-95-19 <

JUNO 61915

TO Peter A. Larson

Chief Financial Officer

FROM Catherine C. Cook £ f f

General Counsel

SUBJECT Interest and Penalty on Reactivated Debt

This is in response to your memorandum of May 11, 1995, inquiring

whether-it. is.permissible to accrue interest and penalties against

a debt which is regarded as uncollectible because of“the inability

of the debtor to repay.

The answer to your inquiry depends on whether collection action is

terminated or merely suspended. Title 4 CFR 104.2(a) and (b)

specifically provide for temporary suspension of collection where,

for various reasons, the debt is uncollectible, and refer to

reinstatement of collection when it appears the debt may be

collectible. These sections do not provide for suspension of the

accrual of interest and penalty.

Sections 102.13(b) and (e) contain the regulations issued pursuant

to the Debt Collection Act of 1982 pertaining to the assessment of

interest and penalty. 4 CFR 102.13(h) incorporates 4 CFR

104.2(c)(1) regarding the waiver of collection of interest and

related charges. None of those sections limits the collection of

interest or penalty in the case of suspension of collection.

Sections 200.7(b) and (c) of the Board's regulations provide for

the assessment of interest and penalty, respectively, against debts

due the Board. Section 200.7(g) of those regulations provides

circumstances where the collection of interest may be waived. None

of those sections limits the collection of interest or penalty in

the case of suspension of collection. However, where suspension of

collection is based upon the debtor's temporary inability to repay

the debt, the imposition of interest and penalties may be selfdefeating. Thus, the debt collection manager may waive the

assessment of interest and penalties where such imposition would

result in the debt never being repaid or where such imposition is

determined to be against equity and good conscience. See section

200.7(g)(2) of the Board's regulations.
Peter A. Larson

Chief Financial Officer

2

On the other hand, where you determine that collection action

should be terminated under the criteria set forth in 4 CFR 104.3

the accrual of interest and penalties would also cease. Under

generally accepted accounting principles, which are followed by the

Board, the termination of collection results in the removal of a

debt from the Board's accounts receivable with a countervailing

entry to allowance for debt loss account. At that point there is

no debt on which interest or penalties may accrue. Cf. 31 U.S.C.

§ 3717(a)(1). Interest and penalties could again begin to accrue

prospectively if it is determined that the debt is collectible and

is reinstated as a receivable.

In conclusion, the treatment of interest and penalties hinges on

whether debt collection is suspended or terminated. The former is

chosen when there is a reasonable likelihood of collection in the

_ immediate._future. The latter is chosen when the likelihood of

collection is remote or~'nbnexisteht.

MCLitt:tws:cmw

C. 1068-95

COLLECT.MCL