Tuesday 

August 4, 1998 

federal register
 Part IV 

Department of the 

Treasury 

Fiscal Service 

31 CFR Part 285 

Offset of Tax Refund Payments To 

Collect Past-Due Support; Proposed Rule 

41687 
41688 Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / Proposed Rules 

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: Notice of proposed rulemaking 

with request for comments. 

SUMMARY: Under Federal law, the 

Federal tax refund of a taxpayer who 

owes past-due support is reduced, or 

offset, by the amounts owed by the 

taxpayer. The funds offset from the 

taxpayers’ tax refunds 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 operated by the Financial 

Management Service (FMS), a bureau of 

the Department of the Treasury. The 

provisions of this proposed rule would 

prescribe the tax refund offset 

procedures for all Federal tax refunds 

payable after January 1, 1999, to 

individuals who owe past-due support 

being enforced by States. Past-due 

support includes delinquent child 

support or other obligations for the 

support of a child. This proposed rule 

would establish tax refund offset 

procedures that will 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). The changes in this 

proposed rule reflect requirements 

necessitated by the inclusion of the tax 

refund offset program as a part of the 

Treasury Offset Program. 

DATES: Comments will be accepted until 

September 3, 1998. 

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 

proposed 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: 

Gerry Isenberg, Financial Program 

Specialist, at (202) 874–6660; Ellen 

Neubauer or Ronda Kent, Senior 

Attorneys, at (202) 874–6680. 

SUPPLEMENTARY INFORMATION: 

Background 

Under the provisions of the Debt 

Collection Improvement Act of 1996 

(DCIA), Pub. L. 104–134, 110 Stat. 1321, 

1358 (1996), nontax Federal payments 

to a person owing a delinquent nontax 

debt to the United States or to a State 

are reduced, or offset, by the amounts 

owed by that person. The offset funds 

are applied to the person’s debt. The 

Financial Management Service (FMS), 

as the disbursing agency of the 

Department of the Treasury (Treasury), 

is responsible for the implementation of 

centralized offset of Federal payments 

for the collection of delinquent nontax 

debt owed to Federal agencies and to 

States, including past-due support being 

enforced by the States, in accordance 

with the provisions of the DCIA. In 

addition, FMS disburses more than 850 

million Federal payments annually, 

including tax refund payments to 

taxpayers on behalf of the Internal 

Revenue Service (IRS). 

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

664, the tax refund of a taxpayer who 

owes past-due support is reduced, or 

offset, by the amounts owed by the 

taxpayer (also referred to as the 

‘‘debtor’’ in this rule). The funds offset 

from the taxpayers’ tax refunds are 

forwarded to the Department of Health 

and Human Services (HHS) for 

transmission to the State enforcing the 

collection of the past-due support. 

‘‘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 IRS has been collecting past-due 

support for States by tax refund offset 

since 1982. FMS has been collecting 

delinquent nontax debts and past-due 

support by the administrative offset of 

other Federal payments under its 

centralized offset program known as the 

‘‘Treasury Offset Program.’’ To improve 

the efficiency of Treasury’s collection of 

debts, 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)). 

This proposed rule would govern 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 and the offset of nontax 

Federal payments for the collection of 

past-due child support. FMS also will 

promulgate 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. 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 proposed rule would establish 

tax refund offset procedures that will 

supersede the procedures governing the 

tax refund offset program established by 

the IRS and applicable to the collection 

of past-due support (codified at 26 CFR 

301.6402–5). 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 

would remain governed by IRS rules. 
Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / Proposed Rules 41689 

After January 1, 1999, tax refund 

payments would be offset to collect 

past-due support as part of the Treasury 

Offset Program, subject to the 

requirements of 26 U.S.C. 6402(c) and 

42 U.S.C. 664. Since FMS issues 

different payment types daily, past-due 

support could then 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. 

As required under the provisions of 

45 CFR 303.72, the HHS rules 

implementing 42 U.S.C. 664, either the 

State agency collecting the past-due 

support or HHS will notify debtors of 

the State’s intention to submit the debt 

to Treasury for tax refund offset 

purposes. The debtors would be notified 

that the State intends to collect the pastdue support by tax refund offset, 

administrative offset, or a combination 

of both, and of the applicable 

opportunities for review available to the 

debtor. HHS will report to FMS 

information on past-due support debts 

referred to HHS by States for tax refund 

offset purposes. 

