federal registerMonday

December 20, 1999

Part III

Department of the

Treasury

Fiscal Service

31 CFR Part 285

Offset of Tax Refund Payments to Collect

State Income Tax Obligations; Final Rule

and Proposed Rule

71228 Federal Register / Vol. 64, No. 243 / Monday, December 20, 1999 / Rules and Regulations

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510–AA78

Offset of Tax Refund Payments To

Collect State Income Tax Obligations

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Interim Rule with Request for

Comments.

SUMMARY: Under provisions of the

Internal Revenue Service Restructuring

and Reform Act of 1998 the Federal tax

refund of a taxpayer who owes past-due,

legally enforceable State income tax

obligations may be reduced, or offset, by

the amounts owed by the taxpayer. The

funds offset from the taxpayers’ Federal

tax refunds are forwarded to the State

that reported the State income tax

obligation. Effective January 1, 2000, the

Department of the Treasury will

incorporate the procedures necessary to

collect State income tax obligations

reported by States as part of the

centralized offset program operated by

the Financial Management Service

(FMS), a bureau of the Department of

the Treasury. Under this interim rule,

past-due, legally enforceable State

income tax obligations include any local

income tax that is administered by the

chief tax administration agency of the

State.

DATES: Effective January 1, 2000.

Comments will be accepted until

January 19, 2000.

ADDRESSES: All comments should be

addressed to Gerry Isenberg, Financial

Program Specialist, Debt Management

Services, Financial Management

Service, Department of the Treasury,

401 14th Street S.W., Room 151,

Washington, D.C. 20227. A copy of this

interim rule is being made available for

downloading from the Financial

Management Service web site at the

following address: http://

www.fms.treas.gov.

FOR FURTHER INFORMATION CONTACT:

Dean Balamaci, Division Director, Debt

Management Services, at (202) 874–

6660; Ellen Neubauer or Ronda Kent,

Senior Attorneys, at (202) 874–6680.

SUPPLEMENTARY INFORMATION:

Background

General

The Internal Revenue Code authorizes

the Secretary of the Treasury to offset

Federal tax refund payments to satisfy

debts owed to the United States and to

collect past-due support for States.

Under the Internal Revenue Service

Restructuring and Reform Act of 1998,

Pub. L. 105–206, 112 Stat. 685, 779

(1998), the authority to offset tax refund

payments was amended to allow for the

offset of Federal tax refund payments to

collect past-due, legally enforceable

State income tax obligations reported to

the Secretary of the Treasury by States.

The amendments authorizing such

offsets are effective beginning January 1,

2000.

Prior to January 1999, offsets of tax

refund payments were conducted by the

Internal Revenue Service (IRS) under

the tax refund offset program. Effective

January 1, 1999, the IRS tax refund

offset program was merged into the

Treasury Offset Program, operated by

the Financial Management Service

(FMS). FMS, a bureau of the U.S.

Department of the Treasury, disburses

more than 850 million Federal

payments annually, including tax

refund payments to taxpayers on behalf

of the IRS. The Treasury Offset Program

is a centralized offset program in which

FMS offsets tax refund payments as well

as other nontax Federal payments to

collect delinquent debts owed to

Federal agencies and States.

This rule governs only the offset of

one type of payment, i.e., tax refunds, to

pay one type of delinquent debt, i.e.,

past-due, legally enforceable State

income tax obligations. 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 and tax refund offset for

the collection of past-due support. FMS

anticipates that Part 285 of this title

ultimately will contain all of the

provisions relating to centralized offset

for the collection of debts owed to the

Federal Government and to State

governments, including past-due,

legally enforceable State income tax

obligations.

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 by persons,

and by States collecting debts including

any past-due support being enforced by

States. This database will be expanded

to include past-due, legally enforceable

State income tax obligations reported by

States. As is done by Federal agencies,

before submitting a debt to the database,

States will certify to FMS that the debt

is legally enforceable and that all due

process prerequisites have been met.

