[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Proposed Rules]
[Pages 33612-33631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15887]




[[Page 33611]]

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Part VII





Department of Agriculture





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Food and Consumer Service



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7 CFR Part 271 et al.



Collecting Food Stamp Recipient Claims From Federal Income Tax Refunds 
and Federal Salaries; Proposed Rule

  Federal Register / Vol. 60, No. 124 / Wednesday, June 28, 1995 / 
Proposed Rules   
[[Page 33612]] 

DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Parts 271, 272 and 273

[Amdt. No. 367]
RIN 0584-AB89


Food Stamp Program: Collecting Food Stamp Recipient Claims From 
Federal Income Tax Refunds and Federal Salaries

AGENCY: Food and Consumer Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes collecting two types of Food Stamp Program 
(FSP) recipient claims from Federal income tax refunds and from Federal 
salaries. The two types of recipient claims are inadvertent household 
error (IHE) and intentional Program violation (IPV) claims. These 
claims represent amounts of benefits which households received but to 
which they were not entitled. This rule proposes to collect these types 
of claims from individuals who are no longer participating in the FSP. 
This rule proposes operating procedures, due-process notices, and 
appeal rights and other rights and responsibilities of individuals. The 
Department has been testing the Federal income tax refund offset 
program (FTROP) since 1992 and is currently testing the Federal salary 
offset program (salary offset).

DATES: Comments must be received on or before July 28, 1995 to be 
assured of receiving consideration.

ADDRESSES: Comments should be addressed to James I. Porter, Supervisor, 
Issuance and Accountability Section, State Administration Branch, 
Program Accountability Division, Food Stamp Program, 3101 Park Center 
Drive, Room 907, Alexandria, Virginia 22302. Comments can be reviewed 
at that address during normal business hours.

FOR FURTHER INFORMATION CONTACT: Mr. Porter at the above address or by 
telephone at (703) 305-2385.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be significant and was 
reviewed by the Office of Management and Budget under Executive Order 
12866.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule and related notice to 7 CFR 3015, Subpart V (48 FR 29115), this 
Program is excluded from the scope of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

    This proposed action has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act of 1980 (Pub. L. 96-354, 
94 Stat. 1164, September 19, 1980). William E. Ludwig, Administrator of 
the Food and Consumer Service, has certified that this rule does not 
have a significant economic impact on a substantial number of small 
entities. This rule will affect the State and local agencies which 
administer the Food Stamp Program and certain individuals who have 
received excess food stamp benefits. Half of substantially all State 
and local administrative costs for administering the Food Stamp Program 
are reimbursed by the Department.

Executive Order 12778

    This rulemaking has been reviewed under Executive Order 12778, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect. 
Prior to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted.

Paperwork Reduction Act

    This proposed rule contains information collection requirements 
subject to review by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1980 (44 U.S.C. Section 3507).
    This is a new public information collection burden. The reporting 
and recordkeeping requirements for it were described in a General 
Notice titled ``Food Stamp Program: Recipient Claims Collection: Test 
of Offsetting Federal Income Tax Refunds,'' published August 20, 1991 
at 56 FR 41325. Because State agencies are continuing to join FTROP, 
with a resulting increase in the number of individuals subject to 
collection, average numbers were used to estimate the information 
collection burden. These were: 30 State agencies and 250,000 
individuals. Of the total 58,555 hour estimated information collection 
burden, 50,330 hours is associated with due-process notices and appeals 
under FTROP. The burden is shared between State agencies and 
individuals, the two types of respondents. State agencies had 13,122 
hours, of which more than 12,000 hours is associated with the 
production of due-process notices. Individuals had 37,208 hours, almost 
all of which is associated with responding to due process notices.
    As mentioned above, collecting food stamp recipient claims from 
Federal salaries is currently being tested. If that test indicates that 
full implementation of salary offset would result in a measurable 
increase in the approved information collection burden, the Department 
will submit an adjustment to that estimate and provide the public due 
notice and opportunity to comment on that adjustment. An adjustment to 
reflect the decreased State agency FTROP reporting as proposed in this 
rule will be submitted if warranted.
    On September 27, 1993 OMB approved the information collection 
requirements through September 30, 1996 (OMB No. 0584-0446). The title 
of the information collection is ``Expansion of Test of Offsetting 
Federal Income Tax Refunds.'' Comments regarding this estimated 
information collection burden, including suggestions for reducing the 
burden, should be sent to the Department of Agriculture Clearance 
Officer, Office of Information Resources Management, Room 404-W, 
Washington, D.C. 20250. Such comments should also be sent to the Office 
of Management and Budget, Paperwork Reduction Project (OMB No. 0584-
0446), Washington, D.C. 20503.

Comment Period

    The Department believes that a 30-day comment period for this rule 
is sufficient because while this is a proposed rule, it addresses 
comments the Department received about the General Notices under which 
FTROP has been tested. These comments were from a major public interest 
group and from several State agencies. The rule clarifies several 
matters and proposes changes in FTROP procedures based on those 
comments, on numerous State agency questions raised during annual 
training sessions and submitted to FCS regional offices during the test 
of FTROP.

Background

A. General

    Individuals currently owe the Department about $800 million for IHE 
and IPV recipient claims. A substantial portion of the $800 million is 
not being repaid. The Department is concerned about this situation and 
is augmenting its policies and procedures to improve 
[[Page 33613]] collections of this debt. FTROP and salary offset are 
major initiatives in this effort.
    Both collection methods would require that State agencies submit 
claims to FCS for referral to the Internal Revenue Service (IRS) for 
collection through FTROP. Automated data processing would be conducted 
under strict data security procedures and confidentiality restrictions 
to assure that information about individual debtors would be used only 
for the authorized purposes of the proposed collection methods. Under 
the proposed rule, prior to any adverse action (the collection 
efforts), notice about the intended collection efforts, including 
advice of appeal rights, must be provided individuals identified as 
owing FSP recipient claims. Both FTROP and salary offset would only be 
used when none of the household members liable for the recipient claims 
to be collected are participating in the State which would be 
initiating the collection action. FTROP and salary offset would be 
applied only to IHE and IPV claims meeting this condition because, 
under current food stamp regulations, both IHE and IPV claims owed by 
participating households must be collected either by a repayment method 
of the household's choice or by allotment reduction.
    The IRS requires that Federal agencies participating in FTROP use 
all reasonable collection efforts before referring a debt for 
collection from Federal income tax refunds. The IRS views salary offset 
as such an effort and therefore requires participation in salary offset 
or at a minimum, deletion of claims which can be collected from Federal 
employees from lists of claims submitted under FTROP. (See 26 CFR 
301.6402-6 (b)(1)(iii) and (c)(2) of IRS regulations.)

