[Federal Register Volume 59, Number 83 (Monday, May 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10219]


[[Page Unknown]]

[Federal Register: May 2, 1994]


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FEDERAL LABOR RELATIONS AUTHORITY
Farmers Home Administration

7 CFR Part 1951

RIN 0575-AB55

 

Offsets of Federal Payments to FmHA Borrowers

AGENCY: Farmers Home Administration, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its 
regulations on offsets of Federal payments to FmHA borrowers by 
removing repetitious directions and ambiguous guidance used by FmHA 
field offices to determine salary offset feasibility. The intended 
effect of this action is to add further guidance on salary offset 
eligibility criteria and to clarify the language of the regulation.

DATES: Comments must be submitted on or before July 1, 1994.

ADDRESSES: Submit written comments in duplicate to the Office of the 
Chief, Regulations Analysis and Control Branch, FmHA, USDA, South 
Building, room 6348, 14th and Independence Avenue, SW., Washington, DC 
20250. All written comments made pursuant to this notice will be 
available for public inspection during regular work hours at the above 
address.

FOR FURTHER INFORMATION CONTACT: Jeanne Hudec, Financial Analyst, FmHA, 
USDA, Ag Box 0724, Washington, DC 20250-0724, telephone (202) 720-4356.

SUPPLEMENTARY INFORMATION:

Classification

    We are issuing this proposed rule in conformance with Executive 
Order 12866, and we have determined that it is not a ``significant 
regulatory action.'' Based on information compiled by the Department, 
we have determined that this proposed rule: (1) Would have an effect on 
the economy of less than $100 million; (2) would not adversely affect 
in a material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities; (3) would not create a 
serious inconsistency or otherwise interfere with an action taken by 
another agency; (4) would not alter the budgetary impact of 
entitlements, grants, user fees, or loan programs or rights and 
obligations of recipients thereof; and (5) would not raise novel legal 
or policy issues arising out of legal mandates, the President's 
priorities, or principles set forth in Executive Order 12866.

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been 
assigned OMB control number 0575-0119 in accordance with the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3507). This proposed rule does not 
revise or impose any new information collection or recordkeeping 
requirement from those approved by OMB. Please send written comments to 
the Office of Information and Regulatory Affairs, OMB, Attention: Desk 
Officer for USDA, Washington, DC 20503. Please send a copy of your 
comments to Jack Holston, Agency Clearance Officer, USDA, FmHA, Ag Box 
0743, Washington, DC 20250.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR Part 1940, 
Subpart G, ``Environmental Program.'' FmHA has determined that this 
action does not constitute a major Federal action significantly 
affecting the quality of the human environment and, in accordance with 
the National Environmental Policy Act of 1969, Public Law 91-190, an 
Environmental Impact Statement is not required.

Intergovernmental Review

    The programs to which this regulation may apply are listed in the 
Catalog of Federal Domestic Assistance under the following:

10.404  Emergency Loans
10.405  Farm Labor Housing Loans and Grants
10.406  Farm Operating Loans
10.407  Farm Ownership Loans
10.410  Low Income Housing Loans

(Section 502--Rural Housing Loans)

10.411  Rural Housing Site Loans

(Section 523 and 524 Site Loans)

10.414  Resource Conservation and Development Loans
10.415  Rural Rental Housing Loans
10.416  Soil and Water Loans (SW Loans)
10.418  Water and Waste Disposal Systems for Rural Communities
10.419  Watershed Protection and Flood Prevention Loans
10.420  Rural Self-Help Housing Technical Assistance

(Section 523--Technical Assistance)

10.421  Indian Tribes and Tribal Corporation Loans
10.422  Business and Industrial Loans
10.423  Community Facility Loans
10.428  Economic Emergency Loans
10.433  Housing Preservation Grants
10.434  Nonprofit Corporations Loan and Grant Program
10.435  Agricultural Loan Mediation Program

    Programs listed under numbers 10.404, 10.406, 10.407, 10.410, 
10.417, 10.421, 10.428, and 10.435 are not subject to the provisions of 
Executive Order 12372 which requires intergovernmental consultation 
with State and local officials. (7 CFR part 3015, subpart V, 48 FR 
29115, June 24, 1983.)
    Programs listed under numbers 10.405, 10.411, 10.414, 10.415, 
10.416, 10.418, 10.419, 10.420, 10.422, 10.423, 10.427, 10.433, and 
10.434 are subject to the provisions of Executive Order 12372 (7 CFR 
part 3015, subpart V, 48 FR 29112, June 24, 1983; 49 FR 22675, May 31, 
1984; 50 FR 14088, April 10, 1985.)

Civil Justice Reform

    The proposed regulation has been reviewed in light of Executive 
Order 12778 and meets the applicable standards provided in sections 
2(a) and 2(b)(2) of that Order. Provisions within this part which are 
inconsistent with state law are controlling. All administrative 
remedies pursuant to 7 CFR part 1900 subpart B must be exhausted prior 
to filing suit.

Regulatory Flexibility Act

    The Administrator of Farmers Home Administration has determined 
that this action will not have a significant economic impact on a 
substantial number of small entities because it contains normal 
business recordkeeping requirements and minimal essential reporting 
requirements.