Since under current HHS rules States 

are required to refer past-due support 

debts to HHS for offset of Federal 

payments, HHS would report those 

debts to FMS. While nothing in this rule 

is intended to require States to refer 

past-due support claims directly to FMS 

for tax refund offset, this rule would 

provide the flexibility for HHS to amend 

its rule if HHS decides to provide States 

with that option. For States submitting 

debts through HHS, the pre-offset 

procedures established by HHS 

(codified at 45 CFR 303.72) for 

requesting collection of past-due child 

support by tax refund offset would 

apply and would be unchanged by this 

rule. The pre-offset procedures 

contained in this rule would apply to 

past-due support debts submitted to 

FMS directly by States, if authorized by 

HHS. When a past-due support debt is 

referred to FMS for offset, the referred 

debt would be subject to collection by 

tax refund offset under the provisions of 

this rule. 

After a tax refund offset occurs, FMS 

would notify the debtor that the offset 

has occurred. FMS would 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 would 

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 

would continue to be responsible for 

reviewing tax refund claims by nondebtor spouses. FMS would provide 

States, whether through HHS or 

directly, with sufficient information to 

identify the past-due support obligation 

for which amounts have been collected 

from tax refunds. FMS also would 

report tax refund offset information to 

the IRS at least weekly, to HHS at such 

time and in such manner as FMS and 

HHS agree but no less than annually, 

and to States that deal directly with 

FMS on a periodic basis. 

FMS developed this proposed rule in 

consultation with the IRS and HHS and 

acknowledges their constructive 

assistance. As required by 42 U.S.C. 

664(b)(1), HHS has approved this 

proposed rule. 

Proposed Changes Under Treasury 

Offset Program 

As described in detail below, this 

proposed rule would change certain 

procedures established by the IRS 

(codified at 26 CFR 301.6402–5) 

applicable to the collection of past-due 

support on behalf of States. The changes 

would not affect a debtor’s ability to 

dispute the nature or amount of the 

past-due support obligation since States 

are required to provide the same due 

process opportunities to debtors under 

this rule as required by HHS rules 

codified at 45 CFR 303.72. 

The changes in this proposed rule 

reflect requirements necessitated by the 

inclusion of the tax refund offset 

program as a part of the Treasury Offset 

Program. For example, since FMS 

would implement tax refund offset, 

under this rule HHS would transmit 

past-due support information to FMS, 

instead of IRS. FMS, rather than IRS, 

would provide post-offset notices and 

information to debtors and HHS or 

States. By including the tax refund 

offset program as a part of the Treasury 

Offset Program, States would be 

permitted to report increases to the 

amount of the debt as long as the State 

provided proper notice to the debtor 

and complied with any other 

requirements of State law or procedure. 

In addition, while not currently 

allowed under HHS rules, this proposed 

rule would provide the flexibility for 

HHS to authorize States to refer 

information directly to FMS, rather than 

submitting information through HHS. 

This proposed rule also would allow 

States to submit debts for collection by 

tax refund offset on an ongoing basis, 

rather than annually, if authorized by 

HHS. 

Section Analysis 

(a) Definitions 

This rule, as proposed, would include 

the following definitions. 

Debt. For purposes of this rule, the 

term ‘‘debt’’ would mean past-due 

support unless otherwise indicated. The 

definition of debt contained in this rule 

would not alter the meaning of the term 

as contained in 31 U.S.C. 3701(b)(1) or 

other regulations governing the 

collection of debts other than past-due 

support. It merely would limit the scope 

of this rule to debt based on past-due 

support. 

Past-due support. As defined in 42 

U.S.C. 664(c), ‘‘past-due support’’ would 

mean 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. 

Qualified child. ‘‘Qualified child’’ 

would mean a child (A) who is a minor, 

or (B) 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. The age 

of majority is determined under State 

law. 

State. ‘‘State’’ would mean the several 

States of the United States. The term 

‘‘State’’ 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. Treasury considered 

including legal subdivisions of States 

within the definition of ‘‘State’’ to 

ensure that there were no impediments 

to collecting past-due support being 

enforced at, for example, the county 

level. Legal subdivisions of States were 

not included in the definition of ‘‘State’’ 

because of concerns about the potential 

impact on current relationships between 

States and their legal subdivisions in the 

collection of past-due support. The 

public is invited to comment on the 

impact of including or excluding legal 

subdivisions of States in the definition 

of ‘‘State’’ as well as any other provision 

of this rule. The public also is 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. 

Tax refund offset. For purposes of this 

rule, the term ‘‘tax refund offset’’ would 

mean 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. This rule would 
41690 Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / Proposed Rules 

govern the offset of tax refund payments 

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

664. This rule would not cover the offset 

of Federal payments other than tax 

refund payments for the collection of 

past-due support. See 31 CFR 285.1. 

Tax refund payment. For purposes of 

this rule, the term ‘‘tax refund payment’’ 

would mean 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 

Paragraph (b)(1) states that past-due 

support information would be 

submitted to FMS, instead of IRS, for 

collection by tax refund offset. 

