Wednesday 

December 30, 1998 

federal register
 Part III 

Department of the 

Treasury 

Fiscal Service 

31 CFR Part 285 

Offset of Tax Refund Payments To 

Collect Past-Due Support; Final Rule 
72092 Federal Register / Vol. 63, No. 250 / Wednesday, December 30, 1998 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Fiscal Service 

31 CFR Part 285 

RIN 1510–AA63 

Offset of Tax Refund Payments To 

Collect Past-Due Support 

AGENCY: Financial Management Service, 

Fiscal Service, Treasury. 

ACTION: Final rule. 

SUMMARY: Federal law authorizes the 

Federal tax refund of a taxpayer who 

owes past-due support to be reduced, or 

offset, by the amounts owed by the 

taxpayer. Past-due support includes 

delinquent child support or other 

obligations for the support of a child. 

The funds offset from a taxpayer’s tax 

refund are forwarded to the State 

enforcing the collection of the past-due 

support. Effective January 1, 1999, the 

Department of the Treasury will 

conduct the tax refund offset program as 

part of the centralized offset program, 

known as the Treasury Offset Program, 

operated by the Financial Management 

Service (FMS), a bureau of the 

Department of the Treasury. This final 

rule establishes tax refund offset 

procedures that supersede the 

procedures governing the tax refund 

offset program established by the 

Internal Revenue Service (IRS) and 

applicable to the collection of past-due 

support (codified at 26 CFR 301.6402– 

5). Differences between this rule and the 

IRS rule reflect requirements 

necessitated by the inclusion of the tax 

refund offset program as a part of the 

Treasury Offset Program. 

EFFECTIVE DATE: December 30, 1998. 

FOR FURTHER INFORMATION CONTACT: 

Gerry Isenberg, Financial Program 

Specialist, at (202) 874–6660; or Ronda 

Kent or Ellen Neubauer, Senior 

Attorneys, at (202) 874–6680. A copy of 

this rule is being made available for 

downloading from the Financial 

Management Service web site at the 

following address: http:// 

www.fms.treas.gov/debt. 

SUPPLEMENTARY INFORMATION: 

Background 

General 

Under 26 U.S.C. 6402(c) and 42 U.S.C. 

664, Federal tax payments may be 

withheld or reduced to collect past-due 

support on behalf of States. This process 

is known as ‘‘offset’’ or ‘‘tax refund 

offset.’’ The Internal Revenue Service 

(IRS) has been collecting past-due 

support for States by tax refund offset 

since 1982. ‘‘Past-due support’’ means 

the amount of support, determined 

under a court order, or an order of an 

administrative process established 

under State law, for support and 

maintenance of a child, or of a child and 

the parent with whom the child is 

living, which has not been paid. 

The Debt Collection Improvement Act 

of 1996 (DCIA), Pub. L. 104–134, 110 

Stat. 1321, 1358 (1996), established a 

centralized process for offsetting eligible 

nontax Federal payments to collect 

delinquent debt owed to the United 

States. In addition, the DCIA authorized 

offset of such payments to collect pastdue support being enforced by States, as 

well as other debts owed to States. 

The Financial Management Service 

(FMS), the disbursing agency of the 

Department of the Treasury (Treasury), 

is responsible for the implementation of 

centralized offset in accordance with the 

provisions of the DCIA. To meet this 

responsibility, FMS established the 

‘‘Treasury Offset Program.’’ To improve 

the efficiency of Treasury’s collection of 

debts, including past-due support, 

operation of the tax refund offset 

program will be included as part of the 

Treasury Offset Program effective 

January 1, 1999. The provisions and 

legislative history of the DCIA clarified 

that FMS may conduct tax refund offsets 

to collect past-due support (see 

§§ 31001(v)(2) of the DCIA, codified at 

42 U.S.C. 664(a); 142 Cong. Rec., 104th 

Cong. 2d Sess., H4087, H4090 (Apr. 25, 

1996)). 

On August 4, 1998, FMS issued a 

notice of proposed rulemaking (NPRM) 

(63 FR 41688, August 4, 1998) 

proposing changes to the tax refund 

offset procedures for the collection of 

past-due support after January 1, 1999. 