Background Information

    FmHA has an obligation to protect the Government's interest by 
collecting the maximum amount possible within a reasonable period of 
time. Therefore, FmHA proposes to weigh the long-term collectibility of 
the debt through offset against whether to accept a settlement offer 
and release of an existing debt.
    The current procedures to establish salary offset in FmHA 
Instruction 1951-C, Sec. 1951.111 contain repetitious directions and 
ambiguous guidance for FmHA field offices to determine salary offset 
feasibility. Therefore, FmHA proposes to amend these instructions by 
retaining the Authorities and Definitions paragraphs in Sec. 1951.111 
and moving the remainder of this section to Secs. 1951.112 through 
1951.117.
    The same basic information that was in Sec. 1951.111, paragraphs 
(c) through (s) will remain in the new sections. However, some 
information will be deleted or reorganized. For example, the current 
introduction includes a reference that if a Federal salary was listed 
on the Farm and Home Plan for a farmer programs borrower and this 
income used for purposes other than payment on the FmHA loan, salary 
offset would not be considered. This reference is being deleted because 
obtaining a salary offset would protect the Government's interest and 
might eventually bring the loan current, thus helping the borrower 
retain the farming operation.

List of Subjects in 7 CFR Part 1951

    Account servicing, Loan programs--agriculture, Accounting, Credit, 
Low and moderate income housing loans--servicing.

    Therefore, Chapter XVIII, Title 7, Code of Federal Regulations is 
proposed to be amended as follows:

PART 1951--SERVICING AND COLLECTIONS

    1. The authority citation for part 1951 continues to read as 
follows:

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 
2.23; 7 CFR 2.70.

Subpart C--Offsets of Federal Payments to FmHA Borrowers

    2. Section 1951.101 is amended by adding a new fourth sentence to 
read as follows:


Sec. 1951.101  General.

    * * * However, offsets may not be sought against full-time active 
duty members of the Armed Forces whose FmHA loans are covered by the 
Soldiers' and Sailors' Civil Relief Act. * * *

    3. Section 1951.103 is amended by revising paragraphs (b) and (d), 
by adding new sixth and seventh sentences preceding the last sentence 
of paragraph (e), and adding paragraph (i) to read as follows:


Sec. 1951.103  Procedures for FmHA-initiated administrative offset.

    (a) * * *
    (b) Before requesting offset from another Federal agency, the 
debtor must have been given at least 30-days notice using FmHA Form 
Letter 1951-C-1 and given the rights set out in this section. Also, to 
be eligible for administrative offset, an FmHA borrower of a Farmer 
Programs loan (as defined in 7 CFR 1951.906) must have completed all 
primary servicing options available at the time of offset processing, 
any appeals concerning that servicing have been concluded, and the 
borrower's account has been accelerated. For borrowers other than 
Farmer Programs borrowers, the debtor's account must have been 
accelerated and all appeals concluded. A delinquent amount does not 
have to be reduced to judgment or be undisputed before offset can be 
used, and the payment does not have to be covered by an FmHA 
instrument.
* * * * *
    (d) Administrative offset will be used only where it is feasible. 
Administrative offset can be determined feasible even though 
collections by offset are less than the annual interest accrual. 
Administrative offset is not feasible where, for example, the cost to 
process the offset exceeds the amount collectible. Administrative 
offset will not be requested for delinquent amounts of less than $100.
    (e) * * * Federal Crop Insurance Corporation and its associated 
insurance companies cannot honor administrative offset requests to 
garnish crop insurance claims. Do not initiate administrative offset on 
accounts that have been referred to the Department of Justice for 
litigation. * * *
* * * * *
    (i) The recovery potential from administrative offsets should be 
considered when evaluating debt settlement options.

    4. Section 1951.104 is amended by revising the reference ``FmHA 
Instruction 2018-E'' to ``FmHA Instruction 2018-F'' in paragraph 
(a)(1), revising the word ``ask'' to ``request'' and adding the words 
``in writing'' after the word ``request'' in the introductory text of 
paragraph (b), removing the word ``Request'' and inserting the phrase 
``Make a request for'' in its place in paragraph (b)(2), adding the 
words ``in writing'' after the word ``responds'' in the first sentence 
of paragraph (e), revising the first sentence in the introductory text 
of paragraph (a), and adding new sentences before and after the fourth 
sentence of paragraph (g), and revising the word ``regulation'' to 
``subpart'' in the first sentence and revising the second sentence of 
paragraph (j) to read as follows:


Sec. 1951.104  Procedures for FmHA-initiated offset.

    (a) The use of administrative offset will be initiated by sending 
FmHA Form Letter 1951-C-1 to the debtor. * * *
* * * * *
    (g) * * * The farm operating expenses listed in 
Sec. 1962.17(b)(2)(ii) of subpart A of part 1962 of this chapter are 
not included in this determination of essential family living expenses 
for administrative offset purposes. * * * Where available, the County 
Supervisor should get documentary evidence such as bills or receipts 
from the borrower that support the hardship claim. * * *
* * * * *
    (j) * * * The borrower may request a hearing if the borrower 
believes the previous offset actions by FmHA are contrary to the 
administrative offset procedures found in Secs. 1951.103 through 
1951.104 of subpart C of part 1951 of this chapter.