B. FTROP

1. Authorities for FTROP
    The authority for FTROP is Section 2653 of the Deficit Reduction 
Act of 1984 (Pub. L. 98-369) as amended by Public Law 101-508 (1990) 
and Public Law 102-589 (1992) (DEFRA). The FTROP provisions are 
codified at 31 U.S.C. 3720A, 26 U.S.C. 6402 and 26 U.S.C. 6103. As 
originally enacted in Public Law 98-369, authority for FTROP had a 
sunset clause and would have expired on January 1, 1989. That date was 
extended twice, first by Public Law 100-203 and then by Public Law 100-
485. The Emergency Unemployment Act of 1991 (Pub. L. 102-164) made the 
authority to conduct FTROP permanent. In addition, section 4(c) of the 
Food Stamp Act of 1977 provides broad authority to the Secretary of 
Agriculture to issue such regulations as the Secretary deems necessary 
or appropriate for effective and efficient administration of the Food 
Stamp Program (7 U.S.C. 2013(c)).
    The Department began testing FTROP in 1992 pursuant to a General 
Notice published August 20, 1991 at 56 FR 41325. That General Notice 
described the procedures for operating FTROP, including associated due-
process notices, appeal rights and related responsibilities of 
individuals with respect to recipient claims subject to collection 
under FTROP. The test of FTROP was conducted in conformance with 
applicable IRS regulations. The IRS initially implemented FTROP with 
temporary regulations at 26 CFR 301.6402-6T. Final IRS regulations (26 
CFR 301.6402-6) were published April 15, 1992 at 57 FR 13035.
    The test of FTROP for the FSP was continued and expanded during 
1993 and 1994. (See General Notices published August 28, 1992 at 57 FR 
39176 and August 12, 1993 at 58 FR 42937.) The policies and procedures 
contained in those Notices, modified as a result of the test of FTROP, 
are contained in this proposed rule.
    The Department notes that a final rule published January 19, 1994 
at 59 FR 2725 modified several aspects of FSP recipient claims policy 
and corrected two technical errors. Parties interested in this proposed 
rule may want to make sure that their version of FSP regulations 
incorporates the just cited rule.
2. Overview of FTROP
    a. Operations. FTROP is an optional program for State agencies. The 
first step for participating State agencies is to develop automated 
lists of FSP recipient claims which meet the criteria for claims which 
are referable for collection under FTROP. The lists are developed 
annually, are discrete from lists for other years and are identified by 
offset year. The term ``offset year'' means a calendar year during 
which offsets may be made to collect a particular group of recipient 
claims from individuals' Federal income tax refunds. The rule proposes 
at section 272.2 adding this definition of ``offset year'' to the list 
of definitions of terms for the FSP. During the year preceding the 
offset year, State agencies submit automated files of recipient claims 
to FCS which tests them for compatibility with IRS record 
specifications and refers them to the IRS. Through FCS the IRS provides 
State agencies with addresses for individuals contained in the IRS 
master file of taxpayer addresses. These activities make up the ``pre-
offset'' phase of FTROP. State agencies then use IRS-provided addresses 
to send due-process (60-day) notices to individuals. The 60-day notices 
advise individuals of the intended collection action and provide 
information on how to repay the claim voluntarily and how to appeal the 
intended action. State agencies then certify to FCS a final list of FSP 
recipient claims for offset from Federal income tax refunds. Once State 
agencies submit the certified list to the FCS, claims cannot be added 
to the list and amounts of claims on the list cannot be increased.
    At this point the offset phase begins. During the offset phase IRS 
offsets the certified claims against any tax refunds otherwise payable 
to the individual, and notifies the individual and FCS of offsets which 
have been made. Also, each week of the offset year beginning in late 
January, State agencies must provide data deleting claims and reducing 
amounts of claims on the certified file to reflect changes in the 
status of the claims due to such actions as voluntary payments from 
individuals.
    b. Reasons for the Present Rulemaking. Two factors make it 
appropriate to add FTROP as a permanent part of the FSP now. First, as 
mentioned above, Congress has provided permanent authority for FTROP. 
Second, the Department stated in the August 1991 General Notice that if 
the test indicated that FTROP was feasible and cost-effective, the 
procedures would be incorporated into FSP regulations. The Department 
believes that the test has proven FTROP feasible and cost-effective and 
a significantly effective method of collecting FSP recipient claims due 
to IHE's and IPV's. The number of State agencies participating has 
increased from two in 1992 to 21 for 1994. Eleven more State agencies 
will begin participating in 1995. With respect to costs, the Department 
estimates Federal operational costs for the 1994 calendar year, for 
example, will be less than $1 million. The Department concludes that 
FTROP has been cost effective for participating State agencies to 
operate. About 25 percent of the dollar value of claims which meet the 
criteria for collection under FTROP is being collected. For example, 
the 21 State agencies participating during offset year 1994 sent out 
60-day notices to individuals owing more than $101 million in claims. 
Through September 1994 collections totaled more than $30 million, more 
than $27.7 million from Federal income tax refunds and an additional 
$2.8 million from individuals [[Page 33614]] who paid voluntarily. For 
calendar year 1993, based on information from the Department of the 
Treasury, 38.4 percent of recipient claims submitted to the IRS were 
offset, and 28.1 percent of the dollar value of claims submitted were 
collected. Both the percentage of debt collected in whole or in part, 
and percentage of dollars collected for the FSP were the highest among 
Federal agencies participating in FTROP.
    c. Discussion of Comments on the General Notices. The August 1991 
General Notice solicited comments from the public. The Department 
responded to those comments in the August 1992 General Notice. The 
August 1992 General Notice also solicited comments from the public. Two 
comment letters were received on the August 1992 General Notice.
    One of those letters was from a State agency which suggested that 
there should be a priority for offsetting debts from tax refunds and 
that the first priority should be delinquent child support collections. 
The priorities for tax refund offsets are established by 26 U.S.C. 
6402(d)(2), and IRS regulations state them at 26 CFR 301.6402-6(g). The 
first priority for FTROP is tax liabilities owed the IRS. The second 
priority is childsupport payments assigned to a State under certain 
specified provisions of the Social Security Act. The third priority, 
which includes FSP recipient claims, is past-due, legally enforceable 
debts owed Federal agencies. The fourth priority is for child-support 
payments not assigned to a State.
    The second comment letter was from a research and action group 
concerned with nutrition and related issues. This action group made a 
series of comments on the August 1992 General Notice. The Department is 
responding to several of the action group's general comments just below 
and to comments addressing specific aspects of FTROP in pertinent 
sections of this preamble.
    The action group stated that the Department should rescind the 
August 1991 Notice until the rulemaking process could resolve the 
numerous issues which the group raised, especially relating to apparent 
inconsistencies between FTROP as tested and the Food Stamp Act of 1977, 
as amended (7 U.S.C. 2011) (the Act). The group stated that Section 
13(b)(2) of the Act (7 U.S.C 2022(b)(2)) authorizes collection of IHE 
claims through recoupment but not through alternative means such as 
FTROP, and that such alternative means apply only to IPV claims and 
claims due to State agency error. This is incorrect. Section 13 of the 
Act provides collection authorities as follows: First, subparagraph 
(b)(1)(A) requires that households pay IPV claims by agreeing to an 
allotment reduction (recoupment) or a cash repayment schedule, in lieu 
of which the claim is collected through allotment reduction. Second, 
subparagraph (b)(1)(B) provides, in principal part, that IPV claims not 
collected by recoupment or cash, may be collected through ``other means 
of collection.'' Third, subparagraph (b)(2)(A) requires that IHE claims 
be collected through recoupment. Fourth, subparagraph (b)(2)(B) 
provides that State agencies may use ``other means of collection'' for 
any claim not collected by the three preceding methods. Consequently, 
the Food Stamp Act authorizes ``other means of collection,'' for IPV 
and IHE claims.
    The group also pointed out that Section 13(b)(2)(A) of the Act sets 
a ceiling on the rate of recoupment on IHE claims at 10 percent or $10 
per month, whichever would result in a faster collection rate, but that 
with FTROP the Department has implemented a 100 percent recoupment 
rate. The statutory limitation applies to collecting overpayments by 
reducing the monthly allotments of participating households. Since 
FTROP is used to collect claims from individuals who are not 
participating in the FSP, the statutory limitation on the rate of 
recoupment does not apply to collections made under FTROP.
    The action group stated that FTROP defeats Congressional intent 
because it collects recipient claims from the Earned Income Tax Credit 
(EITC). The group pointed out that Congress has repeatedly expressed 
its support for EITC by continuing to expand its scope. The Department 
does not disagree that Congress has expanded EITC. However, since 
Congress has not enacted legislation excluding EITC from such debt 
collection through FTROP, the Department does not believe that 
collecting food stamp recipient claims from EITC's is inconsistent with 
Congressional intent.
    The action group also stated that it believed that FTROP is unduly 
punitive and causes severe hardship for poor families. The Department 
disagrees. First, recipient claims subject to FTROP were caused by the 
households themselves and are uncollected because households did not 
pay them in response to demand letters. Second, the 60-day notice (the 
due-process notice) offers individuals a second opportunity to pay in 
full or negotiate a payment schedule before claims are referred for tax 
offset. In addition, food stamp regulations at 7 CFR 273.18(g)(2)(i) 
provide that if a claim cannot be paid within three years, the State 
agency may reduce the claim to an amount that the household can pay 
within three years.
    The action group asserted that FTROP would not be cost-effective. 
In this regard, the group referred to a comment at a public meeting in 
February 1991 by an FCS official who expressed concern that the 
priority order for collection from tax refunds might adversely affect 
the cost-effectiveness of FTROP. Since the IRS does not provide Federal 
agencies information about debts which are uncollected because of a 
higher priority debt, the effect of this factor on FSP recipient claims 
referred to the IRS under FTROP cannot be determined. The priorities 
for offset from tax refunds notwithstanding, as demonstrated above, the 
test of FTROP has demonstrated that FTROP is cost-effective.
    The action group also commented that the Department lacked criteria 
for evaluating FTROP in terms of feasibility and cost-effectiveness. 
The Department disagrees. The test has fully demonstrated the 
feasibility and cost-effectiveness of the project based on increasing 
State agency participation, the large dollar volume of collections and 
the increased efficiency of FSP claims collection.
    In another general comment, the action group asserted that instead 
of focusing on collecting overissued food stamp benefits, the 
Department should focus on preventing and correcting underissuances. 
Through the Quality Control System the Department has an ongoing 
program for identifying and correcting certification and benefit 
errors. These errors cause both over and underissuance of food stamp 
benefits. In this regard, it should be noted that a certain percentage 
of the errors causing such incorrect levels of benefits results from 
households failing to accurately report their circumstances. In 
addition to the Quality Control System's efforts to reduce 
certification and benefit errors, on April 1, 1993 FCS awarded grants 
to two State agencies for special error reduction initiatives. One 
grant focuses on client-caused error, the other on State agency-caused 
error.
3. FTROP--Requirements for State agencies
    a. General Requirements. During the testing of FTROP, all 
participating State agencies were required to submit an annual 
commitment letter in which they stated they would comply with the 
requirements of the August 1991 General Notice. This rule proposes at 
section 273.18(g)(5)(i)(A) that State agencies which choose to 
implement FTROP must submit a one-time [[Page 33615]] amendment to 
their Plan of Operation stating that they will comply with the 
requirements for FTROP and salary offset. (Section D of this preamble 
explains why State agencies which implement FTROP must also implement 
salary offset.) Amendments would be due to FCS regional offices twelve 
months before the beginning of a State agency's first offset year. 
Amendments for State agencies currently participating would be due 90 
days after publication of the final rule on FTROP. (See the last 
section of this preamble, ``Effective Date.'')
    The August 1991 General Notice required State agencies to attend a 
training session on FTROP policy and procedures prior to beginning to 
test the program. The Department expects to continue to require new 
State agencies to attend such a training session but is not proposing 
to include the requirement in regulations.
    The IRS specifies what information they need for the various tasks 
required to match FSP recipient claims to Federal income tax return 
information, to effect offsets, and for reporting and accounting 
functions. The IRS also sets schedules for submission of data to them 
and for the various reports which they produce and distribute. These 
instructions and schedules are contained in the annually revised IRS 
Revenue Procedure, ``Magnetic Media Reporting for Federal Income Tax 
Refund Offset Program (Debtor Master File).'' FCS conducts field edits 
to assure that data which State agencies submit conform to IRS formats, 
and FCS works with State agencies to correct problems which would 
result in data being rejected by the IRS. State agency data and format 
problems sometimes require that State agencies resubmit data. For 
example, magnetic tapes must be preceded by a specific Job Control 
Language (JCL). If the JCL is incorrect, the State agency may have to 
produce another tape. On the other hand, FCS is able to correct some 
problems without requiring a second submission. For example, if Social 
Security Numbers (SSN's) are not correctly justified in the data field, 
FCS may be able to shift them to their correct position. The problems 
which FCS can correct are limited, however, and State agencies have the 
primary responsibility for detecting and correcting data and format 
errors prior to submitting recipient claim files to FCS. Since data 
submitted to the IRS must be correctly formatted, FCS will not submit 
data from a State agency to the IRS until the State agency's data 
conforms to IRS format requirements. Consequently, this rule proposes 
at section 273.18(g)(5)(i)(B) that State agencies must submit data 
according to the record formats specified by FCS and/or the IRS.
    This rule also proposes at section 273.18(g)(5)(i)(B) that State 
agencies submit data according to schedules provided by FCS. State 
agencies need to submit files early enough to allow sufficient time for 
transmittal to FCS, for FCS to conduct field edits and to consolidate 
State agency submissions, and for FCS to mail files to IRS to meet IRS 
deadlines. FCS will provide State agencies each year a schedule for 
State agency data submissions to FCS. This schedule will also include 
other FTROP due dates so that State agencies have one source as a 
reference for meeting the various FTROP deadlines.
    IRS currently requires that FCS provide data to IRS on magnetic 