For tax refund payments after January 1, 

1999, the revised procedures, as 

finalized in this rule, supersede the 

procedures governing the tax refund 

offset program established by the IRS 

and applicable to the collection of pastdue support (codified at 26 CFR 

301.6402–5). 

This rule governs only the offset of 

one type of payment, tax refunds, to pay 

one type of delinquent debt, past-due 

support. FMS has promulgated separate 

rules and procedures governing other 

types of offset, such as tax refund offset 

for the collection of debts owed to the 

Federal Government (31 CFR 285.2, 63 

FR 46139, August 28, 1998) and the 

offset of nontax Federal payments for 

the collection of past-due child support 

(31 CFR 285.1, 63 FR 46141, August 28, 

1998). See also, Offset of Federal Benefit 

Payments (31 CFR 285.4, 63 FR 44985, 

August 21, 1998) and Salary Offset (31 

CFR 285.7, 63 FR 23354, April 28, 

1998). FMS will promulgate other rules 

governing offset of nontax Federal 

payments for the collection of debts 

(other than child support) owed to 

Federal agencies and States. FMS 

anticipates that Part 285 of this title 

ultimately will contain all of the 

provisions relating to centralized offset 

by disbursing officials for the collection 

of debts owed to the Federal 

Government and to State governments, 

including past-due child support being 

enforced by States. 

The Treasury Offset Program 

The Treasury Offset Program 

currently works as follows. FMS 

maintains a delinquent debtor database. 

The database contains delinquent debtor 

information submitted and updated by 

Federal agencies owed debts, and by 

States collecting debts including any 

past-due support being enforced by 

States. Before a Federal payment is 

disbursed to a payee, FMS compares the 

payee information with debtor 

information in the delinquent debtor 

database operated by FMS. If the payee’s 

name and taxpayer identifying number 

(TIN) match the name and TIN of a 

debtor, the payment is offset, in whole 

or part, to satisfy the debt, to the extent 

allowed by law. Since FMS issues 

different payment types daily, the 

collection of past-due support can be 

satisfied by the offset of a variety of 

Federal payment types including, but 

not limited to, vendor, salary, and 

retirement payments, as well as tax 

refund payments. 

FMS transmits amounts collected to 

the appropriate agencies or States owed 

the delinquent debt after deducting a fee 

charged to cover the cost of the offset 

program. Information about a 

delinquent debt or past-due support 

obligation remains in the debtor 

database for offset as long as the debt 

remains past-due and legally collectible 

by offset, or until debt collection 

activity for the debt is terminated 

because of full payment, compromise, 

write-off or other reasons justifying 

termination or removal of the debt from 

the database. 

Offset of Tax Refund Payments To 

Collect Past-Due Child Support Under 

the Treasury Offset Program 

This rule establishes tax refund offset 

procedures that supersede the 

procedures governing the tax refund 

offset program established by the IRS 

and applicable to the collection of pastdue support (codified at 26 CFR 

301.6402–5). Tax refund payments 

issued after January 1, 1999, will be 

offset to collect past-due support as part 

of the Treasury Offset Program in 

accordance with the requirements of 26 
Federal Register / Vol. 63, No. 250 / Wednesday, December 30, 1998 / Rules and Regulations 72093 

U.S.C. 6402(c) and 42 U.S.C. 664. 

Procedures for processing claims by 

non-debtor spouses and for rejecting a 

taxpayer’s election to apply his or her 

refund to future tax liabilities remain 

governed by IRS rules. In addition, 

nothing in this rule changes the preoffset procedures established by the 

Department of Health and Human 

Services (HHS) rules implementing 42 

U.S.C. 664. See 45 CFR 303.72. HHS 

issued guidance to all States on July 6, 

1998, concerning the procedures for 

States to submit past-due support debts 

for offset purposes, including 

procedures pertaining to the debt 

certification process. See Office of Child 

Support Enforcement (OCSE) Action 

Transmittal No. OCSE–AT–98–17 

(OCSE’s AT–98–17). 

The preamble to the NPRM explained 

the proposed process of offsetting tax 

refund payments to collect past-due 

support under the Treasury Offset 

Program, as well as the differences 

between the proposed procedures and 

the IRS procedures. The NPRM also 

contained a section-by-section analysis 

of the proposed rule. (See 63 FR 41688– 

41691) 

FMS developed this final rule in 

consultation with the IRS and HHS and 

appreciates their assistance. As required 

by 42 U.S.C. 664(b)(1), HHS has 

approved this final rule. 

