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