Before a Federal payment is disbursed

to a payee, including Federal tax refund

payments, 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. 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, legally

enforceable State income tax obligation

will remain in the debtor database for

offset as long as the debt remains pastdue 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 State Income Tax Obligations

Under the Treasury Offset Program

This rule establishes procedures

governing the collection of past-due,

legally enforceable State income tax

obligations by offsetting Federal tax

refund payments. 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. Although tax refund

payments issued beginning January 1,

2000, will be offset to collect past-due,

legally enforceable State income tax

obligations as part of the Treasury Offset

Program, such offsets will be made in

accordance with the requirements of 26

U.S.C. 6402(e).

After a tax refund offset occurs, FMS

will notify the debtor that the offset has

occurred. FMS also will provide

information to the debtor regarding the

amount and date of the offset, the State

to which the amount offset was paid,

and a contact in the State that would

handle concerns or questions regarding

the delinquent debt that resulted in the

tax refund offset. The notice also will

advise any non-debtor spouse who may

have filed a joint tax return with the

debtor of the steps that the non-debtor

spouse may take to secure his or her

proper share of the tax refund. IRS will

continue to be responsible for reviewing

tax refund claims by non-debtor

spouses. FMS will provide States with

sufficient information to identify the

State income tax obligation for which

amounts have been collected from tax

refunds. FMS also will report tax refund

offset information to the IRS at least

weekly and to States on a periodic basis.

Federal Register / Vol. 64, No. 243 / Monday, December 20, 1999 / Rules and Regulations 71229

Sectional Analysis

Definitions

Several terms included in this interim

rule have specific meanings that are

discussed below. Other definitions

included in the interim rule do not

require explanation.

The term ‘‘past-due, legally

enforceable State income tax obligation’’

means a debt which resulted from a

final court judgment or a final

administrative proceeding which has

determined that an amount of State

income tax is due. A final court

judgment or a final administrative

proceeding is one which is no longer

subject to judicial review. The term

‘‘past-due, legally enforceable State

income tax obligation’’ also means a

debt which resulted from a final State

income tax assessment which has not

been collected provided the debt has not

been delinquent for more than 10 years.

A final State income tax assessment

means an assessment for which the time

for redetermination under State law or

procedure has expired. The term

‘‘assessment’’ is intended to be

interpreted broadly to include selfassessments. The date of delinquency of

a debt which resulted from a final state

income tax assessment for purposes of

determining whether or not the debt has

been delinquent for more than 10 years

is to be determined in accordance with

State law. For purposes of this interim

rule, the term ‘‘past-due, legally

enforceable State income tax obligation’’

is used interchangeably with the term

‘‘debt.’’

The term ‘‘State’’ means the States of

the United States. The term also would

include 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.

The term ‘‘State income tax’’ is

intended to cover all taxes determined

under State law to be State income tax.

The term includes any local income tax

that is administered by the chief tax

administering agency of the State.

The term ‘‘tax refund offset’’ means

withholding or reducing a Federal tax

refund payment by an amount necessary

to satisfy a debt owed by the payee(s) of

a tax refund payment. This rule only

governs the offset of tax refund

payments under 26 U.S.C. 6402(e); it

does not cover the offset of Federal

payments other than tax refund

payments for the collection of past-due

legally enforceable State income tax

obligations.

The term ‘‘tax refund payment’’

means the amount to be refunded to the

taxpayer after the IRS has applied the

taxpayer’s overpayment to the

taxpayer’s past-due tax liabilities in

accordance with 26 U.S.C. 6402(a) and

26 CFR 6402–3(a)(6)(i).

(b) General Rule

Upon notification to FMS of a debt by

a State, in accordance with 26 U.S.C.

6402(e) and this interim rule, FMS will

collect such debt by means of tax refund

offset. The offset will be conducted by

comparing tax refund payment records,

certified to FMS by the IRS, with

records of debts certified and submitted

to FMS by States. Under FMS’s

centralized offset program, a match will

occur when the taxpayer identifying

number, as defined at 26 U.S.C. 6109,

and name on a payment certification

record are the same as the taxpayer

identifying number and name on a

debtor record. Under this interim rule,

when a match occurs, and all other

requirements for tax refund offset have

been met, FMS would reduce the

amount of the tax refund payment

payable to a debtor by the amount of

any past-due, legally enforceable State

income tax obligations owed by the

debtor. Any amounts not offset would

be paid to the payee(s) listed in the

payment certification record. As

required by law, under this interim rule

an offset will not occur if the address

listed on the Federal tax return is not an

address within the State seeking the

offset.