Comments to the NPRM 

In response to the NPRM, FMS 

received comments from seven (7) State 

child support enforcement agencies 

which are discussed below. 

General Comments 

In response to a commenter’s request 

that the regulation clarify that States 

cannot submit debts directly to FMS for 

tax refund offset purposes unless 

authorized by HHS rules, § 285.3(c)(3) 

has been revised in the final rule by 

adding the following first sentence: 

‘‘States must notify HHS of past-due 

support in accordance with the 

provisions of paragraph (c)(2) of this 

section unless HHS rules authorize 

notification to FMS directly.’’ Though 

this rule provides States with the 

flexibility to refer past-due support 

debts directly to FMS, current HHS 

rules governing programs under Chapter 

7, Subchapter IV, Part D, of title 42 of 

the U.S. Code (Title IV–D of the Social 

Security Act), require States to report 

past-due support debts to HHS for tax 

refund offset purposes. This rule does 

not supersede existing HHS rules; it 

merely provides flexibility should HHS 

decide to amend its rules in the future 

to allow States to refer past-due support 

debts directly to FMS. States will be 

notified if HHS amends its rules to 

allow direct submission to FMS. At that 

time, as suggested by one commenter, 

HHS and FMS will work with States to 

review any impact direct submission 

may have on the States. 

Another commenter asked whether 

FMS would require States to use 

administrative offset if HHS rules 

allowed States to submit debts directly 

to FMS. FMS has no plans to implement 

such a requirement. In response to 

another commenter’s question regarding 

submission of debts to FMS, FMS will 

allow States to increase balances on 

debts and to submit debts on an ongoing basis throughout the year for debts 

submitted through HHS or directly to 

FMS. 

Section 285.3(a)—Definitions 

State. The public was specifically 

invited to comment on the impact of 

including or excluding legal 

subdivisions of States in the definition 

of State. Based on two comments 

received and discussions with HHS 

regarding current procedures for county 

reporting, FMS determined that the 

definition of State in the NPRM would 

not create an impediment to the 

collection of past-due support. Counties 

seeking to participate in the offset 

program may do so by reporting through 

the State’s IV–D program. Therefore, the 

definition of ‘‘State’’ was not changed to 

include legal subdivisions. 

The public also was invited to 

comment about whether tribal 

governments operating child support 

enforcement programs should be treated 

in the same manner as States for 

purposes of this rule. One commenter 

noted that treating tribal governments 

operating child support enforcement 

programs in the same manner as States 

is consistent with the definition of State 

as defined in section 101, paragraph (19) 

of the Uniform Interstate Family 

Support Act. For the time being, it is 

anticipated that States will continue to 

submit past-due support debts to the tax 

refund offset program pursuant to 

cooperative agreements with tribal 

governments. Therefore, the final rule 

has not been changed. OCSE is in 

consultation with the tribes and States 

and will formulate policy on this issue 

as it becomes appropriate. OCSE will 

keep the public advised. 

Section 285.3(c)—Notification of PastDue Support 

One commenter questioned why the 

minimum debt referral amount in 

§ 285.3(c)(1) was different for debts 

assigned to a State ($25) than for debts 

not assigned to a State ($500). Federal 

law prohibits the use of tax refund offset 

for non-assigned past-due support debts 

less than $500. See 42 U.S.C. 

664(b)(2)(A). There is no similar 

statutory minimum dollar threshold for 

past-due support debts assigned to a 

State. Another State questioned whether 

the $25 minimum for assigned debts 

would create confusion since HHS rules 

currently set a minimum threshold of 

$150. FMS has set minimum thresholds 

as low as possible in order to maximize 

the collection of past-due support debts 

through offset. Until States are 

authorized by HHS to submit debts in 

Title IV–D cases at a lower threshold, 

the current minimum threshold set by 

HHS is applicable. Section 

285.3(c)(1)(i)(A) has been revised to 

allow referral of assigned debts not less 

than $25, or such higher amount as HHS 

rules may allow, whichever is greater. 