tape. During the early testing of FTROP, State agencies submitted their 
data to FCS on magnetic tape. Managing tape submissions for the number 
of State agencies currently participating has proven inefficient. 
Consequently, during January 1994 FCS began implementing electronic 
data transmission. To provide for this technology and for future 
improvements in this area, this rule proposes at section 
273.18(g)(5)(i)(B) that State agencies must submit data by means of 
magnetic tape, electronic data transmission or other method specified 
by FCS.
    b. Claims Referable for Offset. The provisions of DEFRA codified at 
31 U.S.C. 3720A(b) and IRS regulations at 26 CFR 301.6402-6(c) specify 
criteria for debts which can be referred for offset from Federal income 
tax refunds. The August 1991 General Notice included those criteria as 
well as additional criteria required for the FSP. This rule proposes at 
section 273.18(g)(5)(ii) to include substantially the same criteria, 
the most general of which is specified by DEFRA: All claims submitted 
for tax offset must be past-due and legally enforceable. The rule then 
proposes a number of specific criteria for determining claims past-due 
and legally enforceable. Only recipient claims which meet those 
criteria may be referred for collection under FTROP.
    General Criteria: For purposes of testing FTROP, the Department 
chose to limit FTROP to IHE and IPV claims. This rule proposes that 
same limitation at section 273.18(g)(5)(ii)(A). The August 1991 General 
Notice further specified in paragraph b(1) that these claims had to be 
``properly established'' as required by FSP regulations. This rule 
expands the statement of that requirement by referencing at section 
273.18(g)(5)(ii)(A)(1) current rules on recipient claims and 
disqualification hearings for IPV's. The Department also wants to make 
clear that State agencies must have documentation that the claims they 
submit for collection under FTROP are properly established. 
Consequently, this rule proposes at section 273.18(g)(5)(ii)(A)(2) that 
State agencies must have such documentation on claims which they refer 
under FTROP. Specifically such documentation would include such items 
as electronic records and/or paper copies of claim demand letters, 
results of fair hearings, advance notices of disqualification hearings, 
results of such hearings, and records of payments. In this context an 
electronic record would be such items as dates of demand letters and 
the formats of such letters.
    The Three-Month Delinquency Period: Temporary IRS regulations at 26 
CFR 301.6402-6T(b)(2) provided that referable debts must be delinquent 
at least three months at the time the offset is made. The August 1991 
General Notice in paragraph b(3) provided that for purposes of FTROP 
recipient claims must be delinquent at least three months as of the 
date the State agency certified its final files to FCS. That date is 
usually in early December. Further in this regard, the August 1991 
General Notice specified in paragraphs b(3)(i) and (ii) that a claim 
could not be considered delinquent for purposes of FTROP if either: (1) 
the State agency was responding to a request for a fair hearing which 
was made within the 90 days following the initial demand letter; or (2) 
the time allowed for responding to the initial demand letter had not 
elapsed. Final IRS regulations at 26 CFR 301.6402-6 do not include an 
explicit three-month minimum delinquency nor do those regulations use 
the term ``delinquency.'' The preamble to the final IRS rule states 
that a three month minimum delinquency is ensured because of the 
various notices and actions that must occur prior to referring debts 
under FTROP.
    During the test of FTROP, State agencies raised questions about the 
criteria for ``delinquency'' of claims for FTROP purposes. These 
questions were answered with specific discussion of such considerations 
as whether payments were being regularly made. This rule incorporates 
policy developed in response to those questions and does not use the 
terms ``delinquent'' or ``delinquency'' with respect to determining 
whether a recipient claim may be referred for collection under FTROP. 
If a claim meets the criteria for being past due and legally 
enforceable as proposed in this rule, the claim would be subject to 
FTROP. [[Page 33616]] 
    The Department wants to make clear that claims may not be 
considered past due and legally enforceable until individuals have been 
provided the opportunity to respond to demand letters as required in 
current food stamp rules. Current FSP regulations at 7 CFR 
273.18(d)(4)(iii) state that if any nonparticipating household does not 
respond to the first demand letter for repayment of a recipient claim, 
additional demand letters must be sent at reasonable intervals, such as 
30 days, until: (1) The household repays the claim or agrees to repay 
it; (2) collection action can be suspended; or (3) the State agency 
initiates other collection actions (emphasis added). Consequently, at 
section 273.18(g)(5)(ii)(A)(1) this rule would refer to that FSP 
regulation and the requirement to provide additional demand letters 
prior to initiating other collection actions. This criterion would 
replace the criteria stated in paragraphs b(3)(i) and (ii) of the 1991 
General Notice.
    The action group several times expressed concern that FTROP 
procedures specified in the August 1991 General Notice did not require 
that State agencies establish that all other collection had stopped 
before acting on a claim under FTROP. In the following paragraphs this 
preamble discusses the criteria for determining whether or not a claim 
is referable under FTROP and in later sections discusses the content of 
the 60-day notice. The Department believes that these discussions and 
the corresponding parts of this proposed rule should make clear both to 
State agencies and to individuals receiving those 60-day notices that 
claims are not referable under FTROP if they are being regularly 
repaid. The Department also addresses this concern by proposing 
policies on verifying that no liable individual is currently 
participating in the FSP in the State and on apportioning claims among 
individuals who are jointly and severally liable for the claims.
    Section 13(a)(2) of the Act and FSP regulations at 7 CFR 273.18(a) 
specify that all adult members of the household are jointly and 
severally liable for any overissuance of benefits to the household. In 
addition, the regulations require that State agencies establish claims 
against any household which contains an adult member who was an adult 
member of another household which received an overissuance. The 
Department wants State agencies to take steps to collect FSP recipient 
claims from households to the maximum extent. On the other hand, as 
already discussed, both IHE and IPV claims must be recouped from 
monthly allotments of participating households with members who are 
liable for recipient claims. Consequently, this rule proposes at 
section 273.18(g)(5)(ii)(B) that claims are referable for collection 
through FTROP for which the State agency has verified that no 
individual participating in the FSP in the State is jointly and 
severally liable as specified in section 273.18(a).
    The IRS regulations at 26 CFR 301.6402-6(c)(7) set a $25 minimum 
for claims which can be referred for tax offset. The August 1991 
General Notice applied the $25 minimum during the test of FTROP, and 
this rule would apply the same minimum. To avoid the need to change FSP 
regulations should the IRS change the minimum dollar amount for claims 
which can be referred under FTROP, this rule proposes at section 
273.18(g)(5)(ii)(C) that State agencies may submit only claims in 
dollar amounts which are at least the minimum dollar amount set by the 
IRS. FCS will advise State agencies if that amount changes from $25.
    The 10-Year Limit: Temporary IRS regulations at 26 CFR 301.6402-
6T(b)(2) provided, in part, that debts could only be referred if they 
were not delinquent for more than 10 years at the time the offset was 
made except for judgment debts, which were not subject to this 10-year 
limitation. The August 1991 General Notice in paragraph b(3) provided, 
in part, that except for claims reduced to final court judgments, 
recipient claims could be delinquent for no more than nine years, 11 
months as of the date State agencies certified their final file of 
claims to FCS. Final IRS regulations at 26 CFR 301.6402-6(c)(1) specify 
that except for judgment debts or debts specifically exempt from the 
requirement (such as certain debts referred by the Department of 
Education), claims may be referred under FTROP if they are referred 
within 10 years after the (Federal) agency's right of action accrues 
(emphasis added).
    In the preamble to their final regulation on FTROP, the IRS states 
that only the Federal agency referring the debt for offset is in a 
position to determine when its right of action to collect a particular 
debt accrues. The Department considers that its right of action to 
collect a recipient claim under FTROP accrues on the date of the 
initial demand letter. The IRS accepts certified FTROP files no later 
than about January 4 of each offset year. This date is the date claims 
are considered referred to the IRS and the date from which the 10-year 
period is measured in order to determine if the right of action on a 
particular recipient claim accrued within that period. To assure that 
recipient claims referred for tax offset fall within the IRS 10-year 
time frame and to provide State agencies a date which remains unchanged 
year to year, this rule proposes at section 273.18(g)(5)(ii)(D) that, 
except for claims reduced to final court judgments ordering individuals 
to pay the debt, FSP recipient claims may be submitted for tax offset 
only if the date of the initial demand letter is within 10 years of 
January 31 of the applicable offset year.
    The August 1991 General Notice provided in paragraph b(3)(iii) that 
a claim was not delinquent if the household was making payments 
pursuant to an agreed upon schedule of payments as provided in 7 CFR 
273.18(g)(2). This rule proposes at section 273.18(g)(5)(ii)(A)(5) that 
claims are past due and legally enforceable if the State agency is 
neither receiving voluntary payments pursuant to an agreed upon 
schedule of payments as provided in current FSP regulations at 7 CFR 
273.18(g)(2) nor is receiving scheduled, involuntary payments such as 
wage garnishment. The Department proposes to add the second criterion 
because, as in the case of voluntary payment under an agreement with 
the State agency, the claim is being repaid regularly. Consequently, 
the claim should not be referred for collection under FTROP. The rule 
further proposes to specify that claims for which the State agency has 
received such payments are considered past-due and legally enforceable 
under FTROP 30 days after the due date for a regular payment which is 
not received.
    Bankruptcy: As a condition of participating in FTROP, the IRS 
requires that Federal agencies annually sign a Memorandum of 
Understanding (MOU) which specifies the respective rights and 
responsibilities of the Department and the IRS. The MOU specifies that 
the (Federal) agency must certify to the IRS that collection on claims 
referred under FTROP is not limited by a bankruptcy filing. The August 
1991 General Notice in paragraph b(5) applied this provision to State 
agencies. This rule proposes the same provision at section 
273.18(g)(5)(ii)(A)(6). This subject matter is discussed in greater 
detail later in this preamble.
    Notifications: The August 1991 General Notice specified in 
paragraph b(6), that State agencies could refer only those claims for 
which they had complied with all of the required FSP notification and 
review rights explained therein. This rule proposes the same 
requirement at section 273.18(g)(5)(ii)(A)(7). [[Page 33617]] 
    In addition to these criteria, other criteria must be applied to 
determine if other recipient claims are past due and legally 
enforceable.
    Other Collection Efforts: Many State agencies collect FSP recipient 
claims from refunds due individuals from overpayments of State income 
tax and other sources. The Department is concerned about over 
collections of claims referred for collection from State tax refunds 
for the same period they are subject to offset under FTROP. To avoid 
such over collections, the consequent temporary loss of funds to 
individuals and the need for State agencies to make refunds, this rule 
proposes at section 273.18(g)(5)(ii)(B)(1) that claims referred under 
FTROP must be reduced by any amounts referred for collection from State 
income tax refunds or from other sources which may result in 
collections during the offset year.
    Combined Claims: During the test of FTROP, State agencies were 
allowed to combine two or more claims against an individual and to 
submit them as one claim. This rule at section (g)(5)(ii)(B)(2) would 
require that the date of the initial demand letter for each of the 
claims so combined be within the 10-year period specified in section 
273.18(g)(5)(ii)(A)(4). The IRS requires that debts reduced to judgment 
be identified when they are submitted for offset. Consequently, 
judgment debts cannot be combined with claims which are not reduced to 
judgment. Accordingly, this rule would prohibit such combinations.
    Split Claims: As discussed above, 7 CFR 273.18(a) provides that all 
adult household members are jointly and severally liable for recipient 
claims. In addition, 7 CFR 273.18(f), explicitly authorizes State 
agencies to attempt to collect claims from any household which contains 
an adult member of a household which received an overissuance. The 1991 
General Notice in paragraph b(4) provided that claims could be 
submitted under FTROP for only one individual or in cases where more 
than one individual was jointly and severally liable for the claim 
pursuant to 7 CFR 273.18(a) and (f), the full amount of the claim could 
be apportioned between two or more liable individuals as long as the 
sum of the amounts submitted for all liable individuals did not exceed 
the total amount of the claim. The Department believes that it is 
unnecessary to state in the regulation that a claim for one individual 
is referable under FTROP. Consequently, this rule provides at section 
273.18(g)(5)(ii)(B)(3) that claims may be referred under FTROP which 
are apportioned between two or more individuals who are jointly and 
severally liable for the claim pursuant to section 273.18(a) and 
section 273.18(f) on the condition that the total of the amounts 
submitted under FTROP for a particular claim do not exceed the amount 
of the claim.
    Credit Bureau Reporting: Finally with regard to the criteria for 
determining claims referable under FTROP, the IRS at 26 CFR 301.6402-
6(c)(6) specifies that, with certain exceptions, debts may not be 
referred unless they have been disclosed to a consumer reporting 
agency. In a letter to FCS dated March 25, 1991 the IRS waived this 
requirement for the FSP on the basis of the disclosure limitations in 
Section 11(e)(8) of the Act (7 U.S.C. 2020(e)(8)). Consequently, food 
stamp recipient claims are not referred to consumer reporting agencies 
as part of FTROP.
    c. 60-Day Notice to Individuals. As codified at 31 U.S.C. 3720A(b), 
DEFRA requires that prior to referring a debt to the IRS for collection 
from Federal income tax refunds, a Federal agency must notify the 
person incurring such debt that the agency proposes to take such action 
and give the person at least 60 days to present evidence that all or 
part of the debt is not past-due or not legally enforceable. The August 
1991 General Notice in paragraph c(1) required State agencies to 
provide this notice and required that it contain the information 
specified in paragraph d. of the General Notice. Accordingly, this rule 
proposes at section 273.18(g)(5)(iii)(A) that, prior to referring 
claims for collection under FTROP, the State agency provide individuals 
from whom it seeks to collect such claims with a notice, called a 60-
day notice.
    Required Information: Because of the importance of complying with 
the due process provisions of DEFRA, this rule proposes at section 
273.18(g)(5)(iii)(B) that, with the exception of such State-specific 
information as names and positions and information required for 
contacts, a State agency's 60-day notice shall contain only the 