(c) Notification of Past-due, Legally

Enforceable State Income Tax

Obligations

Paragraph (c) of the interim rule

describes the process by which debt

information would be submitted to FMS

by States for tax refund offset. Paragraph

(c)(1) describes the manner in which

States would be required to submit pastdue, legally enforceable State income

tax debts, including certification

requirements. In accordance with the

requirements of 26 U.S.C. 6402(e),

under the interim rule, FMS would be

able to reject any notification that fails

to meet these requirements.

Paragraph (c)(2) of the interim rule

would establish a minimum debt

requirement of $25.00 or such other

amounts as determined by FMS. Where

an individual owes more than one debt

to the same State, the minimum amount

will be applied to the aggregate amount

of the debts owed. FMS will inform

States on an annual basis of any changes

in the minimum debt amount. FMS

would have the option to reject any debt

included in a notification which is

below this amount.

Paragraph (c)(3) of the interim rule

describes the certification requirements

that would be required to be provided

for each State income tax debt owed

when a State submits notification to

FMS. FMS would provide States with

more specific instructions regarding the

formatting of information and the

required data elements.

Under paragraphs (c)(1) and (c)(3),

States are required to certify compliance

with pre-offset procedures contained in

this rule and imposed by State law or

procedures. The certifying official is

required to have both the knowledge

and authority to certify, on behalf of the

State, that the requirements have been

met. The certification and pre-offset

procedures include a requirement that

States provide debtors with notice that

they intend to collect the debt by

referral to Treasury for tax refund offset;

that States afford debtors the

opportunity to present evidence that all

or part of the debt is not due; and that

States establish procedures for

reviewing evidence presented by

debtors. While we are satisfied that

these procedures adequately protect

taxpayers from erroneous offsets, we are

nevertheless of the view that special

protections are warranted where a State

is attempting to collect a debt by tax

refund offset from an enrolled member

of an Indian tribe who lives on a

reservation and derives all of his or her

income from that reservation, and

therefore is immune from state taxation.

Thus, procedures established for

reviewing evidence presented by

debtors in response to the notice that

their debt is being submitted to Treasury

for collection by tax refund offset, must

include specific procedures to handle

claims of individuals who claim

immunity from state taxation on the

basis of being an enrolled member of an

Indian tribe who lives on a reservation

and derives all of his or her income

from that reservation. These procedures

are intended to ensure that such claims

are considered on their merits before

being submitted for collection by tax

refund offset even in those cases where

the individual claiming immunity has

previously failed to timely present his

or her claim in response to notice

regarding the imposition of the tax or in

response to the use of other collection

tools. Additionally, as an added

safeguard, the rule requires that States

provide copies of these procedures to

the Secretary of the Treasury, upon

request, for review. This is to ensure

that the conditions for participation in

the program prescribed under this rule

are being met.

Paragraph (c)(4) of the interim rule

describes the procedures for correcting

71230 Federal Register / Vol. 64, No. 243 / Monday, December 20, 1999 / Rules and Regulations

and updating information transmitted to

FMS by a State. As operated under the

Treasury Offset Program, debts may be

submitted for offset on an ongoing basis.

Therefore, States will be able to increase

the amount of the state income tax debt

owed by an obligor after the debt is

submitted for offset, subject to

compliance with pre-offset State law

and certification requirements where

applicable. For example, while States

would likely need to provide additional

pre-offset notices to a debtor whose debt

was being increased due to a new

assessment, no additional notice would

be required where a debt was being

increased due to accrued interest and

penalties of which the debtor had

previously been notified. Decreases in

the amount owed also must be reported

in the manner and time frames provided

by FMS.

(d) Priorities for Offset

Paragraph (d) of the interim rule

describes how a tax refund payment

will be applied when a taxpayer owes

multiple debts certified for offset. The

priorities are mandated by statute, 26

U.S.C. 6402(e). Before authorizing FMS

to disburse a tax refund payment, the

IRS will apply any amount of

overpayment by the taxpayer to Federal

tax liabilities of the taxpayer. See

definition of ‘‘tax refund payment’’ in

paragraph (a) of this section.