Currently, the IRS rules governing tax 

refund offset for collection of past-due 

support are codified at 26 CFR 

301.6402–5. The procedures in this rule 

would supersede the procedures in the 

IRS rule. This rule would not change the 

procedures codified at 45 CFR 303.72 

which require States to submit past-due 

support to HHS for collection by tax 

refund offset. This rule only would give 

States the option of submitting 

information directly to FMS, or through 

HHS, to the extent authorized by HHS 

rules. 

Paragraph (b)(2) describes the offset 

process. 

(c) Notification of Past-Due Support 

Paragraph (c) describes the process by 

which past-due support debt 

information would be submitted to FMS 

for tax refund offset. HHS rules require 

States to participate in the tax refund 

offset program. HHS rules do not 

mandate that a State participate in the 

administrative offset program (offset of 

nontax Federal payments) created 

pursuant to the DCIA and operated 

pursuant to the rules in section 285.1 of 

this part. For those States electing to 

collect past-due support debts by 

administrative offset as well as tax 

refund offset, nothing in this proposed 

rule or section 285.1 would require a 

State to submit duplicate past-due 

support debt information for collection 

by offset under both rules. Further, 

nothing in this proposed rule would 

prohibit a State from combining into a 

single notice to the debtor the pre-offset 

notification required under this 

proposed rule, Section 285.1, and other 

laws or regulations. 

Paragraph (c)(1) describes the type of 

past-due support eligible for collection 

by tax refund offset based on the 

requirements of 26 U.S.C. 6402(c) and 

42 U.S.C. 664. HHS rules establish a 

minimum past-due support requirement 

of $150 when support has been assigned 

to the State. Paragraph (c)(1)(i)(A) of this 

proposed rule would not change the 

requirement but would provide HHS 

with the flexibility to reduce the 

minimum amount to $25 for assigned 

cases. Paragraph (c)(1)(i)(B) reflects the 

statutory provision in 42 U.S.C. 

664(b)(2) that establishes a minimum 

past-due support requirement of $500 

for cases for which a State agency is 

providing support collection services for 

parents who are not receiving welfare 

benefits (non-assigned cases). For nonassigned cases, tax refund offset may be 

used only to collect past-due support 

owed to or on behalf of a qualified 

child, or in some circumstances, a 

qualified child and the parent with 

whom the child is living. 

Paragraph (c)(2) describes the 

information that must be included for 

each past-due support debt owed when 

a State submits notification to HHS for 

transmission to FMS. The procedures by 

which States submit notification of 

liability to HHS are detailed in 45 CFR 

303.72. This rule would not change 

those procedures. FMS and HHS will 

provide States with more specific 

instructions regarding the formatting of 

information and the required data 

elements. 

Under the existing IRS regulation, 

codified at 26 CFR 301.6402–5, States 

are required to submit past-due support 

information to HHS, which transmits 

the information to IRS for offset. 

Paragraph (c)(3) adds a new procedure 

whereby States, at their option and to 

the extent authorized by HHS, would be 

permitted to submit past-due support 

information for offset directly to FMS, 

instead of through HHS. 

Under paragraphs (c)(2) and (c)(3), 

States would be required to certify 

compliance with pre-offset procedures 

contained in this rule and imposed by 

State law or procedures. The certifying 

official would be required to have both 

the knowledge and authority to certify, 

on behalf of the State, that the 

requirements have been met. 

Paragraph (c)(4) reiterates the 

requirements codified at 42 U.S.C. 664 

and 45 CFR 303.72 concerning the 

notice and opportunities that States are 

required to provide to individuals who 

owe past-due support before initiating 

collection by tax refund offset. This 

proposed rule would not change the 

procedures. 

Paragraph (c)(5) describes the 

procedures for correcting and updating 

information transmitted to FMS by a 

State. If the information is transmitted 

to FMS through HHS, States would 

correct and update information through 

HHS. As currently operated by the IRS, 

States may submit past-due support 

debts once each year for tax refund 

offset and may not increase the amount 

owed after the debt is submitted. As 

operated under the Treasury Offset 

Program, debts would be submitted for 

offset on an ongoing basis, rather than 

annually only, if provided for in HHS 

rules. Therefore, unlike the IRS rule 

codified at 26 CFR 301.6402–5(c)(4), 

under the Treasury Offset Program and 

this rule, States would be able to 

increase the amount of past-due support 

owed by an obligor after the debt is 

submitted for offset, subject to 

compliance with pre-offset State law 

and certification requirements. 

Decreases in the amount owed also will 

be reported in the manner and time 

frames provided by FMS or HHS. 