information specified in paragraph 273.18(g)(5)(iv) for the 60-day 
notice. Furthermore, the rule proposes that in the certification 
letters which must be submitted with final files of claims as stated in 
paragraph 273.18(g)(5)(vii), State agencies must include a statement 
that their 60-day notices conform to this requirement. State agencies 
which need to deviate from the required content of the 60-day notice 
would need to obtain FCS approval for a waiver to allow the deviation. 
FCS will provide State agencies with a format for the 60-day notice. 
The Department believes that this is consistent with Section 11(d) of 
the Act which prohibits the Secretary, as part of the approval process 
for a plan of operation, from requiring a State agency to submit for 
prior approval by the Secretary forms it will use to carry out the FSP.
    The action group commented that the 60-day notice is likely to be 
confusing because several provisions are in technical language which 
many food stamp households may not possess sufficient reading skills to 
comprehend. The Department is aware that regulatory language can be 
technical, and this awareness was, in large part, why the August 1991 
General Notice required State agencies to follow the format for the 60-
day letter which FCS provided and why this rule proposes a similar 
requirement. In this regard, the action group also expressed concern 
about automated forms or forms printed in small type. The Department 
has received no complaints about such matters during the test but will 
monitor 60-day notices for legibility and will request State agency 
corrective action as necessary.
    The August 1991 General Notice required in paragraph c(3) that 
State agencies mail 60-day notices no later than the date specified in 
operational guidelines issued by FCS for the particular offset year. 
October 1 was the specified deadline for mailing 60-day notices during 
the test of FTROP. This rule proposes at Sec. 273.18(g)(5)(iii)(C) 
that, unless otherwise notified by FCS, the State agency must mail 60-
day notices for claims to be referred for collection through FTROP no 
later than October 1 preceding the offset year during which the claims 
would be offset.
    Addresses for 60-Day Notices: IRS regulations at 26 CFR 301.6402-
6(c)(4) require that agencies participating in FTROP provide the 
debtor, or make a reasonable effort to provide the debtor with the 
required notice. IRS regulations at 26 CFR 301.6402-6(d)(1) state that 
use of the most recent address for the debtor provided by the IRS 
constitutes a reasonable effort to notify the individual about the 
intended referral for offset. The IRS provides such address information 
to State agencies during the annual pre-offset cycle. The last cited 
provision of the IRS regulations also states that the IRS-provided 
address must be used unless the State agency receives clear and concise 
notification from the taxpayer that notices from the agency are to be 
sent to an address different from the address obtained from the IRS. 
The IRS regulation provides that such clear and concise notification 
means that the [[Page 33618]] taxpayer has provided the [State] agency 
with written notification including the taxpayer's name and identifying 
number (which is generally an SSN), the taxpayer's new address, and the 
taxpayer's intent to have agency notices sent to the new address. This 
rule proposes at section 273.18(g)(5)(iii)(D) to include requirements 
on addresses for 60-day notices which are consistent with these IRS 
regulations.
    During the test of FTROP several State agencies asked whether 
claims for which 60-day notices were returned as undeliverable for such 
reasons as ``forwarding address unknown,'' could be referred for 
collection. To clarify this matter, this rule proposes at 
Sec. 273.18(g)(5)(iii)(D) that claims for which 60-day notices 
addressed as required in that paragraph are returned as undeliverable 
should be referred for collection.
    Finally in regard to addresses for 60-day notices, the August 1991 
General Notice provided in paragraph c(4) that the 60-day notice could 
also be mailed to addresses from State agency files if the State agency 
believed that such addresses in its files were better than ones 
provided by the IRS. This policy caused confusion during the test. Some 
State agencies thought that if the 60-day notice sent to the IRS-
provided address was returned, the claim could not be submitted under 
FTROP unless a second 60-day notice was sent. In view of this problem 
and the fact that the final IRS regulation requires the use of the IRS 
address unless the debtor has specifically requested that another 
address be used, this provision is not included in this proposed rule.
    d. Contents of the 60-Day Notice. This rule proposes several 
changes in the content of the 60-day notice from that used during the 
test of FTROP. Among other things, these changes would provide 
individuals with more information about their liability for the claim, 
clarify the scope of individuals' right to have the intended collection 
action reviewed, and advise individuals about documents for showing 
that a claim is not past-due or legally enforceable.
    Facts of the Claim; Authority for FTROP: The August 1991 General 
Notice required in paragraph d(1) that the 60-day notice first inform 
individuals that State agency records document that the individual, 
identified with his or her SSN, is liable for a specified, unpaid 
balance of a claim for overissued food stamp benefits, that the State 
agency previously notified the individual about the claim, made the 
required collection efforts, and that the claim is past-due and legally 
enforceable. To make clear that the claim was properly established, the 
August 1991 Notice also required that the 60-day notice state that 
State agency records documented the claim. The individual's SSN was 
required to help assure that the 60-day notice was sent to the correct 
individual. The information on the amount of the claim was required to 
comply with the IRS requirement at 26 CFR 301.6402-6T(b)(5) that the 
60-day notice inform the debtor of the amount of the debt and that it 
was determined past-due and legally enforceable. The statement about 
previous notification and collection efforts was required to comply 
with the DEFRA requirement at 31 U.S.C. 3720A(b)(4) that agencies 
participating in FTROP satisfy the Secretary of the Treasury that they 
have made reasonable efforts to obtain payment of the debt (prior to 
referring it for collection through tax offset).
    The August 1991 General Notice required in paragraph d(2) that the 
60-day notice inform the individual that DEFRA authorizes the IRS to 
deduct debts (such as claims for overissued food stamp benefits) from 
tax refunds and that the State agency intends to refer the claim for 
such deduction unless the individual pays the claim within 60 days or 
makes other repayment arrangements acceptable to the State agency. As 
noted in the preceding section of this preamble, DEFRA contains these 
requirements at 31 U.S.C. 3720A(b).
    This rule at Secs. sections 273.18(g)(5)(iv) (A) and (B) would 
reorganize these statements and make some minor modifications in 
language, in particular to accommodate the proposed requirement that 
60-day notices conform to the language specified in this rule. As did 
the 60-day notice used during the test of FTROP, the 60-day notice 
proposed here would first state that the State agency has records 
documenting that the individual, identified by name and SSN, is liable 
for the unpaid balance of the recipient claim(s) resulting from 
overissued food stamp benefits the State agency intends to refer for 
offset.
    The 60-day notice would then state that the State agency has 
previously mailed or otherwise delivered demand letters notifying the 
individual about the claim, including the right to a fair hearing on 
the claim, and has made any other required collection efforts. The 
clause ``previously mailed or otherwise delivered'' would be used in 
the 60-day notice in order to be consistent with the recent revision of 
7 CFR 273.18(d)(4) cited at the end of section B(1) of this preamble. 
The reference to the notice of the right to a fair hearing on the claim 
would serve as a reminder to the individual that the opportunity for a 
fair hearing has already been provided. The Department wants to include 
that reminder to help individuals understand why, as discussed below, 
the 60-day notice offers an opportunity for a review of whether the 
claim is referable, not an opportunity for a fair hearing.
    This proposed rule would require at section 273.18(g)(5)(iv)(B) 
that the 60-day notice state that the Deficit Reduction Act of 1984, as 
amended by the Emergency Unemployment Compensation Act of 1991, 
authorizes the IRS to deduct such debts from tax refunds if they are 
past due and legally enforceable. The 60-day notice would then state 
that: (1) The State agency has determined that the debt is past due and 
legally enforceable according to the criteria specified by the Deficit 
Reduction Act of 1984, the IRS regulations and the Food Stamp Program 
(FSP) regulations; and (2) the State agency intends to refer the claim 
for deduction from the individual's Federal income tax refund unless 
the individual pays the claim within 60 days of the date of the notice 
or makes other repayment arrangements acceptable to the State agency.
    Offset Fee: During the test of FTROP, the Department of the 
Treasury (Treasury) charged Federal agencies participating in FTROP a 
fee for each offset to cover Treasury's administrative costs for FTROP 
operations. For example, the fee for offset year 1995 is $8.79. 
Treasury plans to continue this practice. Treasury assesses the offset 
fee whether the offset satisfies all or only part of the debt. During 
the test of FTROP (including 1995), these fees were treated as 
allowable costs for the State agency. This has meant that State 
agencies and FCS each paid for half of each fee. For example, assuming 
a $100 claim and an $8 fee, if the IRS offset $100 from a tax return 
either because that was the amount of the recipient claim referred or 
because that was all the refund available for offset, the IRS would 
keep $8 and send FCS $92. FCS would report a $100 offset to the State 
agency which would credit that amount against the balance of the 
recipient claim. FCS would also report the $8 offset fee to the State 
agency which would claim 50 percent of that fee, or $4, as a 
reimbursable cost from FCS. The fees are costs which can be avoided if 
individuals pay their claims voluntarily in response to 60-day notices. 
Consequently, at Sec. 273.18(g)(5)(iv)(C) this rule proposes that the 
60-day notice state that if a [[Page 33619]] claim is referred to the 
IRS, a charge for the administrative cost of collection will be added 
to the amount of the claim and any amount deducted from the tax refund 
will first be applied to pay the charge, with the balance applied to 
the claim, as explained further.
    Under this proposal, in the case of a $100 claim and an $8 offset 
fee, a debt of $108 would be referred to the IRS. If that amount were 
available for offset, the IRS would keep $8 and send $100 to FCS who 
would transfer $100 to the State agency for credit against the claim. 
On the other hand, if only $50 were available for offset, the IRS would 
keep $8 and $42 would be credited against the claim. A balance of $58 
would remain.
    The 60-day notice would not cite the exact amount of the charge 
because during the test the IRS notified FCS of the amount of the 
offset fee during November, too late for the exact amount to be 
provided State agencies prior to the October 1 mailing of the 60-day 
notices. FCS plans to add the exact amount of the fee to each recipient 
claim submitted by State agencies in their certified files in early 
December. FCS would advise State agencies of the amount of the fee, but 
the fee must not be added to the amount of the claim as maintained in 
State agency food stamp case records. The State agency would ultimately 
advise the individual of the amount offset, including how much of the 
offset was applied to the fee and how much to the claim itself.
    Joint and Several Liability: During the test of FTROP it was clear 
that the household composition of many individuals liable for claims 
subject to FTROP had changed and that some individuals did not 
understand that they were liable for the overissuances. Consequently, 
this rule proposes to require at Sec. 273.18(g)(5)(iv)(D) that the 60-
day notice advise individuals that all adults who are household members 
when excess food stamp benefits are issued to the household are jointly 
and severally liable for the value of those benefits, and that 
collection of claims for such benefits may be pursued against those 
individuals.
    Action Group Comments: The action group made two comments which 
pertain to these initial statements in the 60-day notice. First, the 
group commented that the appeal process is defective because the 
individual is not given an opportunity to acknowledge that, while a 
debt is owed, it should not be collected through FTROP. The group cited 
the example of an individual who has entered into a repayment agreement 
with a State agency to repay a debt which the State agency in error 
refers under FTROP. The August 1991 Notice stated in paragraph 
b(3)(iii) that claims being repaid are not delinquent and so are not 
referable. This rule proposes that same information be given to 
individuals in the 60-day notice in two places. First, the rule would 
require at Sec. 273.18(g)(5)(iv)(D) that the 60-day notice advise 
households that State agency records do not show that the debt is being 
repaid according to either a voluntary agreement with the State agency 
or through scheduled, involuntary payments. Second, as discussed below, 
the 60-day notice would state that evidence that a claim is being 
repaid is one type of evidence showing that a claim is not past due. 
The action group also commented that the individual is never informed 
that collection efforts concurrent with FTROP are not permissible and 
are grounds for appeal. The Department believes that the just discussed 
revisions to the language in the 60-day notice should make that point 
clear.
    Also with regard to the initial statements in the 60-day notice, 
the action group commented that the 60-day notice as tested does not 
provide an opportunity for a hearing before the refund is seized 
because the notice does not state a definite intent to seize the 
refund. The action group went on to assert that this deficiency means 
that the FTROP procedures do not comply with due-process mandates and 
that the FTROP procedures should be withdrawn. The 60-day notice does 
state an intent to offset the debt against income tax refunds, and the 
notice fully complies with the requirements of DEFRA which provides, in 
part, that debts may not be referred to the Secretary of the Treasury 
for collection from income tax refunds until the Federal agency owed 
the debts notifies the debtors that the agency proposes to make such 
referral and provides the debtors 60 days to present evidence that all 
or part of the debt is not past-due or not legally enforceable 
(emphasis added). Of course, as the action group states, at the time of 
the 60-day notice it is not known whether or not there will be a tax 
refund available for collection. Based on experience during the test of 
FTROP, there is no confusion on the part of individuals about this 
matter. Immediately after 60-day notices are mailed, State agencies 
begin receiving telephone calls about the claims and the intended 
referral for offset, and individuals do file appeals.
    State Agency Contact: The August 1991 General Notice required in 
paragraph d(3) that the 60-day notice include instructions about how to 
pay the claim, including the name, address and telephone number of a 
State agency contact able to discuss the claim and the intended offset 
with the individual. Such information is needed so that individuals 
will know how to contact the State agency and where to send payments. 
During the test of FTROP several State agencies raised concerns about 
personal safety because of the requirement to provide a name of an 
individual and/or the street address in the 60-day notice. In view of 
this concern, this rule proposes to require at Sec. 273.18(g)(5)(iv)(E) 
that the 60-day notice provide the name of an office, administrative 
unit and/or individual, street address or post office box, and 