Paragraph (d)(1) states that, unless

otherwise provided by Federal law, the

tax refund payment will be reduced and

applied to a taxpayer’s debts in the

following order of priority: first by the

amount of any past-due support

assigned to a State; second, by the

amount of any past-due, legally

enforceable debt owed to a Federal

agency; third, by the amount of any

qualifying past-due support not

assigned to a State; and fourth, by the

amount of any past-due legally

enforceable State income tax obligation.

Paragraph (d)(2) reiterates that the tax

refund payment will be applied to the

outstanding debts of a taxpayer prior to

the taxpayer’s future estimated tax

liabilities. Any amounts remaining after

offset will be refunded to the taxpayer.

Paragraph (d)(3) provides that, where

FMS receives notice from a State that

more than one debt subject to this

section is owed by the debtor, any

overpayment will be applied to the

oldest debt first.

(e) Post-Offset Notice

Under paragraph (e) of this interim

rule, once an offset of a tax refund

payment has occurred, FMS will

provide notice both to the payee and to

the State that referred the debt to FMS.

FMS will also notify the IRS of any

offsets.

(f) Offset Made With Regard to a Tax

Refund Payment Based Upon Joint

Return

Paragraph (f) of the interim rule

would provide that a non-debtor spouse

who files a joint income tax return with

a debtor may take appropriate action to

secure his or her proper share of a tax

refund from which an offset was made.

Such procedures are governed by IRS

rules and are not affected by this rule.

(g) Disposition of Amounts Collected

Paragraph (g) of the interim rule,

describes how amounts collected from

tax refund payments would be

transmitted to the appropriate State.

This paragraph also discusses the

procedures applicable when an

erroneous payment is made to a State.

(h) Fees

Paragraph (h) of the interim rule

describes how FMS would determine

the amount of the fee it would charge a

State. It states that the fee would be set

at an amount necessary for FMS to cover

the full cost of the offset procedure,

including any costs charged to FMS by

the IRS. Under this interim rule, FMS

would deduct the fee from the amount

offset before that amount is transmitted

to the State. Under this interim rule, the

amount of the fee would be established

annually, and States would be notified

in advance of any changes in the

amount of the fee.

(i) Review of Tax Refund Offsets

As provided in 26 U.S.C. 6402(f), the

reduction of a taxpayer’s refund made

pursuant to 26 U.S.C. 6402(e) is not

subject to review by any court of the

United States or by the Secretary of the

Treasury, FMS, or IRS in an

administrative proceeding. This

provision does not impact any rights a

debtor may otherwise have to dispute

the existence or amount of the debt.

(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 governed by 26

U.S.C. 6103. Paragraph (j) of the interim

rule describes permitted uses of

confidential tax information in

connection with tax refund offset.

(k) Effective Date

In accordance with section 3711(d) of

Pub. L. 105–206, the inclusion of pastdue, legally enforceable State income

tax debts as part of the Treasury Offset

Program will be effective for all tax

refund payments payable beginning

January 1, 2000.

Regulatory Analyses

This interim rule is not a significant

regulatory action as defined in

Executive Order 12866.

Executive Order 12866 and the

President’s Memorandum of June 1,

1998 require each agency to write all

rules in plain language. We invite your

comments on how to make this interim

rule easier to understand.

Special Analyses

FMS is promulgating this interim rule

without opportunity for prior public

comment pursuant to the

Administrative Procedure Act, 5 U.S.C.

553 (the APA) because a comment

period would be unnecessary,

impracticable and contrary to the public

interest. The Internal Revenue Code

provisions authorizing the offset of

Federal tax refunds to collect State

income tax apply to refunds payable

after December 31, 1999. A comment

period is unnecessary because this

interim rule does not change the

ongoing offset process under the Tax

Refund Offset Program, but rather

provides guidance for States and

disbursing officials to facilitate the

addition of State income tax debts into

the Tax Refund Offset Program. This

interim rule merely establishes

procedural requirements governing the

transfer of information to and from

States and reiterates and clarifies

requirements established by statute.

Since this interim rule provides critical

guidance needed to facilitate the offset

of tax refund payments to collect

delinquent income tax debts owed to

States, FMS believes that it is in the

public interest to issue this interim rule

without opportunity for prior public

comment.