    5. Section 1951.105(b)(3) is amended by adding the words ``or 
Exhibit L'' after the word ``Exhibit B'' in the second sentence and 
adding a sentence at the end of the paragraph to read as follows:


Sec. 1951.105  Procedures for taking funds by administrative offset.

* * * * *
    (b) * * *
    (3) * * * Prepare FmHA Form Letter 1951-5 to request offset 
refunds.
* * * * *
    6. Section 1951.111 is amended by revising the introductory text, 
paragraph (b)(1), introductory text of paragraph (b)(2)(ii), and 
(b)(3), and removing paragraphs (c) through (s) to read as follows:


Sec. 1951.111  Salary offset.

    Salary offset may be used by FmHA to collect delinquent debts from 
borrowers or debtors who are Federal employees. It may also be used by 
other Federal agencies to collect delinquencies or other debts owed to 
them by FmHA employees, excluding County Committee members. 
Administrative offset rather than salary offset, will be used to 
collect money from Federal and military retirement benefits. Decisions 
made under the following sections are not appealable under subpart B of 
part 1900 of this chapter. This section establishes policies and 
procedures to implement salary offset.
* * * * *
    (b) Definitions--(1) Certifying Officials--State Directors; the 
Assistant Administrator, Finance Office; and the Assistant 
Administrator for Budget, Finance and Management, National Office.
    (2) * * *
    (ii) Other debts--An amount owed to the United States by an 
employee for salary overpayments, underwithholding of amounts payable 
for life and health insurance, etc. Also included are monetary losses 
where the employee has been determined to be liable due to the 
employee's negligent, willful, unauthorized or illegal acts, including 
but not limited to:
* * * * *
    (3) Defalcation account--An account established in the Finance 
Office for other debts (see paragraph (b)(2)(ii) of this section) owed 
the Federal government by an employee or former employee.
* * * * *
    7. Sections 1951.112 through 1951.117 are added to read as follows:


Sec. 1951.112  Standards for initiating salary offset.

    Salary offset will not be initiated until after all servicing 
options available have been utilized. The debt does not have to be 
reduced to judgment or be undisputed, and the payment does not have to 
be covered by a security agreement.
    (a) Feasibility of salary offset. Certifying Officials must 
determine on a case-by-case basis if salary offset is feasible. If an 
offset is feasible, review paragraph (b) of this section to determine 
if a borrower is ineligible, and follow Sec. 1951.113 of this subpart 
to establish the offset. If the Certifying Official determines that 
salary offset is not feasible, the reasons supporting this decision 
will be documented in the debtor's running case record in the case of 
delinquent debt, or in the ``For Official Use Only'' file in cases of 
other debt. An offset is feasible when the following situations apply:
    (1) The cost to process the offset should not exceed the amount the 
Certifying Official believes would be collectible by the use of salary 
offset. Salary offset can be determined feasible even though 
collections by offset are less than the annual interest accrual. County 
Committee members are exempt from salary offset because the amount 
collected by offset would be so small as to be impractical.
    (2) The debt should be collected by lump-sum when possible.
    (3) Payments may be made in installments not to exceed 15 percent 
of the debtor's disposable pay, unless the debtor agrees to a larger 
amount. If possible, the installment payment will be sufficient in size 
and frequency to liquidate the debt in approximately 3 years. The 
offset should bear a reasonable relation to the size of the debt and 
the debtor's ability to pay.
    (4) Installment payments of less than $25 per pay period or $50 per 
month will be accepted only in the most unusual of circumstances.
    (b) Borrowers ineligible for salary offset. All Federal employee 
debtors are eligible for salary offset unless they meet one or more of 
the following criteria:
    (1) Account has been discharged in bankruptcy or is under the 
jurisdiction of a bankruptcy court and the debt has not been 
reaffirmed. Existence of a bankruptcy action pending flag is not a 
determining factor.
    (2) Account has been referred to OGC for foreclosure and, based on 
the legal opinion required by Sec. 1951.103(c) of this subpart, a 
collection by offset would jeopardize the litigation under State law. 
Existence of a foreclosure action pending flag is not a determining 
factor.
    (3) Account has a delinquency workout agreement in effect and 
payments under the agreement are current.
    (4) The debtor is a Farmer Programs borrower and has not completed 
all primary servicing options available at the time offset is 
considered and/or any appeals concerning this servicing have not been 
concluded.
    (5) Account is under a moratorium.
    (6) Account has been paid current, paid in full, or otherwise 
satisfied.
    (7) Rescheduling is in process.
    (8) Borrower is an active duty member of the armed forces whose 
FmHA loan is covered by the Soldiers' and Sailors' Civil Relief Act.
    (9) Account is past due by less than $100, or if the debtor has 
multiple loans, the net amount past due is less than $100.
    (10) Account has a suspend code.
    (11) Account is current under an SAA.
    (12) Account has been referred to the Department of Justice for 
litigation.


Sec. 1951.113  Procedures for initiating offset.