telephone number for the contact. The 1991 General Notice did not 
specify that the telephone number for the State agency contact must be 
toll-free or collect. In its publication ``Guidelines for the Federal 
Tax Refunds Offset Program'' (August 1992), Treasury requires such a 
telephone number on the 60-day notice. Accordingly, this rule would 
specify that requirement (at Sec. 273.18(g)(5)(iv)(E)).
    Requests for Review: The August 1991 General Notice required in 
paragraph d(4) that the 60-day notice inform the individual of six 
factors about appealing the intended collection action. Most of these 
factors are based on the requirements of DEFRA. This rule proposes to 
require that the 60-day notice address the same factors, modifying them 
based on experience during the test of FTROP.
    The first such modification is the replacement of the term 
``appeal'' with the phrase ``request a review'' or ``review request.'' 
The rule proposes this change for two reasons. First, State agencies 
observed that the use of the word ``appeal'' in the 60-day notice gave 
individuals the impression that they were being offered the right to a 
full-fledged review of all aspects of the claim. Second, during the 
test of FTROP, several State agencies requested approval of 60-day 
notices which would offer debtors an opportunity for a fair hearing on 
the claim itself even though such an opportunity was provided with the 
initial demand letter. A second opportunity for a fair hearing may be 
appropriate in certain circumstances, but the Department does not 
believe that collection of a recipient claim through FTROP is such a 
circumstance. FTROP is one of several types of ``other means of 
collection'' for which 7 CFR 273.18(d)(4)(iv) provides authority, and 
State agencies do not offer a second fair hearing opportunity before 
initiating other collection actions such as small claims court 
proceedings or referral to a collection agency. The proposed 
[[Page 33620]] rephrasing should help clarify that an individual's 
``appeal'' right is limited. For additional clarity, the rule proposes 
using the word ``collection'' instead of ``offset.'' Accordingly, 
Sec. 273.18(g)(5)(iv)(F) would require that the 60-day notice advise 
individuals that they have a right to request a review of the intended 
collection action.
    The August 1991 General Notice required in paragraphs d(4)(iii) and 
(iv) that the 60-day notice state that claims that have been appealed 
(for which timely reviews have been requested) will not be referred for 
offset while under review, and that individuals must provide their 
SSN's with their appeals (review requests). The rule would make these 
same requirements at Sec. 273.18(g)(5)(iv)(F). At that same place the 
rule would require that the review request be written because during 
the test of FTROP State agencies asked whether they had to review 
claims based on telephone inquiries. The Department wants to make clear 
to debtors and State agencies that an oral request, such as an inquiry 
made over the telephone, does not constitute a review request.
    In this regard, the action group commented that the opportunity to 
appeal provided by the 60-day notice was not meaningful because, 
whereas recipients are accustomed to working with food stamp offices, 
the opposing party in this instance is the IRS. Requests for review are 
made to State agencies and FCS, not the IRS. Only requests to protect 
the tax refund of a non- liable spouse should be directed to the IRS, 
as discussed in detail below. During the test there were few reports 
from the IRS that individuals were contacting IRS offices instead of 
State agencies about appealing the intended collection from tax 
refunds. Nonetheless, to help make clear that appeals are directed to 
the State agency, this rule proposes at Sec. 273.18(g)(5)(iv)(F) that 
the 60-day notice specify that requests for review be submitted to the 
State agency address provided in the notice. Requests for review will 
generally be submitted by mail, but the rule does not propose to 
require this. Individuals could provide the written requests in person.
    DEFRA provides that individuals must be given 60 days to show a 
debt is not subject to FTROP. The August 1991 General Notice required 
in paragraph d(4)(ii) that the 60-day notice state that the State 
agency will not review appeals which it receives later than 60 days 
after the date of the 60-day notice. The provision was intended: (1) To 
make as clear as possible to individuals that the 60-day appeal period 
would be strictly adhered to; and (2) to relieve State agencies of the 
responsibility for reviewing appeals received after that period 
expires. This rule proposes at Sec. 273.18(g)(5)(iv)(F) that the 60-day 
notice advise individuals that their request for review must be 
received with 60 days of the date of the 60-day notice. During the test 
of FTROP, after the 60-day period State agencies sometimes received 
documentation, for example, that the claim was paid. In such 
circumstances, as required by current food stamp regulations when an 
over collection is discovered, the State agencies were required to 
refund the over collection. Consistent with current food stamp 
regulations on refunding over collections of recipient claims, if after 
the 60-day notice an individual documents or otherwise demonstrates 
that the claim is not past due or legally enforceable, and the claim 
has already been collected from the individual's tax refund, the amount 
collected on the claim will be refunded.
    Bankruptcy: The August 1991 General Notice required in paragraph 
d(5) that the 60-day notice advise individuals that they should inform 
the State agency if they believed that a bankruptcy prevents collection 
of the claim. During the test of FTROP several State agencies asked 
what documentation of bankruptcy was required. Bankruptcy law forbids 
requiring documentation of bankruptcy. This rule proposes at 
Sec. 273.18(g)(5)(iv)(G) to restate the requirement that a claim is not 
legally enforceable if the individual indicates that a bankruptcy 
prevents collection of the claim.
    Tax Refunds of Non-liable Spouses: The August 1991 General Notice 
required in paragraph d(6) that 60-day notices state that married 
individuals may want to contact the IRS in order to protect the refund 
in cases where spouses are not liable for the claim. This rule proposes 
this same requirement at Sec. 273.18(g)(5)(iv)(H). That section would 
also inform the individual that his or her own liability for this 
claim, including any charge for administrative costs, may be collected 
from his or her share of a joint refund. The Department wants to make 
clear that the protection for a non-liable spouse's share of a tax 
refund against collection by tax refund offset does not extend to the 
liable spouse's share of the tax refund.
    Documenting a Claim is ``Not Referable'': The August 1991 General 
Notice stated in paragraph d(4)(iv) that an appeal must provide 
evidence or documentation why the individual believes that the claim is 
not past-due or is not legally enforceable, and in paragraph d(4)(v) 
that an appeal is not considered received until the State agency 
receives such evidence or documentation. During the test of FTROP, 
State agencies asked whether they were required to review requests 
which did not contain any pertinent documentation. The Department 
believes that all timely, written review requests warrant consideration 
and a written response, as discussed later in connection with State 
agency action on review requests. The Department also wants to make 
clear to individuals that certain documentation is necessary to show 
that a claim is not subject to FTROP. Accordingly, this rule proposes 
at Sec. 273.18(g)(5)(iv)(I) that 60-day notices inform individuals that 
if they request a review of the intent to collect the claim from their 
income tax refund, they should provide documentation showing at least 
one reason why the claim is not subject to FTROP and that if they 
cannot, for example, provide a cancelled check, they should explain in 
detail why they believe that the claim is not collectible under FTROP. 
This should allow individuals wide latitude to explain the particular 
circumstances of the claim and still require that they show some basis 
for why the claim is not past due and legally enforceable. The 60-day 
notice would be required at Secs. 273.18(g)(5)(iv)(J) and (K) to list 
the reasons the claim is subject to collection under FTROP.
    In the first two weeks after mailing out 60-day notices, State 
agencies typically receive a large number of telephone calls from 
individuals asking questions about the recipient claims and the 
intended collection action described in the notices. Many of these 
callers assert that they are not liable for the claim. The Department 
believes that providing individuals information in the 60-day notice 
about why their claims are subject to collection under FTROP will allow 
informal inquiries to be handled quickly and may reduce the number of 
such inquiries. This information should also help individuals decide 
what information they need to provide in order to substantiate that, 
for example, they have paid the claim or that the claim has been 
discharged in bankruptcy.
    The action group made several comments concerning the requirements 
for documenting that a claim is not past due or is not legally 
enforceable. The group stated that the 10-year time limit for 
delinquent claims to be referable for tax offset results in an undue 
burden for documentation on low-income households and recommended that 
the Department shorten that period. On this matter the action group 
also commented that some households may have [[Page 33621]] difficulty 
documenting that no debt is owed. To the same effect, the action group 
commented that recipients may not have evidence to rebut the intended 
collection action or the claim itself. They cited the example of a 
household member alleged to have had unreported earnings (which would 
have resulted in an overissuance) who is unavailable when the 60-day 
notice is received. The Department recognizes that recordkeeping for 
low-income households may be relatively difficult, especially perhaps, 
as the action group remarks, because low-income households may move 
relatively often and may have relatively limited resources to devote to 
household recordkeeping. The Department does not believe that 
shortening the 10-year period would address this difficulty. The 
Department believes that it must require a minimum level of 
documentation that a claim is not past due or is not legally 
enforceable and that the proposed rule states that minimum level. With 
respect to rebutting the claim itself, since only IHE and IPV claims 
which are properly established are subject to FTROP, the household has 
already been offered an opportunity to rebut the claim itself in fair 
hearings or administrative disqualification hearings.
    The action group also commented that in other contexts households 
present evidence and the State agency has the burden of defending its 
actions. The Department understands that by ``other contexts'' the 
action group is referring to fair hearing and disqualification hearing 
procedures. As just discussed, those procedures are part of the process 
of establishing a claim. Once a claim is established, due process 
requires permitting the individual an opportunity to establish that the 
claim is not past due or legally enforceable (is not subject to 
collection under FTROP). Due process does not require permitting a 
second opportunity to challenge the substantive basis for the claim.
    e. State Agency Action on Requests for Review. DEFRA requires at 31 
U.S.C. 3720A(b)(3) that any evidence presented by debtors must be 
considered and a determination made whether the debt is past-due and 
legally enforceable. The IRS requires at 26 CFR 301.6402-6(d)(2) that 
the participating agency notify the debtor of its decision. The August 
1991 General Notice required in paragraph e(1) that when a State agency 
examines documents or evidence submitted with a review request, it 
determine whether the claim is past due and legally enforceable and 
notify the individual of its decision in writing. Consistent with the 
requirements concerning State agency action on review requests already 
discussed, this rule proposes at Sec. 273.18(g)(5)(v)(A) that State 
agencies act on all written requests for reviews received within the 
60-day period for timely review requests, determine whether or not such 
claims are past due and legally enforceable, and notify individuals in 
writing of the result of such determinations.
    Section 273.18(g)(5)(v)(B) of this rule proposes that the State 
agency determine whether or not claims are past-due and legally 
enforceable based on a review of its records and of documentation, and 
evidence or other information the individual may submit. The provision 
in the August 1991 General Notice at paragraph e(2) which contained 
examples of types of documentation or evidence has been eliminated as 
unnecessary.
    During the test of FTROP State agencies indicated confusion about 
whether they were required to respond to review requests which 
contained inadequate or no documentation. To address this concern, this 
rule proposes to add at Sec. 273.18(g)(5)(v)(C)(1) the requirement that 
the decision letter advise the individual of the reason for the State 
agency's decision, including the failure to provide adequate evidence 
or documentation that the claim was not past due and legally 
enforceable.
    The August 1991 General Notice required in paragraph (e)(3)(i) that 
if the State agency decides a claim is past-due and legally 
enforceable, the State agency must inform the individual in its written 
decision that it intends to refer the claim for offset. This rule would 
make the same requirement at Sec. 273.18(g)(5)(v)(C)(2).
    Information About FCS Reviews of State Agency Decisions: The IRS 
regulations at 7 CFR 301.6402-6(d)(2) provide that if the review is 
conducted by an agent of the Federal agency, in this case the State 
agency, the individual must be accorded at least 30 days from the 
agent's determination to request a review by the Federal agency. The 
August 1991 General Notice required in paragraph e(3)(ii) that the 
State agency's notice of decision inform the individual that he or she 
is entitled to ask FCS to review the State agency's decision but that 
FCS would not review such decisions if it received a request to do so 
later than 30 days after the date of the State agency decision notice.
    Consistent with the August 1991 General Notice, this rule proposes 
to require at Sec. 273.18(g)(5)(v)(C)(3) that the State agency decision 
advise that the individual has 30 days from the date of the State 
agency decision to request that FCS review the State agency's decision. 
If FCS review is timely requested, FCS will provide the individual a 
written response stating its decision and the reasons for its decision. 
Consistent with the IRS regulation cited just above, this rule also 
proposes at Sec. 273.18(g)(5)(v)(C)(3) that individuals be advised that 
the claim will not be referred for offset pending FCS review of the 
State agency's decision.
    The 1991 General Notice required in paragraph e(iii) that the State 
agency decision: (1) advise the individual that a request for an FCS 
review must include his or her SSN; (2) be sent to an FCS regional 
office; and (3) provide the address of that office including a line 
reading ``Tax Offset Review.'' The purpose of this requirement was to 
help FCS obtain the correct records from the State agency, to provide 
individuals the address to which to send their requests for FCS reviews 
and to identify those requests to regional offices so that action could 
be taken promptly. This rule would make that same requirement at 
Sec. 273.18(g)(5)(v)(C)(4).
    The August 1991 General Notice specified in paragraph e(4) that if 
the State agency determines that the claim is not past-due or is not 
legally enforceable, in addition to notifying the individual that the 
claim will not be referred for offset, the State agency must take any 
actions required by food stamp regulations with respect to establishing 
claims and/or holding appropriate hearings, or other required recipient 
claim actions. The purpose of this requirement was to make sure that 
State agencies: (1) Corrected any errors in their processing of claims 
in question; and (2) took actions to properly establish claims and to 