The public is invited to submit

comments on the interim rule which

will be taken into account before a final

rule is issued. The public is specifically

invited to comment upon whether this

rule should impose any requirements on

States regarding notification to

taxpayers and review of delinquent

debts in addition to those required by

statute and reiterated and clarified in

this rule.

List of Subjects in 31 CFR Part 285

Administrative practice and

procedure, Claims, Debts, Privacy,

Taxes.

Authority and Issuance

For the reasons set forth in the

preamble, 31 CFR Part 285 is amended

as follows:

Federal Register / Vol. 64, No. 243 / Monday, December 20, 1999 / Rules and Regulations 71231

PART 285—DEBT COLLECTION

AUTHORITIES UNDER THE DEBT

COLLECTION IMPROVEMENT ACT OF

1996

1. The authority citation for part 285

continues 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 285.8 is added to subpart

A to read as follows:

§ 285.8 Offset of tax refund payments to

collect state income tax obligations.

(a) Definitions. For purposes of this

section:

Debt as used in this section means

past-due, legally enforceable State

income tax obligation unless otherwise

indicated.

Debtor as used in this section means

a person who owes a state income tax

obligation.

FMS means the Financial

Management Service, a bureau of the

Department of the Treasury.

IRS means the Internal Revenue

Service, a bureau of the Department of

the Treasury.

Past-due, legally enforceable State

income tax obligation means a debt

which resulted from:

(1) A judgment rendered by a court of

competent jurisdiction which has

determined an amount of State income

tax to be due,

(2) A determination after an

administrative hearing which has

determined an amount of state income

tax to be due and which is no longer

subject to judicial review, or

(3) A State income tax assessment

(including self-assessments) which has

become final in accordance with State

law but not collected and which has not

been delinquent for more than 10 years.

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.

State income tax obligation means

State income tax obligations as

determined under State law. For

purposes of this section, State income

tax obligation includes any local income

tax administered by the chief tax

administration agency of the State.

Tax refund offset means withholding

or reducing a tax refund overpayment

by an amount necessary to satisfy a debt

owed by the payee(s).

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) FMS will collect

past-due, legally enforceable State

income tax obligations by tax refund

offset upon notification to FMS of a

past-due, legally enforceable State

income tax obligation in accordance

with 26 U.S.C. 6402(e) and this section.

(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 on a

payment certification record are the

same as the taxpayer identifying number

and name on 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, legally enforceable State

income tax obligation owed by the

debtor. Any amounts not offset will be

paid to the payee(s) listed in the

payment certification record.

(3) FMS only will offset a tax refund

payment if the address shown on the

Federal tax return for the taxable year of

the overpayment is an address within

the State seeking the offset.

(c) Notification of past-due, legally

enforceable State income tax

obligations. (1) Notification to FMS of

past-due, legally enforceable State

income tax obligations. States notifying

FMS of state income tax obligations

shall do so in the manner and format

prescribed by FMS. The notification of

liability must be accompanied by a

certification that the debt is past-due

and legally enforceable and that the

State has complied with the

requirements contained in paragraph

(c)(3) of this section and with any

requirements applicable to the offset of

Federal tax refunds to collect past-due,

legally enforceable State income tax

obligations imposed by State law or

procedures. The certification must

specifically state that none of the debts

submitted for collection by offset are

debts owed by an individual who has

claimed immunity from state taxation

by reason of being an enrolled member

of an Indian tribe who lives on a

reservation and derives all of his or her

income from that reservation unless

such claim has been adjudicated de

novo on its merits in accordance with

paragraph (c)(3). FMS may reject a

notification of past-due, legally

enforceable State income tax obligations

which do 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.

(2) Minimum amount of past-due,

legally enforceable State income tax

obligations that may be submitted. FMS

only will accept notification of past-due,

legally enforceable State income tax

obligations of $25 or more or such

higher amounts as determined by FMS.

States will be notified annually of any

changes in the minimum debt amount.

(3)(i) Advance notification to the

debtor of the State’s intent to collect by

Federal tax refund offset. The State is

required to provide a written

notification to the debtor by certified

mail, return receipt requested,

informing the debtor that the State

intends to refer the debt for collection

by tax refund offset. The notice must

also give the debtor at least 60 days to

present evidence, in accordance with

procedures established by the State, that

all or part of the debt is not past-due or

not legally enforceable.