    (a) Notice to debtor. After the Certifying Official determines that 
salary offset is feasible, FmHA Form Letter 1951-C-4 will be sent 
within 15 calendar days after that determination. This form letter will 
notify the debtor of intended salary offset at least 30 days before the 
salary offset begins. Personally deliver FmHA Form Letter 1951-C-4 to 
the debtor or send by certified mail, return receipt requested. Also 
send a copy by regular mail on the same day. If the certified mail 
receipt is returned as being refused, the date the debtor received the 
letter will be established and the time limits set out in FmHA Form 
Letter 1951-C-4 will run from that date. If delivery by certified mail 
is not accomplished, FmHA will assume that the debtor received the 
letter by regular mail on the day the certified mail was refused or was 
unable to be delivered. If both the certified and regular mail letters 
are returned as undeliverable, contact the Financial and Management 
Analysis Division (FMAD) at the National Office for guidance.
    (b) Debtor's response to the notice.
    (1) Review records. If a debtor responds to FmHA Form Letter 1951-
C-4 by asking to review and copy FmHA's records relating to the debt, 
the Certifying Official will promptly respond by sending a letter which 
tells the debtor the location of the debtor's FmHA files and that the 
files may be reviewed and copied within the next 30 days. Copying costs 
(see FmHA Instruction 2018-F available in any FmHA office) will be set 
out in the letter, as well as the hours the files will be available 
each day. If a debtor asks to have FmHA copy the records, a copy will 
be made within 30 days of the request.
    (2) Repay debt. If a debtor responds to FmHA Form Letter 1951-C-4 
by offering to repay the debt, the offer may be accepted by the 
Certifying Official, if it would be in the best interest of the 
Government. FmHA Form Letter 1951-C-8 will be used if a repayment offer 
for an FmHA loan or grant is accepted. Upon receipt of an offer to 
repay, the Certifying Official will delay instituting salary offset 
until a decision is made on the repayment offer. Within 60 days after 
the initial offer to repay was made, the Certifying Official must 
decide whether to accept or reject the offer. This decision will be 
documented in the running case record or the ``For Official Use Only'' 
file, as appropriate, and the debtor will be sent a letter which sets 
out the decision to accept or reject the offer to repay. If the offer 
is rejected, it should be based upon a realistic budget or Farm and 
Home Plan and according to the servicing regulations for the type of 
loan(s) involved.
    (3) Request hearing. If a debtor responds within 15 days from 
receipt of FmHA Form Letter 1951-C-4 by asking for a hearing on FmHA's 
determination that a debt exists and/or is due, or on the percentage of 
net pay to be deducted each pay period, the Certifying Official will 
notify the debtor in accordance with this subpart and request the 
debtor's case file or the ``For Official Use Only'' file.
    (4) Change offset payment amount. If a debtor wants to have more or 
less than 15 percent of the disposable pay sent to FmHA, FmHA Form 
Letter 1951-C-8 must be prepared and signed by the debtor, approved by 
the Certifying Official, and a copy placed in the debtor's case file or 
the ``For Official Use Only'' file. The original form letter will be 
forwarded with FmHA Form Letter 1951-C-10 when requesting the salary 
offset. (See Sec. 1951.115 (a) of this subpart.)
    (5) Request debt settlement. A debtor who is an FmHA borrower may 
request debt settlement at any time (the account does not have to be in 
collection-only status or be an inactive account for which there is no 
security). The Certifying Official must inform the borrower of how to 
apply for debt settlement. Any application will be considered 
independently of the salary offset. A salary offset should not be 
delayed because the borrower applied for debt settlement.
    (6) Time limits. The time limits set in FmHA Form Letter 1951-C-4 
and in paragraphs (b)(1), (2), and (3) of this section run 
concurrently. For example, if a debtor asks to review the FmHA file and 
offers to repay the debt, the debtor cannot take 30 days to ask to 
review the file and then take another 30 days to offer to repay. The 
request to review the file and the offer to repay must both be made 
within 30 days of the date the debtor receives the notification letter.
    (7) Negotiated grievance procedure. If an employee is included in a 
bargaining unit which has a negotiated grievance procedure that does 
not specifically exclude salary offset proceedings, the employee must 
grieve the matter in accordance with the negotiated procedure in lieu 
of a hearing as set forth in Sec. 1951.114 of this subpart. Employees 
who are not covered by a negotiated procedure must use the salary 
offset proceedings as outlined in FmHA Form Letter 1951-C-4. The 
employee must be informed, in writing, which procedure to follow and, 
as appropriate, reference should be made to the appropriate sections of 
the negotiated agreement.


Sec. 1951.114  Salary offset hearings.