initiate collection action. Aside from some editorial changes, this 
rule proposes the same requirement at Sec. 273.18(g)(5)(v)(D).
    The August 1991 General Notice specified in paragraph e(5) three 
groupings for timely appealed claims which could not be referred for 
offset. Guidance on treatment of the first group, claims which a State 
agency determines are not past-due or are not legally enforceable, has 
just been discussed. The third group is claims which FCS either 
determines are not past due or not legally enforceable, or for which 
FCS does not complete its review before State agency final files were 
due. State agency action on these claims is discussed later in this 
preamble in connection with the certification letter to FCS.
    State Agency Reviews not Complete by October 31: The second of the 
three groups is those claims for which the State agency does not 
complete its review and notification to the [[Page 33622]] individual 
at least 30 days prior to the deadline for the State agency to certify 
its final file of claims for offset to FCS. The deadline for this final 
file is in early December. During the test State agencies indicated 
that they did not understand that if, for example, a review request was 
received in mid-November, even if the State agency review determined 
that the claim was past due and legally enforceable, it could not be 
referred. These claims are not referable because there is not a 30-day 
opportunity for the individual to appeal to FCS before the deadline for 
the State agency to refer its final files to FCS. As explained above, 
IRS regulations at 26 CFR 301.6402-6(d)(2) state that if the review is 
conducted by an agent of the Federal agency (in this case, the State 
agency), the individual must be accorded at least 30 days from the 
agent's determination to request a review by the Federal agency.
    To accommodate the schedule for State agency final files and the 
30-day opportunity which must be provided individuals to request a 
Federal-level review, this rule proposes at Sec. 273.18(g)(5)(v)(E) 
that State agencies cannot refer for offset any claim for which a 
review request is received unless, by October 31 preceding the offset 
year, the State agency has completed its review of the claim, 
determined that the claim is past due and legally enforceable, and 
provided the individual with its decision. The Department believes that 
this proposal will not have a major impact on the number of claims 
referred for FTROP. During the test of FTROP most review requests were 
received relatively early in the 60-day period provided for those 
requests.
    Some review requests will be received too late for the October 31 
deadline but within the 60 days provided for timely review requests. As 
during the test, such claims are not referable for offset in the 
immediately upcoming offset year. In such situations State agencies 
should review the request and provide individuals their decisions on 
whether the claim is past due and legally enforceable and subject to 
collection by tax refund offset. Such claims could then be included in 
the processing cycles for the succeeding offset year.
    f. FCS action on Appeals of State Agency Reviews. The August 1991 
General Notice provided in paragraph f(1) that FCS would not review 
State agency decisions on review requests when it received such 
requests later than 30 days after the date of the State agency decision 
on the original review. This rule proposes at Sec. 273.18(g)(5)(vi)(A) 
that FCS act on all timely requests for FCS review of State agency 
review decisions, and that such a request is timely if it is received 
by FCS within 30 days of the date of the State agency review decision.
    The August 1991 General Notice stated in paragraph f(2) that when 
FCS received timely requests for reviews of State agency decisions, FCS 
would either: (1) Complete the requested review and notify the State 
agency and individual of its determination; or (2) notify the State 
agency that FCS had not completed its review and that the State agency 
must delete the claim from its final files certified to FCS for 
referral for offset. This rule proposes the same actions at 
Sec. 273.18(g)(5)(vi)(B). In addition, this rule proposes at 
Sec. 273.18(g)(5)(vi)(B) that FCS provide funds to refund the charge 
for the offset fee if FCS is late in notifying the State agency to 
delete a claim, where FCS finds that the claim is not referable and the 
claim is offset because of the late notification. For timely requests 
for review received by FCS, where the State agency's decision is dated 
after October 31 prior to the offset year, FCS will complete its review 
and notification of the results of its review, but the claim shall not 
be referred for offset in the immediately upcoming offset year, as 
specified above. This proposal is found at Sec. 273.18(g)(5)(v)(E) and 
Sec. 273.18(g)(5)(vi)(C).
    The August 1991 General Notice stated in paragraph f(3) the 
components of FCS reviews of State agency decisions on review requests. 
Those components were: (1) Requesting documentation from the State 
agency about the appeal; (2) determining the correctness of the State 
agency decision; and (3) notifying the individual and State agency of 
this determination. The August 1991 General Notice stated in paragraph 
f(3)(iii)(A) that if FCS determined that the State agency was correct 
(the claim was past due and legally enforceable), FCS would also notify 
the individual that any further appeals must be made through the 
courts. The August 1991 General Notice stated in paragraph f(3)(iii)(B) 
that if FCS determined that the State agency determination that the 
claim was past due and legally enforceable was incorrect, FCS would 
request that the State agency take appropriate corrective action. This 
rule would include these provisions, slightly modified, at 
Sec. 273.18(g)(5)(vi)(D), (E) and (F). The rule proposes to specify the 
types of documentation FCS would request from State agencies. These 
items are consistent with the documentation State agencies would be 
required to have in order for a claim to be considered referable for 
collection through FTROP. The types of documentation are: printouts of 
electronic records and/or copies of claim demand letters, results of 
fair hearings, advance notices of disqualification hearings, results of 
such hearings, records of payments, 60-day notices, the review requests 
and documentation, decision letters, and pertinent records of such 
things as telephone conversations.
    g. Referral of Claims for Offset. The August 1991 General Notice 
required in paragraph g(1) that State agencies comply with FCS 
operating guidelines when submitting certified files of claims for tax 
offset. As discussed earlier in this preamble, this rule proposes 
replacing the requirement for compliance with operating guidelines with 
the requirement that State agencies submit data in the format and 
schedules provided by FCS. Accordingly, this rule at 
Sec. 273.18(g)(5)(vii)(A) would require that State agencies submit 
certified files by the date specified by FCS. The August 1991 General 
Notice required in paragraph g(2) that, by the date specified in the 
FCS guidelines, State agencies certify in writing to FCS that all 
claims in the final files of claims meet the requirements for referral 
under FTROP, including the issuance of all due-process notifications to 
individuals. This rule proposes at Sec. 273.18(g)(5)(vii)(A) to require 
this certification letter and statement. The letter and statement are 
necessary because the IRS requires that Federal agencies provide the 
IRS such letters and statements with their certified files. In 
addition, this rule proposes at Sec. 273.18(g)(5)(vii)(A) to require 
that the certification letter also state that the State agency has not 
included in the certified file of claims any claim which, as provided 
in paragraph (g)(5)(vi) of this section, FCS notified the State agency 
is not past due or is not legally enforceable, or any claim for which 
FCS notified the State agency that it has not completed its review.
    As discussed earlier, the rule proposes to require that State 
agencies state in the certification letter that their 60-day notice 
complies with IRS and FCS requirements. State agencies must provide FCS 
copies of the formats for these letters as required by current food 
stamp regulations requiring submittal to FCS of State agency operating 
guidelines and forms. (See 7 CFR 272.3(b)(2).)
    The August 1991 General Notice required in paragraph g(3) that 
State agencies provide the name, address and telephone number of State 
agency contacts to be included in the notices of offset which IRS sends 
taxpayers whose [[Page 33623]] refunds have been offset, and also 
required that State agencies update that information if and when it 
changed. This information is the ``Agency Address File.'' The IRS is 
especially concerned that this information be accurate and requires 
Federal agencies to specify how they determined that the information 
provided for contacts is accurate. This rule proposes at section 
273.18(g)(5)(vii)(B) that State agencies provide the contact 
information, state in the certification letter how they determined that 
the contact information was accurate and update the information as 
necessary. The IRS also wants the contact telephone number to be toll-
free or collect, and the rule would make this a requirement.
    h. State Agency Actions on Offsets Made. The August 1991 General 
Notice required in paragraph h(1) that promptly after receiving notices 
of offset from the IRS, State agencies were required to notify 
individuals about offsets made and the resulting status of the claim. 
The Department required this so that individuals would know the status 
of the claim against them. State agencies were also required to 
promptly refund any erroneous offsets made and to do so as close in 
time as possible to the notice of offset. This rule proposes these same 
requirements at Sec. 273.18(g)(5)(viii). In addition, that section 
would require that State agencies inform individuals of the amount of 
the offset collected to pay the offset fee.
    The action group complained that the Department has not offered 
procedures to compel a State agency to return funds that have been 
wrongfully offset by the IRS. This is incorrect. Current food stamp 
regulations at 7 CFR 273.18(i)(4) require that State agencies return 
overpayments of claims as soon as possible after such overpayments 
become known. To help clarify that the refund procedure for claim 
overpayments under FTROP is the same as for other overpayments, the 
proposed rule would cite that provision at Sec. 273.18(g)(5)(vii)(B). 
In this regard, the action group cited the example of a debtor who has 
successfully appealed the referral of a claim which is then erroneously 
referred and offset. Should this happen, since the debtor would have 
been notified about both the State agency decision and the offset, a 
telephone call should be sufficient to bring the error to the State 
agency's attention and to obtain a refund of the over collection.
    Responsibility for Offset Fees for Erroneous Offsets: In the case 
discussed in the preceding paragraph, the claim was referred and offset 
because of a State agency error. In such cases, the Department believes 
that the offset fee should be refunded to the individual and that the 
cost of the fee should be considered an allowable administrative 
expense of the State agency. Accordingly, this rule proposes at 
Sec. 273.18(g)(5)(viii)(C) that if an over collection from an 
individual's Federal income tax refund is due to the State agency 
including in the certified file of claims required by 
Sec. 273.18(g)(5)(vii)(A) a claim which does not meet the criteria 
specified in Sec. 273.18(g)(5)(ii), such refund shall include any 
amounts collected to pay for the offset fee charged by the IRS. The 
section would further specify that the State agency may claim any such 
amount as an allowable administrative cost under Part 277 of this 
chapter. As a consequence of this provision, State agencies and FCS 
would each pay fifty percent of the cost of these offset fees.
    Further in regard to refunds of offset fees, under this proposed 
rule the 60-day notice would advise individuals that spouses who are 
not liable for recipient claims can prevent offsets against their share 
of a tax refund by filing the appropriate form with the IRS when they 
file their tax return. If they do so and the entire tax refund is 
theirs, no offset will occur, and no administrative charge will be 
incurred. If the appropriate IRS form is submitted after the tax return 
is filed, an offset may occur. If it does, the IRS will refund the 
collection to the non-liable spouse, including the administrative 
charge. The IRS may refund offsets, including offset fees, to taxpayers 
for reasons other than a non-liable spouse. In all cases of such IRS 
refunds, the Department will pay the administrative charge, and the 
amount of the claim will be charged to the State agency. Consequently, 
this rule also proposes at Sec. 273.18(g)(5)(viii)(C) that State 
agencies will not be responsible for refunding the charges for offset 
fees incurred for IRS reversals of offsets when, for example, the IRS 
refunds amounts offset, including offset fees, to taxpayers who 
properly notified the IRS that they are not liable for claims which 
were collected in whole or part from their share of a joint Federal 
income tax refund. In cases where part of the tax refund due on a joint 
tax return is attributable to an individual who is liable for the food 
stamp claim, the liable individual's portion would be subject to offset 
and the offset fee could be collected from the individual.
    i. Monitoring and Reporting Offset Activities. The August 1991 
General Notice required in paragraph i. that State agencies monitor 
offset activities to accomplish the various requirements of the tax 
offset program. Particular emphasis was given to the need for State 
agencies to update IRS files by reducing the amounts of claims and 
deleting claims to reflect voluntary payments and other events so that 
IRS records would reflect the current status of the claim. This rule 
proposes to make this a requirement at Sec. 273.18(g)(5)(ix)(A). This 
rule also proposes at Sec. 273.18(g)(5)(ix)(B) that State agencies 
monitor FTROP activities to assure that refunds of over collections are 
made promptly.
    During the test of FTROP State agencies were required to submit a 
``management report'' with their certified files. The report provided 
data to FCS on such things as numbers of 60-day notices sent and the 
volume of informal inquiries. This rule proposes at 
Sec. 273.18(g)(5)(ix)(C) to eliminate this report and instead require 
that by the tenth of October of the year prior to the offset year State 
agencies report in writing to the FCS regional office the number of 60-
day notices mailed and the total dollar value of associated claims. The 
Department wants this information as a basis for measuring collections 
through both voluntary repayments and offsets.
    The rule proposes at Sec. 273.18(g)(5)(ix)(D) that State agencies 
report on two matters as required by the IRS. State agencies 
participating in the test of FTROP were required to make these reports, 
and the information collection burdens associated with both were 
included in the burden estimate discussed earlier in this preamble. One 
reporting requirement relates to data security as required by the IRS 
in its publication Tax Information Security Guidelines for Federal, 
State and Local Agencies. Currently two reports are required. One is 
the Safeguard Procedures Report, which State agencies are required to 
submit in the initial year of their participation. The second is the 
Safeguard Activity Report, which all State agencies are required to 
submit annually. FCS provides State agencies copies of the IRS 
publication just cited and guidance on annual due dates and related 
matters. The IRS also requires quarterly reports of voluntary 
collections. The rule would require that State agencies provide that 
information as required by FCS. FCS provides State agencies the format 
for this report.
    During the test State agencies were required to report collections 
under FTROP, both voluntary and by actual offset from tax refunds, on 
the appropriate Form FCS-209, Status of Claims Against Households. This 
rule would include that requirement at Sec. 273.18(g)(5)(ix)(E). 
[[Page 33624]] 