(ii) Determination. The State must, in

accordance with procedures established

by the State, consider any evidence

presented by a debtor in response to the

notice described in paragraph (c)(3)(i) of

this section and determine whether an

amount of such debt is past-due and

legally enforceable. In those cases where

a debtor claims that he or she is immune

from State taxation by reason of being

an enrolled member of an Indian tribe

who lives on a reservation and derives

all of his or her income from that

reservation, State procedures shall

include consideration of such claims de

novo on the merits unless such claims

have been previously adjudicated by a

court of competent jurisdiction. States

shall, upon request from the Secretary of

the Treasury, make such procedures

available to the Secretary of the

Treasury for review.

(iii) Reasonable efforts. Prior to

submitting a debt to FMS for collection

by tax refund offset the State must make

reasonable efforts to collect the debt.

Reasonable efforts include making

written demand on the debtor for

payment and complying with any other

prerequisites to offset established by the

State.

(4) Correcting and updating

notification. The State shall, in the

manner and in the time frames provided

by FMS, notify FMS of any deletion or

decrease in the amount of past-due,

legally enforceable State income tax

obligation referred to FMS for collection

by tax refund offset. The State may

notify FMS of any increases in the

71232 Federal Register / Vol. 64, No. 243 / Monday, December 20, 1999 / Rules and Regulations

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)(3) of this

section with regard to those debts.

(d) Priorities for offset. (1) As

provided in 26 U.S.C. 6402, a tax refund

payment shall be reduced first by the

amount of any past-due support

assigned to a State; second, by the

amount of any past-due, legally

enforceable debt owed to a Federal

agency; third, by the amount of any

qualifying past-due support not

assigned to a State and fourth, by any

past-due, legally enforceable State

income tax obligation.

(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.

(3) If FMS receives notice from a State

of more than one debt subject to this

section that is owed by a debtor to the

State, any overpayment by the debtor

shall be applied against such debts in

the order in which such debts accrued.

(e) Post-offset notice. (1) When an

offset occurs, FMS shall notify the

debtor in writing of:

(i) The amount and date of the offset

and that the purpose of the offset was

to satisfy a past-due, legally enforceable

State income tax obligation;

(ii) The State to which this amount

has been paid or credited; and

(iii) A contact point within the State

that will handle concerns or questions

regarding the offset.

(2) The notice in paragraph (e)(1) of

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

joint return with the debtor of the steps

which the non-debtor spouse may take

in order to secure his or her proper

share of the tax refund. See paragraph

(f) of this section.

(3) FMS will advise States of the

names, mailing addresses, and taxpayer

identifying numbers of the debtors from

whom amounts of state income tax

obligations were collected, and of the

amounts collected from each debtor

through tax refund offset.

(4) 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,

legally enforceable State income tax

obligations were collected from tax

refund offsets and the amounts collected

from each debtor.

(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,

legally enforceable State income tax

obligation 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 future

amounts payable to the State or that

FMS otherwise obtain the funds back

from the State. FMS, 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 the appropriate

State. If FMS learns that an erroneous

offset payment is made to any State,

FMS will notify the appropriate State

that an erroneous offset payment has

been made. FMS may deduct the

amount of the erroneous offset payment

from future amounts payable to the

State. 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). States shall notify FMS any

time a State returns an erroneous offset

payment to an affected taxpayer. FMS,

or the appropriate State, will adjust

their debtor records accordingly.

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

FMS to cover the full cost of offsets

taken. The fee will be established

annually in such amount as FMS

determines 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 for purposes

of collecting past-due, legally

enforceable State income tax obligations

reported to FMS by the States. 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(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. This subsection does not

preclude any legal, equitable, or

administrative action against the State

to which the amount of such reduction

was paid.

(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(e) 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(e).

(k) Effective date. This section applies

to tax refund payments payable under

26 U.S.C. 6402 beginning January 1,

2000.

Richard L. Gregg,

Commissioner.

[FR Doc. 99–32679 Filed 12–17–99; 8:45 am]

BILLING CODE 4810–35–P