FMS received several comments 

related to the advance notice 

requirements described in paragraphs 

(c)(4) and (c)(5) of § 285.3. HHS rules 

(see 45 CFR 303.72(e) and OCSE’s AT– 

98–17) describe the requirements 

pertaining to providing advance notice 

to the debtors of the State’s intent to 

submit a debt for offset. Since HHS rules 

govern advance notice requirements, the 

final rule does not incorporate one 

commenter’s suggestion that the 

regulation be revised to clarify that a 

one-time notice to a debtor, rather than 

an annual notice, is sufficient in all 

cases. HHS’ rules allow States to 

determine specifically how frequently 

advance notice will be provided. 

Additionally, OCSE’s AT–98–17 

indicates that because the amount of the 

debt may exceed the amount originally 

indicated in the notice, States are 

encouraged to send periodic notices, 

especially where there are significant 

increases in the amount of the debt. In 

response to other comments, the first 

sentence of § 285.3(c)(4) in the final rule 

has been changed to clarify that, as 

authorized by 45 CFR 303.72(e), HHS 

may send advance notice to the debtor 

on behalf of a State. Currently, FMS has 

no plans to send advance notices to 

debtors on behalf of a State. 

With respect to the collection of pastdue support enforced by multiple States 

as described in § 285.3(c)(6), one 

commenter suggested that FMS and/or 

HHS inform States via reports when 

multiple States are enforcing the same 

debt. When a debt is being enforced by 

multiple States, the rule requires 

notification to the other enforcing State 

only if a State has knowledge of such 

multiple enforcement. HHS and FMS 

will work with States to resolve 

multiple enforcement issues as they 

arise. Although at this time there are no 

plans for providing systematic 
72094 Federal Register / Vol. 63, No. 250 / Wednesday, December 30, 1998 / Rules and Regulations 

notification to States to alert them to 

multiple enforcement issues, HHS and 

FMS will review whether such 

notification is desirable. 

Section 285.3(d)—Priorities for Offset 

The public was invited to comment 

on how a tax refund payment should be 

applied to a taxpayer’s multiple debts 

within the same category. Two 

commenters suggested that any refund 

be applied proportionately to the 

taxpayer’s multiple public assistance 

debts owed to two or more States, using 

the total past-due amount as 100%. 

Another commenter requested that the 

debts be paid in the order in which they 

were submitted for offset. OCSE’s AT– 

98–17 indicates that OCSE and FMS 

have agreed to continue preexisting 

processing procedures during the 

transition of the tax refund offset 

program from IRS to FMS, thus 

processing and giving priority on a firstin-first-processed basis. In the future, 

recommendations for alternate 

processing procedures will be reviewed 

by OCSE and FMS. 

The final rule has been changed to 

reflect recently enacted legislation (Pub. 

L. 105–206, July 22, 1998) authorizing 

Treasury to offset tax refunds to collect 

delinquent State income tax obligations. 

Section 285.3(d) has been changed to 

reflect the provisions of the new law 

under which such State income tax 

obligations will be paid from a 

taxpayer’s tax refund only after the tax 

refund has been applied to satisfy the 

taxpayer’s delinquent child support 

obligations and debts owed to the 

Federal Government. See 26 U.S.C. 

6402(e). 

Section 285.3(e)—Post-Offset Notice 

One commenter suggested that 

§ 285.3(e)(2) include a reporting period 

regarding FMS’ offset report to HHS or 

the States. As in the NPRM, the final 

rule does not include a reporting period 

because FMS will establish mutually 

agreed upon periods with HHS or 

affected States. 

With respect to § 285.3(e)(4), the 

commenter questioned whether FMS’ 

report to HHS regarding States’ 

participation in offset (submissions of 

debts and offset collections) would 

include cases submitted to FMS directly 

and those submitted through HHS. 

Pursuant to the provisions of 

§ 285.3(e)(4), the details and 

requirements of such reports will be 

developed by HHS and FMS but will 

not be included in the rule. It is 

anticipated that reports will include 

information about cases submitted to 

FMS directly and through HHS. 

Contrary to the commenter’s concern, if, 

for some reason, the reporting period is 

limited to annually, the provisions of 

this regulation allowing States to submit 

cases on an ongoing, rather than annual, 

basis will not be affected. 