C. Federal Salary Offset

1. Authorities for Salary Offset
    The Debt Collection Act of 1982 (Public Law 97-365), amended 5 
U.S.C. 5514 to authorize Federal agencies to offset the salaries of 
Federal employees who are delinquent on debts owed to the Federal 
government. The Office of Personnel Management (OPM) implemented 5 
U.S.C. 5514 by promulgating regulations at 5 CFR 550.1101-1108 
(Collection by Offset from Indebted Government Employees). Pursuant to 
5 U.S.C. 5514(b)(1), the Department promulgated regulations at 7 CFR 
3.51 through 3.68 implementing salary offset. Departmental regulations 
at 7 CFR 3.68 delegate to individual USDA agencies the authority to act 
for the Secretary under those regulations and to issue regulations or 
policies not inconsistent with the Departmental regulations and with 
the OPM regulations. Section 13941 of the Omnibus Budget Reconciliation 
Act of 1993 (Public Law 103-66, signed August 10, 1993) authorizes 
disclosure of food stamp casefile information to Federal agencies for 
purposes of collecting recipient claims (except those caused by State 
agency errors) from Federal salaries.
    A test of salary offset is currently being conducted under a 
General Notice published August 29, 1994 at 59 FR 44400. Section 
17(b)(1) of the Act (7 U.S.C. 2026(b)(1)) authorizes the Secretary to 
conduct such projects to test program changes that might increase the 
efficiency of the FSP. The provisions of this proposed rule relative to 
salary offset are substantially the same as the provisions of the 
August 1994 General Notice on salary offset. The Department intends to 
use experience from the test of salary offset as well as comments on 
this proposed rule in developing the final salary offset regulations.
    Pursuant to Section 13 of the Act (7 U.S.C. 2022), and subject to 
the standards of FSP regulations at 7 CFR 273.18, the authority to 
settle claims against households has been delegated to State agencies 
at 7 CFR 271.4(b). Food stamp coupons issued pursuant to the Act are 
deemed to be obligations of the United States (7 U.S.C. 2024(d)). Under 
these statutes and regulations, State agencies establish FSP recipient 
claims, and collect and maintain records of those claims. State 
agencies return amounts collected to the Federal government, less a 
statutory ``retention amount'' established to encourage collection of 
recipient claims (7 U.S.C. 2025(a)).
    This rule proposes to incorporate the requirements of Departmental 
regulations on salary offset (7 U.S.C. 3.51 et seq.), and to supplement 
and modify these procedures to the extent necessary to accommodate the 
position of State agencies as primarily responsible for establishing, 
collecting and maintaining records on recipient claims. These additions 
and modifications are consistent with OPM regulations on salary offset.
2. Overview of Salary Offset Procedures for the FSP
    Under this proposed rule, salary offset would have three phases and 
be operated on an annual cycle. In the first phase, FSP recipient 
claims would be matched against records of all active Federal civilian 
and military employees, including United States Postal Service (USPS) 
employees. The recipient claims so matched would be compiled from lists 
of recipient claims provided by State agencies as part of FTROP 
procedures. The Federal employee records are maintained by the 
Department of Defense (DoD) and the USPS. The match would identify 
Federal employees and their employing agencies, and would provide 
employee and employing agency addresses to FCS. This match would be 
conducted in accordance with the Privacy Act of 1974, as amended (5 
U.S.C. 552a). As required by that statute, the public has been advised 
of this matching program by the publication of three General Notices. A 
General Notice was published September 17, 1993 at 58 FR 48633 advising 
the public of the systems of records involved. A second General Notice 
was published March 1, 1994 at 59 FR 9733 advising the public of the 
match with DoD. A third General Notice was published August 17, 1994 at 
59 FR 42205 advising the public about the match with the USPS. 
Recipient claims which these matches identify as obligations of Federal 
employees will not be referred to the IRS for collection through FTROP.
    During the second phase of food stamp salary offset procedures, 
recipient claims identified in the match would be referred to State 
agencies. After a review of their records to determine if those 
recipient claims are still owed and if so their correct amounts, State 
agencies would send the identified Federal employees advance notices of 
salary offset (advance notices). The advance notice would provide these 
individuals 30 days to voluntarily pay the claim or provide 
documentation that all or part of the claim is not legally collectible. 
Claims which are not paid, or for which replies are late or do not 
provide adequate documentation, would be referred to the FCS National 
Office for collection by salary offset.
    In the third phase of salary offset, by means of a notice of 
intent, FCS would notify Federal employees owing recipient claims 
referred by State agencies that FCS intends to collect the debt from 
the employees' salaries. The notice of intent would include information 
about appeal rights, pertinent time frames and other information which 
is required for that notice by Departmental regulations on salary 
offset. Subject to the responses to notices of intent, FCS would 
proceed with action to collect the debts. FCS would follow the 
collection procedures in the Departmental rule on salary offset as 
those procedures would be modified by this rule.
3. Discussion of Proposed Regulatory Provisions for Salary Offset
    a. Claims Subject to Salary Offset. This rule proposes at 
Sec. 273.18(g)(6)(i) that all claims submitted by State agencies 
participating in FTROP would first be subject to the matching 
procedures proposed in this rule. Those procedures would identify which 
of those claims are owed by Federal employees. Individuals so 
identified would be subject to the salary offset procedures proposed in 
this rule in lieu of having their claims referred for collection under 
FTROP. Consequently, all State agencies participating in FTROP would 
also be required to participate in salary offset.
    b. Identification of Recipient Claims Owed by Federal Employees. 
The rule at Sec. 273.18(g)(6)(ii)(A) would specify the steps of phase 
one of salary offset.
    The Department wants to ensure that State agencies protect 
information they receive from DoD and USPS from the time they receive 
it. Consequently, at Sec. 273.18(g)(6)(ii)(B) this rule would provide 
that when FCS receives Federal employment information for a particular 
State agency, it would first notify the State agency in writing 
accompanied by a data security and confidentiality agreement for the 
State agency to sign and return. When that agreement is returned, FCS 
would then provide the information to the State agency. Concurrently 
with publication of this rule, FCS is providing State agencies a sample 
notification letter with the language of the data security and 
confidentiality agreement.
    The matching of State agency recipient claims with DoD and USPS 
data files would be conducted under the terms of Memorandums of 
Agreement (Agreements) between USDA and DoD, and between USDA and the 
USPS. The [[Page 33625]] Agreements require that if the records 
obtained from DoD and the USPS are disclosed to a State or local 
agency, those entities must agree in writing to abide by the data 
security and confidentiality protection measures specified in the 
Agreements. This rule at Sec. 273.18(g)(6)(ii)(C) would specify those 
protection measures and require that State agencies extend them to any 
contractors or other non-State agency entities to which the records may 
be disclosed. The requirements are typical data security and usage 
controls, and should require minimal State agency resources.
    This rule would require at Sec. 273.18(g)(6)(ii)(D) that, prior to 
taking additional action to collect claims from Federal employees, 
State agencies must review those claims to verify the amount of the 
recipient claim owed, and to remove any claims which have been paid, 
are being paid or which for other reasons are not collectible through 
salary offset. The rule would require this review to verify that the 
individual identified in the match owes an FSP recipient claim and that 
the amount of the claim is correct.
    c. State Agency Advance Notice of Salary Offset. This rule proposes 
to require at Sec. 273.18(g)(6)(iii)(A) that, following the review just 
described, State agencies provide each Federal employee verified as 
owing a recipient claim (debtor) with an advance notice of salary 
offset (advance notice). This advance notice would provide the debtor 
certain information about the recipient claim and would offer the 
debtor an opportunity to pay the claim voluntarily. Although the debtor 
would have been offered an opportunity to pay the claim voluntarily in 
the initial claim demand letter required by food stamp regulations at 7 
CFR 272.18(d)(3), the Department is proposing to provide a second 
voluntary payment opportunity for several reasons. This opportunity 
would offer debtors a way to repay recipient claims without involving 
their employing agencies. It would provide State agencies a way to 
collect such claims without the delay which salary offset entails. 
Furthermore, recipient claims paid voluntarily to State agencies would 
save the Federal government the administrative cost of the actual 
salary offset.
    The Department wants State agency collection efforts to proceed 
promptly. Consequently, this rule proposes at Sec. 273.18(g)(6)(iii)(A) 
that advance notices must be mailed or otherwise provided to debtors at 
the addresses provided by FCS within 60 days of State agency receipt 
from FCS of the list of recipient claims owed by Federal employees. The 
addresses would be those which DoD and USPS would provide through the 
matching program. The 60-day period should allow State agencies 
sufficient time to integrate this task into related administrative 
processes with the addition of minimal resources.
    The rule proposes that recipient claims owed by Federal employees 
who do not voluntarily pay them directly to the State agency in 
response to the advance notice would be collected through salary 
offset. Consequently, it proposes at Sec. 273.18(g)(6)(iii)(B) that 
within 90 days of the date of the advance notice State agencies refer 
to FCS all claims for which the State agency does not receive timely 
and adequate response. The advance notice would allow debtors 30 days 
to respond to State agencies. The 90-day period would give State 
agencies 60 days beyond that time frame to refer claims to FCS. This 
rule proposes that the referral from State agencies would consist of a 
copy of the advance notice and copies of records relating to the claim. 
This rule would specify that copies of records relating to the claim 
would consist of copies of printouts of electronic records and/or 
copies of claim demand letters, results of fair hearings, advance 
notices of disqualification hearings, the results of such hearings, 
records of payments, review requests and documentation, decision 
letters, and pertinent records of such things as telephone 
conversations. (This is substantially the same requirement which is 
proposed for the documents State agencies must submit to FCS for 
requests for FCS reviews of State agency decisions on referrals of 
claims under FTROP.)
    This rule specifies at Sec. 273.18(g)(6)(iii)(C) the proposed 
content of the advance notice. (Concurrently with publication of this 
rule, FCS is providing State agencies a sample format for the advance 
notice.) First, at Sec. 273.18(g)(6)(iii)(C)(1) this rule proposes to 
require that the advance notice state that, according to State agency 
records, the debtor is liable for a recipient claim for a specified 
dollar amount due to receiving excess food stamp benefits. State 
agencies would be encouraged to include as much other information about 
the claim as possible, including such things as whether the claim was 
caused by household error or intentional Program violation, the date of 
the initial demand letter, any hearings or court actions which related 
to the claim and what, if any, payments have reduced the amount of the 
original claim.
    This rule proposes at Sec. 273.18(g)(6)(iii)(C)(2) that the advance 
notice state that the debtor was found through a computer match to be 
employed by a Federal agency and state the name and address of the 
employing agency. The advance notice would also state that the computer 
match was conducted according to procedures required by the Privacy Act 
of 1974, as amended. This information would be required so that debtors 
know the source of the information about their employment and that it 
was obtained under authority of law.
    This rule proposes at Sec. 273.18(g)(6)(iii)(C)(3) that the advance 
notice further advise debtors that the authority to collect debts such 
as food stamp recipient claims from Federal salaries is the Debt 
Collection Act of 1982. The advance notice would also state that the 
subject claim will be referred to FCS for such collection action 
unless, within 30 days of the date of the advance notice, the State 
agency receives payment in full or an acceptable installment payment on 
the claim. With respect to payments, this rule proposes that the 
advance notice state several things. First, claims of $50 or less must 
be paid in full within 30 days or they will be referred to FCS for 
collection from the debtor's Federal salary. Second, claims of more 
than $50, if not paid in full within 30 days, must be paid in 
installments of at least $50 a month, and debtors may pay more than $50 
in any installment payment. Third, the advance notice must state the 
monthly due date of installment payments for the claim and that if a 
monthly installment payment of at least $50 is not received by the 
monthly due date, the claim will be referred to FCS for salary offset 
with no further opportunity to enter a voluntary repayment agreement. 
(See sections 273.18(g)(6)(iii)(C)(3)(i), (ii) and (iii).)
    This rule proposes at section 273.18(g)(6)(C)(4) that the advance 
notice must also provide the name, address and a toll-free or collect 
telephone number of a State agency contact (an individual or unit) for 
payment and/or discussion of the claim. The 1994 General Notice on 
salary offset did not require a toll-free or collect telephone number, 
but the Department believes that such a number is necessary because 
individuals owing recipient claims may live outside the State which 
established the claim. State agencies could use the same number 
provided individuals in the 60-day notice for FTROP.
    The advance notice would also advise debtors that they may submit 
documentation to State agencies [[Page 33626]] showing such things as 
payment of all or part of the claim, or other circumstances which would 
prevent collection. Second, unless the State agency receives such 
documentation within 30 calendar days of the date of the advance notice 
and the documentation clearly shows that the claim has been paid or is 
not legally collectible, the State agency would refer the claim to FCS 
for collection from the debtor's salary. Third, State agencies would 
notify debtors in writing when claims will not be referred for 
collection from salaries. Fourth, the advance notice would state that 
debtors have the right to a formal appeal to FCS, and that notification 
about how to make such an appeal is required and will be provided to 
debtors before any collection action from salaries is taken. (See 
Sec. 273.18(g)(6)(iii)(C)(5).)
    d. State agency retention and reporting of collections. For 
purposes of calculating amounts of collections which State agencies 
retain, this rule proposes at Sec. 273.18(g)(6)(iv)(A) that all claims 
collected under the salary offset provisions of this rule would be 
treated as if they were collected by the State agency. Specifically, 
this rule would provide that, for recipient claims paid voluntarily and 
through salary offsets, State agencies would retain collections at the 
rates specified at 7 CFR 273.18(h) for the appropriate reporting period 
for Form FCS-209, Status of Claims Against Households. The rule would 
also provide at Sec. 273.18(g)(6)(iv)(A) that from time to time as 
volume warrants, FCS will provide reports and also transfer amounts 
collected from salaries to State agencies. State agencies would include 
the collections on the appropriate FCS-209 report. This rule would not 
require that collections on salary offset claims be identified 
separately on the FCS-209 from other collections of recipient claims. 
The Department can determine the levels of such collections based on 
the number and dollar values of claims which FCS refers to State 
agencies and the number and dollar values of claims which State 
agencies refer back to FCS because debtors do not respond or respond 
inadequately to advance notices.
    In this regard, the rule proposes at Sec. 273.18(g)(6)(iv)(B) that 
if a debtor fails to make an installment payment, within 60 days of the 
date the payment was due, State agencies would refer the claim to FCS, 
reporting the default, the dollar amount collected and the balance due. 
In the August 1994 General Notice initiating the test of salary offset, 
this period is 90 days. The Department believes that 60 days should be 
adequate for State agencies to refer claims to FCS when Federal 
employees default on payments of them.
    e. FCS Actions on Claims Referred by State Agencies. This rule 
proposes at Sec. 273.18(g)(6)(v) that, subject to certain modifications 
described below, Departmental procedures at 7 CFR 3.51-3.68 will apply 
to claims referred by State agencies to FCS for salary offset.
    Three additions would be made to the definitions set forth at 7 CFR 
3.52. The term ``debts'' would be further defined to include recipient 
claims established according to 7 CFR 273.18, and the terms ``State 
agency'' and ``FCS'' would be defined as set forth in 7 CFR 271.2. (See 
section 273.18(g)(6)(v)(A).)
    The Departmental rules require that, using the Notice of Intent to 
Offset Salary (notice of intent) set forth at 7 CFR 3.55, the 
Department provide notice to the debtor 30 days prior to offsetting the 
debtor's salary. This rule proposes at Sec. 273.18(g)(6)(v)(E) that 
this procedure and the notice of intent specified at 7 CFR 3.55 be used 
for FSP recipient claims as described below.
    The provisions of the notice of intent are largely self- 
explanatory. The notice of intent sets forth the amount of the debt and 
the facts which gave rise to it, and describes how the actual offset 
will be conducted, including the frequency and amount of salary 
deductions. The notice of intent advises the debtor about the method 
and time period for requesting a hearing and that a timely hearing 
request will stay the collection proceedings. The notice of intent also 
advises how the hearing will be conducted and the time frame for 
issuance of decisions. It also advises the debtor of the penalties for 
making or submitting any knowingly false or frivolous statements, 
representations or evidence.
    The rule proposes at Sec. 273.18(g)(6)(v) (B), (C), and (D) to 
modify three sections of the notice of intent in order to apply that 
notice to FSP recipient claims. First, 7 CFR 3.55(d) requires that the 
notice of intent explain the Department's requirements regarding 
payments of interest, penalties and administrative costs, unless such 
payments are waived in accordance with 31 U.S.C. 3717 and 7 CFR 3.34. 
These charges would be waived as explained in detail below. 
Accordingly, the notice of intent for FSP recipient claims would not 
include an explanation of these charges. Second, 7 CFR 3.55(e) requires 
that the notice of intent explain the debtor's right to inspect and 
copy Department records relating to the debt. As explained below, for 
FSP recipient claims, the notice of intent would also include an 
explanation of the right to request and receive copies of the records 
from the Department, and a statement of the time for making such a 
request which is established under 7 CFR 3.60(a). Third, 7 CFR 3.55(f) 
requires that the Department's notice of intent advise the debtor of 
the procedures for proposing a repayment agreement in lieu of salary 
offset. As explained below, this explanation and procedure would not be 
included in the FSP notice of intent.
    Departmental regulations at 7 CFR 3.65 and 3.55(d) set forth the 
procedures for charging interest, penalties, and administrative costs 
for salary offset. As discussed above, this rule proposes at 
Sec. 273.18(g)(5)(iv)(C) that the offset fee assessed by the IRS for 
collections under FTROP be paid by the debtor out of funds collected 
through FTROP. Other than in this proposed regulation, FSP regulations 
do not authorize collection of interest, penalties or administrative 
costs for FSP recipient claims. Accordingly, there are no 
administrative mechanisms in place for the assessment and notice of 
such charges. The Department believes that it would not be 
administratively cost effective or feasible to establish such 
mechanisms at this time but may consider them at some future date. 
Therefore, pursuant to 7 CFR 3.34(c)(4), the Secretary has determined 
that collection of such charges is not in the best interests of the 
United States, and the rule proposes to waive collection of such 
charges. Accordingly, as noted above, the FSP notice of intent would 
not include an explanation of interest and related charges.
    Departmental regulations at 7 CFR 3.60 set forth procedures for the 
review of Departmental records relating to debts to be collected by 
salary offset and provide that, upon a timely request, the Department 
will permit debtors to inspect and copy those records. This rule 
proposes at Sec. 273.18(g)(6)(v)(E)(1) that, for purposes of FSP salary 
offset, the debtor may also request that the Department provide copies 
of the records. The Department believes that this offer is appropriate 
because these records will be located at the FCS National Office while 
debtors are located throughout the country. The rule proposes that, for 
their requests to be considered timely as provided in 7 CFR 3.60(a), 
FCS must receive a letter requesting copies of the records (or 
requesting an opportunity to inspect or copy the records) within 30 
calendar days of the date of the FSP notice of intent. As stated above, 
the notice of intent would advise debtors of these procedures and 
deadlines.
    Departmental salary offset regulations at 7 CFR 3.61 provide 
debtors the [[Page 33627]] opportunity to propose a written repayment 
agreement in lieu of salary offset, subject to approval by the 
Secretary. OPM regulations at 5 CFR 550.1104(d)(6) provide that this 
opportunity is not required if the debtor was previously provided such 
an opportunity. Current FSP regulations at 7 CFR 273.18(g)(2) provide 
that opportunity at the time of the initial demand letter on the 
recipient claim. The State agency advance notice of salary offset would 
offer a second such opportunity. Accordingly, this rule proposes at 
Sec. 273.18(g)(6)(v)(E)(2) that the FSP notice of intent not offer 
debtors an opportunity to enter into a written agreement to repay the 
debt.
    The remaining FSP salary offset procedures relate primarily to 
hearings which debtors may request and to the procedures for the actual 
offsets from salaries. These procedures would operate as set forth in 
the Departmental regulations, and they are briefly described below.
    The Departmental regulation at 7 CFR 3.56 provides that debtors 
have 30 days to request a hearing on the existence or amount of the 
claim, or on the proposed offset schedule (rate and frequency of 
offset). The notice of intent advises the debtor what information 
should be included in the request for a hearing, and states the basis 
for accepting a late request. Section 3.57 provides that a hearing will 
not be granted if the employee fails to request one as prescribed or 
fails to appear at the hearing. Section 3.58 describes how hearings 
will be conducted, and Section 3.59 specifies the format of written 
hearing decisions.
    The Departmental regulation at 7 CFR 3.62 provides that deductions 
will begin either: (1) As stated in the notice of intent; (2) if a 
hearing is requested, after a decision in favor of the Secretary; or 
(3) through administrative offset upon the employee's retirement or 
resignation as provided by 7 CFR 3.21 through 3.36. Section 3.63 
provides that collections will be made in a lump sum or installments, 
and will be by installments if the debtor cannot repay the debt in one 
payment or the debt exceeds 15 percent of disposable pay for a pay 
period. Section 3.64 provides that installments will be at established 
pay intervals, bear a reasonable relationship to the size of the debt, 
up to a maximum of 15 percent of disposable pay, and specifies the 
types of pay (basic pay, incentive pay, etc.) which can be offset. 
Section 3.66 provides that payment by salary offset will not be 
interpreted as a waiver of any rights the debtor may have under 5 
U.S.C. 5514. Section 3.67 provides for the refund of amounts 
erroneously offset from salaries under certain conditions such as an 
administrative or judicial order.