Paragraph (c)(6) would require States 

that are enforcing a past-due support 

order issued by another State, or 

otherwise have knowledge that another 

State is involved in enforcing a 

particular past-due support order, to 

inform any other State involved in 

enforcing the order that it has notified 

FMS of the past-due support and of any 

amounts received as a result of an offset. 

The purpose of this proposed 

notification is to avoid duplicate offsets 

for the same debt referred by more than 

one State and to ensure that debt 

balances are maintained accurately. 

(d) Priorities for Offset 

This paragraph describes how a tax 

refund payment would be applied when 

a taxpayer owes multiple past-due 

support debts certified for offset. Since 

the priorities are mandated by statute, 

26 U.S.C. 6402(c), the priorities as stated 

in the IRS regulation, codified at 26 CFR 

301.6402–5, would not change. Before 

authorizing FMS to disburse a tax 

refund payment, the IRS would apply 

any amount of overpayment by the 

taxpayer to 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; and third, by the amount of any 

qualifying past-due support not 

assigned to a State. The public is invited 

to comment on how a tax refund 

payment should be applied to a 

taxpayer’s multiple debts within the 

same category e.g., if a taxpayer owes 
Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / Proposed Rules 41691 

two or more support obligations that 

have been assigned to a State. 

Paragraph (d)(2) reiterates that the tax 

refund payment would be applied to the 

outstanding nontax debts of a taxpayer 

prior to the taxpayer’s future estimated 

tax liabilities. Any amounts remaining 

after offset would be applied to 

estimated tax, or would be refunded to 

the taxpayer. 

(e) Post-Offset Notice 

Under this paragraph (e), once an 

offset of a tax refund payment has 

occurred, FMS, rather than IRS, would 

provide notice to the payee and HHS or 

the State that refers past-due support 

directly to FMS. In its notice to the 

payee, FMS also would notify a nondebtor spouse who files a joint income 

tax return with a debtor of the 

procedures that may be taken to secure 

his or her proper share of the tax refund. 

FMS would notify the IRS of any offsets. 

At such time and in such manner as 

FMS and HHS agree, but no less than 

annually, FMS would provide HHS with 

statistical information regarding offsets 

for collection of past-due support. 

(f) Offset Made With Regard to a Tax 

Refund Payment Based Upon Joint 

Return 

This paragraph (f) states that a nondebtor spouse who files a joint income 

tax return with a debtor should 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 would not be 

affected by this rule. 

(g) Disposition of Amounts Collected 

This paragraph (g) describes how 

amounts collected from tax refund 

payments would be transmitted to HHS 

or the appropriate State. 

(h) Fees 

As did the IRS, FMS would charge a 

fee to cover the costs of the tax refund 

offset program incurred by FMS, 

including any costs charged to FMS by 

the IRS. FMS would deduct the fee from 

the amount offset before that amount is 

transmitted to the State or HHS. The fee 

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 would 

provide notification, in advance, of any 

changes in 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(c) 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. 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) describes 

permitted uses of confidential tax 

information in connection with tax 

refund offset. 

(k) Effective Date 

The inclusion of the tax refund offset 

program as a part of the administrative 

offset program conducted by FMS will 

be effective for all tax refund payments 

payable after January 1, 1999. Before 

that date, States would be required to 

comply with all of the tax refund offset 

prerequisites, such as providing notice 

to debtors, in order to submit debts for 

collection from tax refund payments 

payable after January 1, 1999. 

Regulatory Analyses 

This proposed 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. 

Therefore, a regulatory flexibility 

analysis is not required. This regulation 

will not impose significant costs on 

small businesses because this regulation 

only impacts individuals who receive 

tax refunds and who owe past-due 

support. 

The public is invited to submit 

comments on the proposed rule which 

will be taken into account before a final 

rule is issued. 

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 proposed 

to be 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, 

3716, 3720A; 42 U.S.C. 664; E.O. 13019. 

2. Section 285.3 is proposed to be 

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). 

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 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 
41692 Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / Proposed Rules 

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 

(B) A State agency is providing 

support collection services under 42 

U.S.C. 654(5), 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 transmitted 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 notifying FMS of pastdue support shall do so in the manner 

and format prescribed by FMS to the 

extent authorized by HHS regulations. 

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 is required to provide a written 

notification to the debtor, pursuant to 

the provisions of 45 CFR 303.72, 

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 hearing 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 

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; 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; and 

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. 

(2) Reduction of the tax refund 

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

(c), and (d) 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), and (d) 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 
Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / Proposed Rules 41693 

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. 

(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 

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) 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: July 29, 1998. 

Richard L. Gregg, 

Commissioner. 

[FR Doc. 98–20731 Filed 8–3–98; 8:45 am] 

BILLING CODE 4810–35–P