    (a) Debtor's request for a hearing. The debtor must file a written 
petition requesting a hearing. This petition must have the original 
signature of the debtor, be sent to the Certifying Official who issued 
FmHA Form Letter 1951-C-4, and be received and date stamped at the 
Certifying Official's office no later than 15 days after the debtor 
received the form letter. Petitions received from debtors after the 15-
day time limitation expires will be accepted only if the debtor can 
show the delay was caused by circumstances beyond his/her control.
    (1) Valid reasons for a hearing. The debtor's petition must fully 
identify and explain all the information and evidence that supports 
his/her position. If the request is not valid, a hearing should not 
occur. The debtor's request for a hearing must be based on the 
following reasons only:
    (i) The debtor challenges the existence of the debt;
    (ii) The debtor challenges the amount of the debt; and/or
    (iii) The debtor challenges the percentage of his/her disposable 
pay to be deducted each pay period.
    (2) Debtor notification. Certifying Officials are responsible for 
determining if the debtor's petition for a hearing has been submitted 
in a timely fashion and lists valid reasons for a hearing. Certifying 
Officials are required to provide written notification to the debtor of 
the acceptance or non-acceptance of the debtor's petition for a 
hearing. An acceptance notice will state that the debtor's case file 
has been forwarded to the National Office to be given to the hearing 
officer and that acceptance of the petition for hearing will put a hold 
on any offset collections until the results of the hearing are known. 
Any payments collected in error due to untimely or delayed filing 
beyond the debtor's control will be refunded unless there are 
applicable contractual or statutory provisions to the contrary.
    (3) Send hearing request to the National Office. If the Certifying 
Official has accepted the debtor's petition for a hearing and has 
notified the debtor of this acceptance, send a copy of the debtor's 
case file, including the acceptance letter and the original letter 
requesting the hearing to the National Office, FMAD.
    (b) Hearing officers. The hearing must be conducted by a hearing 
officer who is either an ALJ or someone who is not an employee of the 
USDA. An ALJ is normally unavailable to handle salary offset hearings 
in a timely manner. Therefore, FMAD will arrange for a hearing officer 
when the debtor's case file is received. The hearing officer will 
contact the debtor as to when and where the hearing will take place and 
whether or not the hearing will be a documentary review of the case 
file or in person.
    (c) Hearings. (1) The hearing will be based on written submissions 
and documentation provided by the debtor and FmHA unless:
    (i) The debtor requests reconsideration of the debt and the hearing 
officer determines that the question of the indebtedness cannot be 
resolved by a review of the documentary evidence; for example, when the 
validity of the debt turns on an issue of credibility or truth.
    (ii) The hearing officer determines that an oral hearing is 
appropriate.
    (2) Oral hearings may be conducted by conference call at the 
request of the debtor or at the discretion of the hearing officer. The 
hearing officer's determination that the offset hearing is on the 
written record is final and is not subject to review.
    (3) The hearing officer will issue a written decision not later 
than 60 days after the filing of the petition requesting the hearing, 
unless the debtor requests and the Certifying Official grants a delay 
in the proceedings. The written decision will state the facts 
supporting the nature and origin of the debt, the hearing officer's 
analysis, findings and conclusions as to the amount and validity of the 
debt, and repayment schedule. Both the debtor and FmHA will be provided 
with a copy of the hearing officer's written decision on the debt.


Sec. 1951.115  Procedures for requesting offset from an employing 
agency.