Section 285.3(h)—Fees 

The final rule does not incorporate a 

commenter’s suggestion that § 285.3(h) 

specify a time frame within which 

States would be notified of fee changes 

prior to any change. FMS will work 

with HHS and States to ensure that 

States have sufficient advance 

notification of any fee changes. 

Another commenter recommended 

that the fee structure be identified in the 

regulation and remain at a level that 

will allow for the offset program to be 

successful. Under 42 U.S.C. 664, 

Treasury is authorized to charge fees to 

recover the full cost of applying the 

offset procedure. This rule requires that 

the fee be established annually in such 

amount as FMS and HHS agree. The fee 

will be no more than $25 per case 

submitted per year. FMS will work with 

HHS to ensure that States are provided 

with information concerning the fee 

structure, and that the amount of the fee 

does not negatively impact the success 

of the program. 

Regulatory Analyses 

This final rule is not a significant 

regulatory action as defined in 

Executive Order 12866. It is hereby 

certified that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The basis for this certification is that 

this rule impacts only individuals who 

receive tax refunds and who owe pastdue support. Therefore, a regulatory 

flexibility analysis is not required. 

FMS has determined that this rule 

may affect family well-being. It is 

hereby certified that this rule has been 

assessed in accordance with Section 654 

of the Treasury Department 

Appropriations Act, 1999, enacted as 

part of the Omnibus Consolidated and 

Emergency Supplemental 

Appropriations Act, 1999 (Pub. L. 105– 

277). This rule will not have a negative 

impact on family well-being because it 

strengthens the financial well-being of 

families by assisting in the collection of 

past-due child support. 

Special Analysis 

FMS has determined that good cause 

exists to make this final rule effective 

upon publication without providing the 

30 day period between publication and 

the effective date contemplated by 5 

U.S.C. 553(d). The purpose of a delayed 

effective date is to afford persons 

affected by a rule a reasonable time to 

prepare for compliance. However, in 

this case, Treasury has been collecting 

past-due support for States by tax 

refund offset since 1982. Procedures 

affecting States submitting delinquent 

child support obligations for collection 

and persons owing delinquent child 

support obligations remain substantially 

unchanged. Effective January 1, 1999, 

the tax refund offset program will be 

part of the centralized offset program 

operated by FMS. This final rule 

provides important guidance that is 

expected to facilitate States’ 

participation in the tax refund offset 

program. Therefore, FMS believes that 

good cause exists to make the rule 

effective upon publication. 

List of Subjects in 31 CFR Part 285 

Administrative practice and 

procedure, Child support, Child welfare, 

Claims, Debts, Privacy, Taxes. 

Authority and Issuance 

For the reasons set forth in the 

preamble, 31 CFR Part 285 is amended 

as follows: 

PART 285—DEBT COLLECTION 

AUTHORITIES UNDER THE DEBT 

COLLECTION IMPROVEMENT ACT OF 

1996 

1. The authority citation for part 285 

is revised to read as follows: 

Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 

3701, 3711, 3716, 3720A, 3720B, 3720D; 42 

U.S.C. 664; E.O. 13019; 3 CFR, 1996 Comp., 

p. 216. 

2. Section 285.3 is added to subpart 

A to read as follows: 

§ 285.3 Offset of tax refund payments to 

collect past-due support. 

(a) Definitions. For purposes of this 

section: 

Debt as used in this section is 

synonymous with the term past-due 

support unless otherwise indicated. 

Debtor as used in this section means 

a person who owes past-due support. 

FMS means the Financial 

Management Service, a bureau of the 

Department of the Treasury. 

HHS means the Department of Health 

and Human Services, Office of Child 

Support Enforcement. 

IRS means the Internal Revenue 

Service, a bureau of the Department of 

the Treasury. 

Past-due support means the amount 

of support, determined under a court 

order, or an order of an administrative 

process established under State law, for 

support and maintenance of a child, or 

of a child and the parent with whom the 

child is living, which has not been paid, 

as defined in 42 U.S.C. 664(c). 
Federal Register / Vol. 63, No. 250 / Wednesday, December 30, 1998 / Rules and Regulations 72095 

Qualified child means a child: 

(i) Who is a minor, or 

(ii) Who, while a minor, was 

determined to be disabled under 

subchapters II or XVI, Chapter 7, Title 

42, United States Code, and for whom 

an order of support is in force. 