    (a) Offset request letter. FmHA Form Letter 1951-C-10 will be 
prepared, signed and submitted by the Certifying Official to the 
National Office, FMAD, for coordination and forwarding to the debtor's 
employing agency if:
    (1) The borrower does not respond to FmHA Form Letter 1951-C-4 
within 30 days.
    (2) The borrower responds to FmHA Form Letter 1951-C-4 and:
    (i) Has had an opportunity to review the file, if requested within 
30 days of receipt;,
    (ii) Has received a hearing, if requested within 15 days of 
receipt; and
    (iii) A decision has been made by the hearing officer to uphold the 
offset.
    (b) Finance Office copy. A copy of FmHA Form Letter 1951-C-10 will 
be sent to the Finance Office, St. Louis, MO 63103, Attn: Accounts 
Settlement Unit.
    (c) Monthly report. State Offices shall prepare a monthly report 
showing salary offset activity. The report should list State, month, 
debtor name, case number, date FmHA Form Letter 1951-C-4 was sent, date 
a hearing was requested (if any), date FmHA Form Letter 1951-C-10 was 
sent, date the offset started, and the average amount collected through 
salary offset per month. The latter two items can be found on the on-
line history screen. After requesting an offset, periodically check to 
see if the offset has started. Send the report by the 10th of the month 
for the preceding month to the National Office, FMAD.
    (d) Offset percentage. If the debtor and FmHA have agreed to have 
more or less than 15 percent of the disposable pay sent to FmHA, a copy 
of the debtor's letter (FmHA Form Letter 1951-C-8) authorizing this 
must be attached to FmHA Form Letter 1951-C-10.
    (e) Offset deductions. Deductions will be made only from basic pay, 
incentive pay, retainer pay, or in the case of an employee not entitled 
to basic pay, other authorized pay. If there is more than one salary 
offset, the maximum deduction for all salary offsets against an 
employee's disposable pay is 15 percent unless the employee has agreed 
in writing to a greater amount.
    (f) Payment notification. Field offices will be notified of 
payments received from salary offset by referring to the on-line 
history screen for that debtor.
    (g) Application of payments, refunds and overpayments.
    (1) If a debtor is delinquent or indebted on more than one FmHA 
loan or debt, amounts collected by offset will be applied as determined 
by FmHA. The check date will be used as the date of credit in applying 
payments to the borrower's accounts.
    (2) If a court or agency orders FmHA to refund the amount obtained 
by salary offset, a refund will be requested promptly by the Certifying 
Official in accordance with the order by sending FmHA Form Letter 1951-
5 to the Finance Office. Processing FmHA Form Letter 1951-5 in the 
Finance Office will cause a refund to be sent to the debtor through the 
County Office or other appropriate FmHA office. Unless required by law, 
refunds shall not bear any interest.
    (3) If a debtor does not request a hearing within the required time 
and it is later determined that the delay was due to circumstances 
beyond the debtor's control, any amount collected before the hearing 
decision is made will be refunded promptly by the Certifying Official 
in accordance with paragraph (g)(2) of this section.
    (4) If FmHA receives money through an offset but the debtor is not 
delinquent or indebted at the time or the amount received is in excess 
of the delinquency or indebtedness, the entire amount or the amount in 
excess of the delinquency or indebtedness will be refunded promptly to 
the debtor by the Certifying Official in accordance with paragraphs (g) 
(1) and (2) of this section.
    (h) Adjustment in rate of repayment. (1) When an employee who is 
indebted receives a reduction in basic pay that would cause the current 
deductions to exceed 15 percent of disposable pay, and the employee has 
not consented in writing to a greater amount, the offset will be 
reduced to 15 percent of the new amount of disposable pay. Upon an 
increase in basic pay which results in the current deductions to be 
less than the specified percentage, the offset will be increased 
accordingly. In either case, when a change is made the employee should 
be notified in writing by the employing agency.
    (2) When an employee is being offset and has an existing reduced 
repayment schedule because of financial hardship, the creditor agency 
may arrange for a new repayment schedule, taking into account the 
offset amount.
    (i) Interest, penalties and administrative costs. Additional 
interest, penalties, and administrative costs will be assessed on 
delinquent loans only in accordance with FmHA regulations permitting 
such charges.
    (j) Cancellation of offset. If a debtor's name has been submitted 
to another agency for offset and the debtor's account is brought 
current or otherwise satisfied, the Certifying Official will notify the 
National Office, FMAD, that the offset is being canceled. The 
Certifying Official will write a letter to the employer, at the address 
confirmed by FMAD, identifying the debtor by name and social security 
number and state that salary offset should be canceled. A copy of the 
cancellation document will be sent to the debtor, the Finance Office, 
Attn: Account Settlement Unit, and to FMAD.
    (k) Liquidation from final checks. Upon the determination that an 
employee owing a debt to FmHA is to retire, resign, or employment 
otherwise ends, the Certifying Official should immediately telephone 
FMAD with the appropriate employee identification and amount of the 
debt. FMAD will request the debt be collected from final salary/lump 
sum leave or other funds due the employee, and, if necessary, to put a 
hold on the retirement funds. Collection from retirement funds will be 
in accordance with the Administrative Offset procedures in 
Secs. 1951.103 through 1951.105 of subpart C of part 1951 of this 
chapter.
    (l) Non-waiver of rights. An employee's involuntary payment of all 
or any portion of the debt collected under 5 U.S.C. 5514 will not be 
construed as a waiver of any rights which the employee may have under 5 
U.S.C. 5514 or any other provision of contract or law, unless there are 
statutory or contractual provisions to the contrary.


Sec. 1951.116  Establishing offsets for other debts of FmHA employees/
former employees.

    (a) Agency/National Finance Center (NFC) responsibility for other 
debts. (1) FmHA will inform NFC about other indebtedness by 
transmitting to NFC FmHA Form Letter 1951-C-10. The NFC will process 
the documents through the Payroll/Personnel System, calculate the net 
amount of the adjustment and generate a salary offset notice. This 
notice will be sent to the employee's employing office along with a 
duplicate copy for the FmHA's records. The FmHA is responsible for 
completing the necessary information and forwarding the employee's 
notice to the employee.
    (2) Other indebtedness falls into two categories:
    (i) An agency-initiated indebtedness (i.e. improper personal 
telephone calls, property damages, etc.).
    (ii) An NFC-initiated indebtedness (i.e. duplicate salary payments, 
etc.). The NFC will send the salary offset notice to the employing 
office.
    (b) Establishing employee or former employee defalcation accounts 
and non-cash credits to borrower accounts. In cases where a borrower 
made a payment on an FmHA account(s) and, due to theft, embezzlement, 
fraud, negligence, or some other action on the part of an FmHA employee 
or employees, the payment is not transmitted to the Finance Office for 
application to the borrower's account(s), certain accounting actions 
must be taken by the Finance Office to establish non-cash credits to 
the borrower's account and an employee defalcation account.
    (1) The Certifying Official will advise the Assistant 
Administrator, Finance Office by memorandum to establish a defalcation 
account. The memorandum must state the following information:
    (i) Employee's name (or former),
    (ii) Social Security Number (SSN),
    (iii) Present or last known address,
    (iv) Date of payment, and
    (v) Amount of the defalcation account.
    (2) If a non-cash credit to a borrower's account(s) is required, 
the letter to the Finance Office will include:
    (i) Borrower's name and case number,
    (ii) Fund code and loan code,
    (iii) Date and amount of missing payment,
    (iv) Copy of receipt issued for the missing payment, and
    (v) Name of employee who last had custody of the missing funds.
    (3) To assist and assure proper accounting for defalcation accounts 
and non-cash credits, the request should be made at the same time. 
Should requests be made separately, be sure to identify appropriately.
    (4) The Certifying Official shall furnish a copy of the memorandum 
and supporting documentation for paragraphs (b)(1) and (2) of this 
section to the Deputy Administrator for Management for distribution to 
the FMAD and Employee Relations Branch, Personnel Division.