State means the several States of the 

United States. The term ‘‘State’’ also 

includes the District of Columbia, 

American Samoa, Guam, the United 

States Virgin Islands, the 

Commonwealth of the Northern Mariana 

Islands, and the Commonwealth of 

Puerto Rico. 

Tax refund offset means withholding 

or reducing a tax refund payment by an 

amount necessary to satisfy a debt owed 

by the payee(s) of a tax refund payment. 

Tax refund payment means any 

overpayment of Federal taxes to be 

refunded to the person making the 

overpayment after the IRS makes the 

appropriate credits as provided in 26 

U.S.C. 6402(a) and 26 CFR 6402– 

3(a)(6)(i) for any liabilities for any 

Federal tax on the part of the person 

who made the overpayment. 

(b) General rule. (1) Past-due support 

will be collected by tax refund offset 

upon notification to FMS in accordance 

with 26 U.S.C. 6402(c), 42 U.S.C. 664 

and this section. Collection by offset 

under 26 U.S.C. 6402(c) is a collection 

procedure separate from the collection 

procedures provided by 26 U.S.C. 6305 

and 26 CFR 301.6305–1, relating to the 

assessment and collection of certain 

child and spousal support liabilities. 

Tax refund offset may be used 

separately or in conjunction with the 

collection procedures provided in 26 

U.S.C. 6305, as well as other collection 

procedures. 

(2) FMS will compare tax refund 

payment records, as certified by the IRS, 

with records of debts submitted to FMS. 

A match will occur when the taxpayer 

identifying number (as that term is used 

in 26 U.S.C. 6109) and name of a 

payment certification record are the 

same as the taxpayer identifying number 

and name of a delinquent debtor record. 

When a match occurs and all other 

requirements for tax refund offset have 

been met, FMS will reduce the amount 

of any tax refund payment payable to a 

debtor by the amount of any past-due 

support debt owed by the debtor. Any 

amounts not offset will be paid to the 

payee(s) listed in the payment 

certification record. 

(c) Notification of past-due support. 

(1) Past-due support eligible for tax 

refund offset. Past-due support qualifies 

for tax refund offset if: 

(i)(A) There has been an assignment of 

the support obligation to a State and the 

amount of past-due support is not less 

than $25.00, or such higher amount as 

HHS rules may allow, whichever is 

greater; or 

(B) A State agency is providing 

support collection services under 42 

U.S.C. 654(4), the amount of past-due 

support is not less than $500.00, and the 

past-due support is owed to or on behalf 

of a qualified child (or a qualified child 

and the parent with whom the child is 

living if the same support order 

includes support for the child and the 

parent); and 

(ii) A notification of liability for pastdue support has been received by FMS 

as prescribed by paragraphs (c)(2) or 

(c)(3) of this section. 

(2) Notification of liability for pastdue support and transmission of 

information to FMS by HHS. States 

notifying HHS of past-due support shall 

do so in the manner and format 

prescribed by HHS. The notification of 

liability shall be accompanied by a 

certification that the State has complied 

with the requirements contained in 

paragraph (c)(4) of this section and with 

any requirements applicable to the 

offset of Federal tax refunds to collect 

past-due support imposed by State law 

or procedures. HHS shall consolidate 

and transmit to FMS the information 

contained in the notifications of liability 

for past-due support submitted by the 

States provided that the State has 

certified that the requirements of 

paragraph (c)(4) of this section have 

been met. 

(3) Notification of liability for pastdue support transmitted directly to FMS 

by States. States must notify HHS of 

past-due support in accordance with the 

provisions of paragraph (c)(2) of this 

section unless HHS rules authorize 

notification to FMS directly. If 

authorized by HHS rules, States may 

notify FMS directly of past-due support. 

States notifying FMS directly of pastdue support shall do so in the manner 

and format prescribed by FMS. The 

notification of liability shall be 

accompanied by a certification that the 

State has complied with the 

requirements contained in paragraph 

(c)(4) of this section and with any 

requirements applicable to the offset of 

Federal tax refunds to collect past-due 

support imposed by State law or 

procedures. FMS may reject a 

notification of past-due support which 

does not comply with the requirements 

of this section. Upon notification of the 

rejection and the reason for rejection, 

the State may resubmit a corrected 

notification. 

(4) Advance notification to debtor of 

intent to collect by tax refund offset. The 

State, or HHS if the State requests and 

HHS agrees, is required to provide a 

written notification to the debtor, 

pursuant to the provisions of 42 U.S.C. 

664(a)(3) and 45 CFR 303.72(e), 

informing the debtor that the State 

intends to refer the debt for collection 

by tax refund offset. The notice also 

shall: 

(i) Instruct the debtor of the steps 

which may be taken to contest the 

State’s determination that past-due 

support is owed or the amount of the 

past-due support; 

(ii) Advise any non-debtor who may 

file a joint tax return with the debtor of 

the steps which a non-debtor spouse 

may take in order to secure his or her 

proper share of the tax refund; and 

(iii) In cases when a debt is being 

enforced by more than one State, advise 

the debtor of his or her opportunities to 

request a review with the State 

enforcing collection or the State issuing 

the support order as prescribed by the 

provisions of 45 CFR 303.72(g). 

(5) Correcting and updating 

notification. The State shall, in the 

manner and in the time frames provided 

by FMS or HHS, notify FMS or HHS of 

any deletion or net decrease in the 

amount of past-due support referred to 

FMS, or HHS as the case may be, for 

collection by tax refund offset. The State 

may notify FMS or HHS of any increases 

in the amount of the debt referred to 

FMS for collection by tax refund offset 

provided that the State has complied 

with the requirements of paragraph 

(c)(4) of this section with regard to those 

debts. 

(6) Collection of past-due support 

enforced by multiple States. When a 

State has knowledge that the debt is 

being enforced by more than one State, 

the State notifying FMS, or HHS as the 

case may be, of the debt shall inform 

any such other State involved in 

enforcing the debt when it receives the 

offset amount. 

(d) Priorities for offset. (1) As 

provided in 26 U.S.C. 6402 as amended, 

a tax refund payment shall be reduced 

in the following order of priority: 

(i) First by the amount of any past-due 

support assigned to a State (welfare 

cases) which is to be offset under 26 

U.S.C. 6402(c), 42 U.S.C. 664 and this 

section; 

(ii) Second, by the amount of any 

past-due, legally enforceable debt owed 

to a Federal agency which is to be offset 

under 26 U.S.C. 6402(d), 31 U.S.C. 

3720A and § 285.2 of this part; 

(iii) Third, by the amount of any 

qualifying past-due support not 

assigned to a State (non-welfare cases) 

which is to be offset under 26 U.S.C. 

6402(c), 42 U.S.C. 664 and this section; 

and 
72096 Federal Register / Vol. 63, No. 250 / Wednesday, December 30, 1998 / Rules and Regulations 

(iv) Fourth, by the amount of any 

past-due, legally enforceable State 

income tax obligation which is to be 

offset under 26 U.S.C. 6402(e). 

(2) Reduction of the tax refund 

payment pursuant to 26 U.S.C. 6402(a), 

(c), (d), and (e) shall occur prior to 

crediting the overpayment to any future 

liability for an internal revenue tax. Any 

amount remaining after tax refund offset 

under 26 U.S.C. 6402(a), (c), (d), and (e) 

shall be refunded to the taxpayer, or 

applied to estimated tax, if elected by 

the taxpayer pursuant to IRS 

regulations. 

(e) Post-offset notice. (1) (i) FMS shall 

notify the debtor in writing of: 

(A) The amount and date of the offset 

to satisfy past-due support; 

(B) The State to which this amount 

has been paid or credited; and 

(C) A contact point within the State 

that will handle concerns or questions 

regarding the offset. 

(ii) The notice in paragraph (e)(1)(i) of 

this section also will advise any nondebtor who may have filed a joint tax 

return with the debtor of the steps 

which a non-debtor spouse may take in 

order to secure his or her proper share 

of the tax refund. See paragraph (f) of 

this section. 