Sec. 1951.117  Procedures for salary offset against FmHA employees who 
owe other Federal agencies.

    (a)Coordination with other agencies. When an employee of FmHA owes 
a debt to another Federal agency, salary offset may be used only when 
the Federal agency certifies that the person owes the debt and that the 
Federal agency has complied with its regulations. The request must 
include the creditor agency's certification as to the indebtedness, 
including the amount, and that the agency has satisfied the 
requirements of 5 U.S.C. 5514 with regard to the employee. When a 
request for offset is received, FmHA will notify the employee and NFC 
and arrange for offset.
    (b) Deductions by the NFC. The NFC will automatically deduct the 
full amount of the delinquency or indebtedness if less than 15 percent 
of disposable pay or 15 percent of disposable pay if the delinquency or 
indebtedness exceeds 15 percent, unless the creditor agency advises 
otherwise. Deductions will begin the second pay period after the 30-day 
notification period has expired unless FmHA issues the notice. If FmHA 
issues the notice, the NFC will begin deductions on the first pay 
period after receipt of the Form AD-343, ``Payroll Action Request.''

    8. Section 1951.121 is amended by revising the heading from 
``Internal Revenue Service (IRS) offset'' to ``IRS offset.''
    9. Section 1951.122 is amended by revising the reference ``FmHA 
Instruction 1950-C'' to ``subpart C of part 1950 of this chapter'' in 
paragraph (a)(7), adding a new second sentence in the introductory 
text, removing paragraph (d), adding paragraphs (a)(9), (a)(10), 
(c)(3), (c)(4), and revising paragraph (a)(8), introductory text of 
paragraph (b), paragraph (b)(4), introductory text of paragraph (c), 
and paragraph (c)(2) to read as follows:


Sec. 1951.122  Finance Office screening.

    * * * Individuals owing other debts as described in Sec. 1951.111 
(b)(2)(ii) of this subpart will be included. * * *
    (a) * * *
* * * * *
    (8) Account is current under an SAA.
    (9) Account is current, paid in full, or otherwise satisfied.
    (10) Account has been referred to the Department of Justice for 
litigation.
    (b) Single Family Housing borrowers. In addition to the criteria 
set forth in Sec. 1951.122 (a), accounts of delinquent SFH borrowers 
which meet the following criteria are not eligible for IRS offset:
* * * * *
    (4) Account has a delinquency workout agreement in effect and the 
borrower is current under the agreement.
    (c) Farmer Programs borrowers. In addition to the criteria set 
forth in Sec. 1951.122(a) of this subpart, accounts of delinquent FP 
borrowers which meet the following criteria are not eligible for IRS 
offset:
* * * * *
    (2) Account is less than 180 days past due.
    (3) Borrower has not completed all servicing options available 
(including appeals) at the time of final offset screening by the field 
and the borrower's account has not been accelerated.
    (4) If the account was accelerated prior to instituting servicing 
in 1987 in accordance with subpart S of part 1951 of this chapter, the 
borrower's loans are being serviced under subpart S of part 1951, the 
borrower requested an appeal under subpart S of part 1951 and the 
appeal has not been concluded.


Sec. 1951.124  [Amended]

    10. Section 1951.124 is amended in the first sentence by revising 
the words ``FmHA Form Letter 1951-C-6'' to ``a due process notice.''
    11. Section 1951.125 is amended in the first sentence by revising 
the words ``FmHA Form Letter 1951-C-6'' to ``the due process notice,'' 
and adding a sentence at the end of the paragraph to read as follows:


Sec. 1951.125  Processing borrower's requests not to exercise IRS 
offset.

    * * * The County Supervisor's review decision is not appealable 
under FmHA Instruction 1900-B.


Sec. 1951.134  [Amended]

    12. Section 1951.134 is amended in the first sentence by revising 
the words ``refund was'' to ``refunds were.''
    13. Sections 1951.136 is added to read as follows:


Sec. 1951.136  Protection of IRS tax information.

    This section explains the policies and procedures for the 
protection of IRS tax information received from the IRS offset program. 
The procedures contained in this section are in accordance with and 
mandated by the Internal Revenue Code (IRC) and IRS Publication 1075, 
Tax Information Security Guidelines. The FmHA will establish the 
appropriate safeguards for the protection of IRS tax information 
received under the IRS offset program. The FmHA must protect this 
information from unauthorized disclosure and unauthorized use. The 
procedures outlined in this section apply to all Federal tax 
information regardless of the media on which it is recorded.
    (a) Employee awareness. (1) All FmHA employees who have access to 
IRS tax information must be briefed annually on the security procedures 
outlined in this section.
    (2) Each employee must be advised of the provisions of IRC, section 
7213(a), which makes unauthorized disclosure of Federal returns or 
return information a crime that may be punishable by a $5,000 fine, 5 
years imprisonment, or both. The awareness program requires that copies 
of the law must be provided to each employee.
    (3) All FmHA employees who have access to Federal tax information 
must also be advised annually of the provisions of the IRC, section 
7431, which permits a taxpayer to bring suit for civil damages in the 
U.S. District Court for unauthorized disclosure of returns and return 
information. This section allows for punitive damages in case of 
willful disclosure or gross negligence, as well as the cost of the 
action. A copy of this law must also be given to each employee.
    (4) The immediate supervisor is responsible for ensuring that all 
FmHA employees who have access to Federal tax information receive 
annual training. A certification of training must be maintained in the 
office. Training materials and lesson plans can be obtained from the 
Operational Security Staff, mail code FC-35B, in the Finance Office.
    (b) Recordkeeping requirements. The FmHA is authorized under the 
IRC, section 6103, to receive Federal tax information. This section 
requires FmHA to establish a permanent system of standardized records 
of requests made by or to FmHA for disclosure of Federal tax returns or 
return information. These records must be maintained for 5 years. Each 
FmHA office which receives Federal tax information will establish a 
record that includes the following:
    (1) The date the request was made.
    (2) Who made the request.
    (3) The reason for the request.
    (4) What tax information was requested.
    (5) Was a disclosure made.
    (c) Minimizing access to Federal tax information. (1) To avoid 
inadvertent disclosures to unauthorized persons, Federal tax 
information must be kept separate from other information.
    (2) Each FmHA office will maintain a separate file(s) for Federal 
tax information. The file(s) will be clearly labeled to indicate that 
the file(s) contains Federal tax information. All files containing 
Federal tax information must be stored in a locked cabinet or safe.
    (d) Magnetic media. After it has served its purpose, magnetic media 
containing Federal tax data must not be made available for reuse by 
other offices or released for destruction without first being subjected 
to electromagnetic erasing. The FmHA will completely overwrite all data 
tracks. If reuse is not intended, the tape should be destroyed by 
cutting into lengths of 18 inches or less, or by burning to effect 
complete incineration. The FmHA will ensure that all magnetic media 
used for storage of Federal tax information will comply with the above 
requirements when the information is no longer needed.
    (e) Use of contractors. Disclosure of tax returns or return 
information to contractors is prohibited by tax laws. Federal tax 
information in identifiable form will not be released to contractors by 
FmHA. All FmHA offices which use contractors will ensure that contract 
employees do not have access to files containing Federal tax 
information or the area/cabinet in which the files are stored.
    (f) [Reserved]
    (g) Physical protection of field offices. All field office 
locations which receive Federal tax information must be structured so 
public and non-public areas of the office are well defined as follows:
    (1) Signs must be posted which state ``FmHA Authorized Personnel 
Only.''
    (2) Visitors to the office must be escorted while in the non-public 
areas.
    (3) All new leasing agreements must incorporate and implement the 
following excerpts from the Finance Office, Solicitation for Offers for 
Small Lease Packages. These should also be implemented under the 
present leasing agreements, to the extent practical.
    (i) All exterior walls and walls which border public access or 
other agency space must be slab-to-slab construction.
    (ii) All doors which border public access or exterior of the 
building or other agency space shall, at a minimum, be constructed of 
solid core wood. They shall have the hinges installed or modified so 
that the pins of the hinges cannot be removed when the door is in the 
closed position.
    (iii) All locking devices on doors shall, at a minimum, be a five-
pin tumbler lockset with a deadlatch or deadbolt feature. Doors must 
have an auxiliary deadbolt locking device which is capable of a 1-inch 
throw of the bolt into a fully encased strike box. All wood doors must 
be reinforced around the locking device.
    (h) Need and use. The FmHA receives Federal tax information for use 
in the IRS offset program as stated in Sec. 1951.121 of this subpart. 
The FmHA will not use the information received for any purposes outside 
of the offset program.
    (i) Disposal of tax information upon completion of use. Federal tax 
information must never be released to private contractors for 
unsupervised destruction. Destruction of the information must be 
witnessed by an FmHA employee in a manner to safeguard the information 
from unauthorized disclosure. All FmHA offices will mail Federal tax 
information which is no longer needed to the Operational Security 
Staff, Finance Office, mail code FC-35B, for destruction. Label the 
package ``Open By Addressee Only,'' but do not label that it contains 
IRS information.
    (j) Identification of Federal tax information. The following 
reports contain Federal tax information and must be afforded the 
protections outlined in this section.
    (1) Form FmHA 389-764, ``Weekly Offset Report (Cash Collections) 
IRS Offset,'' Report Code: 222-C.
    (2) Form FmHA 389-763, ``Weekly Claims Report IRS Offset,'' Report 
Code: 222-D.

    Dated: November 20 1993
Bob J. Nash.
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-10219 Filed 4-29-94; 8:45 am]
BILLING CODE 3410-07-U