(2) FMS will advise HHS of the 

names, mailing addresses, and 

identifying numbers of the debtors from 

whom amounts of past-due support 

were collected, of the amounts collected 

from each debtor through tax refund 

offset, the names of any non-debtor 

spouses who may have filed a joint 

return with the debtor, and of the State 

on whose behalf each collection was 

made. Alternatively, FMS will provide 

such information to each State that 

refers debts directly to FMS. FMS will 

inform HHS and each State that the 

payment source is a tax refund payment. 

(3) At least weekly, FMS will notify 

the IRS of the names and taxpayer 

identifying numbers of the debtors from 

whom amounts owed for past-due 

support were collected from tax refund 

offsets and the amounts collected from 

each debtor. 

(4) At such time and in such manner 

as FMS and HHS agree, but no less than 

annually, FMS will advise HHS of the 

States which have furnished notices of 

past-due support, the number of cases in 

each State with respect to which such 

notices have been furnished, the amount 

of past-due support sought to be 

collected by each State, and the amount 

of such tax refund offset collections 

actually made in the case of each State. 

As FMS and HHS may agree, FMS may 

provide additional offset-related 

information about States which have 

furnished notices of past-due support. 

(f) Offset made with regard to a tax 

refund payment based upon joint 

return. If the person filing a joint return 

with a debtor owing the past-due 

support takes appropriate action to 

secure his or her proper share of a tax 

refund from which an offset was made, 

the IRS will pay the person his or her 

share of the refund and request that 

FMS deduct that amount from amounts 

payable to HHS or the State, as the case 

may be. FMS and HHS, or the 

appropriate State, will adjust their 

debtor records accordingly. 

(g) Disposition of amounts collected. 

FMS will transmit amounts collected for 

debts, less fees charged under paragraph 

(h) of this section, to HHS or to the 

appropriate State. If FMS learns that an 

erroneous offset payment is made to 

HHS or any State, FMS will notify HHS 

or the appropriate State that an 

erroneous offset payment has been 

made. FMS may deduct the amount of 

the erroneous offset payment from 

amounts payable to HHS or the State, as 

the case may be. Alternatively, upon 

FMS’ request, the State shall return 

promptly to the affected taxpayer or 

FMS an amount equal to the amount of 

the erroneous payment (unless the State 

previously has paid such amounts, or 

any portion of such amounts, to the 

affected taxpayer). HHS and States shall 

notify FMS any time HHS or a State 

returns an erroneous offset payment to 

an affected taxpayer. FMS and HHS, or 

the appropriate State, will adjust their 

debtor records accordingly. 

(h) Fees. The State will pay a fee to 

FMS for the full cost of administering 

the tax refund offset program. The fee 

(not to exceed $25 per case submitted) 

will be established annually in such 

amount as FMS and HHS agree to be 

sufficient to reimburse FMS for the full 

cost of the offset procedure. FMS will 

deduct the fees from amounts collected 

prior to disposition and transmit a 

portion of the fees deducted to 

reimburse the IRS for its share of the 

cost of administering the tax refund 

offset program. Fees will be charged 

only for actual tax refund offsets 

completed. 

(i) Review of tax refund offsets. In 

accordance with 26 U.S.C. 6402(f), any 

reduction of a taxpayer’s refund made 

pursuant to 26 U.S.C. 6402(c), (d), or (e) 

shall not be subject to review by any 

court of the United States or by the 

Secretary of the Treasury, FMS or IRS in 

an administrative proceeding. No action 

brought against the United States to 

recover the amount of this reduction 

shall be considered to be a suit for 

refund of tax. 

(j) Access to and use of confidential 

tax information. Access to and use of 

confidential tax information in 

connection with the tax refund offset 

program is permitted to the extent 

necessary in establishing appropriate 

agency records, locating any person 

with respect to whom a reduction under 

26 U.S.C. 6402(c) is sought for purposes 

of collecting the debt, and in the defense 

of any litigation or administrative 

procedure ensuing from a reduction 

made under section 6402(c). 

(k) Effective date. This section applies 

to tax refund payments payable under 

26 U.S.C. 6402 after January 1, 1999. 

Dated: December 16, 1998. 

Richard L. Gregg, 

Commissioner. 

[FR Doc. 98–34431 Filed 12–30–98; 8:45 am] 

BILLING CODE 4810–35–P