Effective Date

    It is proposed that this rule would become effective 30 days after 
publication of the final rule except that State agencies currently 
participating in FTROP would be required to submit the amendment to the 
Plan of Operation required at 7 CFR 272.2(d)(1)(xii) no later than 90 
days after publication of that rule.

List of Subjects

7 CFR Part 271

    Administrative practice and procedures, Food stamps, Grant 
programs--social programs.

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs--social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

    Administrative practice and procedure, Aliens, Claims, Food stamps, 
Fraud, Grant programs--social programs, Penalties, Records, Reporting 
and recordkeeping requirements, Social Security, Students.

    Accordingly, 7 CFR parts 271, 272 and 273 are proposed to be 
amended as follows:

PART 271--GENERAL INFORMATION AND DEFINITIONS

    1. The authority citation for parts 271, 272 and 273 continues to 
read as follows:

    Authority: 7 U.S.C. 2011-2032.

    2. In Sec. 271.2, the definition of Offset year is added in 
alphabetical order to read as follows:


Sec. 271.2  Definitions

* * * * *
    Offset year means the calendar year during which offsets may be 
made to collect certain recipient claims from individuals' Federal 
income tax refunds.
* * * * *

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    3. In Sec. 272.2, a new sentence is added to the end of paragraph 
(a)(2) and a new paragraph (d)(1)(xii) is added to read as follows:


Sec. 272.2  Plan of operation.

    (a) General Purpose and Content * * *
    (2) Content. * * * The Plan's amendments shall also include the 
commitment to conduct the optional Federal income tax refund offset 
program and Federal salary offset program.
* * * * *
    (d) Planning Documents.
    (1) * * *
    (xii) If the State agency chooses to implement the Federal income 
tax refund offset program and the Federal salary offset program, the 
Plan's attachments shall include a statement in which the State agency 
states that it will comply with the provisions of Sec. 273.18 (g)(5) 
and (g)(6) of this chapter.
* * * * *

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    4. In Sec. 273.18 new paragraphs (g)(5) and (g)(6) are added to 
read as follows:


Sec. 273.18 Claims against households.

* * * * *
    (g) Method of collecting payments. * *  *
    (5) Federal income tax refund offset program.
    (i) General requirements. State agencies which choose to implement 
the Federal income tax refund offset program (FTROP) shall:
    (A) Submit an amendment to their Plan of Operation as specified in 
Sec. 272.2(d)(1)(xii) of this chapter stating that they will comply 
with the requirements for FTROP and with the requirements for the 
Federal salary offset program (salary offset). Such amendments shall be 
submitted to the appropriate FCS regional office no later than twelve 
months before the beginning of a State agency's first offset year.
    (B) Submit data for FTROP to FCS in the record formats specified by 
FCS and/or the Internal Revenue Service (IRS), and according to 
schedules and by means of magnetic tape, electronic data transmission 
or other method specified by FCS.
    (ii) Claims referable for offset. State agencies may submit for 
collection from Federal income tax refunds recipient claims which are 
past due and legally enforceable.
    (A) Such claims must be:
    (1) Only inadvertent household error claims or intentional Program 
violation claims. These claims shall be properly established according 
to the requirements of this section (which pertains to claims against 
households), including the requirement that additional demand letters 
be provided prior to initiating other collection actions as required by 
paragraph (d)(4)(iii) of this section, and the 
[[Page 33628]] requirements of section 273.16 (which pertains to 
disqualification for intentional Program violations). In addition, 
these claims shall be properly established no later than the date the 
State transmits its final request for IRS addresses for the particular 
offset year. Furthermore, the State agency shall have electronic 
records and/or paper documents showing that the claim was properly 
established. These records and documents include such items as claim 
demand letters, results of fair hearings, advance notices of 
disqualification hearings, results of such hearings, and records of 
payments.
    (2) Claims for which the State agency has verified that no 
individual who is jointly and severally liable as specified in 
paragraph (a) of this section is also currently participating in the 
FSP in the State.
    (3) Claims which meet at least the minimum dollar amount 
established by the IRS.
    (4) Claims for which the date of the initial demand letter is 
within 10 years of January 31 of the offset year, except that claims 
reduced to final court judgments ordering individuals to pay the debt 
are not subject to this 10-year limitation.
    (5) Claims for which the State agency is neither receiving 
voluntary payments pursuant to an agreed upon schedule of payments as 
provided in paragraph (g)(2) of this section nor is receiving 
scheduled, involuntary payments such as wage garnishment. Claims for 
which the State agency has received such payments are considered past 
due and legally enforceable 30 days after the due date for a regular 
payment which is not received.
    (6) Claims for which collection is not barred by a bankruptcy.
    (7) Claims for which the State agency has provided the individual 
with all of the notification and opportunities for review as specified 
in paragraphs (g)(5)(iii), (g)(5)(iv), (g)(5)(v) and (g)(5)(vi) of this 
section.
    (B) In addition:
    (1) All claims to be submitted for collection under FTROP shall be 
reduced by any amounts subject to collection from State income tax 
refunds or from other sources which may result in collections during 
the offset year.
    (2) If a claim to be submitted for collection under FTROP is a 
combination of two or more recipient claims, the date of the initial 
demand letter for each claim combined shall be within the 10-year range 
specified in paragraph (g)(5)(ii)(A)(4) of this section. Claims reduced 
to judgment shall not be combined with claims which are not reduced to 
judgment.
    (3) If a claim to be submitted under FTROP is apportioned between 
two or more individuals who are jointly and severally liable for the 
claim pursuant to paragraphs (a) and (f) of this section, the sum of 
the amounts submitted shall not exceed the total amount of the claim.
    (iii) 60-Day notice to individuals. (A) Prior to referring claims 
for collection under FTROP, the State agency shall provide individuals 
from whom it seeks to collect such claims with a notice, called a 60-
day notice.
    (B) With the exception of such State-specific information as names 
and job titles and information required for State agency contacts, a 
State agency's 60-day notice shall contain only the information 
specified in paragraph (g)(5)(iv) of this section. In the certification 
letter required in paragraph (g)(5)(vii) of this section, the State 
agency shall include a statement that its 60-day notice conforms to 
this requirement.
    (C) Unless otherwise notified by FCS, the State agency shall mail 
60-day notices for claims to be referred for collection through FTROP 
no later than October 1 preceding the offset year during which the 
claims would be offset.
    (D) The State agency shall mail 60-day notices using the address 
information provided by the IRS unless the State agency receives clear 
and concise notification from the taxpayer that notices from the State 
agency are to be sent to an address different from the address obtained 
from the IRS. Such clear and concise notification shall mean that the 
taxpayer has provided the State agency with written notification 
including the taxpayer's name and identifying number (which is 
generally the taxpayer's SSN), the taxpayer's new address, and the 
taxpayer's intent to have notices from the State agency sent to the new 
address. Claims for which 60-day notices addressed as required in this 
paragraph are returned as undeliverable may be referred for collection 
under FTROP.
    (iv) Contents of the 60-day notice. The State agency's 60-day 
notice shall state that:
    (A) [Name of the State agency or an equivalent phrase] has records 
documenting that you, [the name of the individual], Social Security 
Number: [the individual's Social Security Number] are liable for [the 
unpaid balance of the recipient claim(s) the State agency intends to 
refer] resulting from overissued food stamp benefits. [The name of the 
State agency or equivalent phrase] has previously mailed or otherwise 
delivered demand letters notifying you about the claim, including the 
right to a fair hearing on the claim, and has made any other required 
collection efforts.
    (B) The Deficit Reduction Act of 1984, as amended, authorizes the 
Internal Revenue Service (IRS) to deduct such debts from tax refunds if 
they are past due and legally enforceable. [Name of the State agency or 
an equivalent phrase] has determined that your debt is past due and 
legally enforceable as specified by the Deficit Reduction Act of 1984, 
the IRS regulations, and Food Stamp Program (FSP) regulations. We 
intend to refer the claim for deduction from your Federal income tax 
refund unless you pay the claim within 60 days of the date of the 
notice or make other repayment arrangements acceptable to us.
    (C) If we refer your claim to the IRS, a charge for the 
administrative cost of collection will be added to your claim and that 
amount will also be deducted if the claim, or any portion of the claim, 
is deducted from your tax refund.
    (D) All adults who were household members when excess food stamp 
benefits were issued to the household are jointly and severally liable 
for the value of those benefits, and collection of claims for such 
benefits may be pursued against all such individuals. Our records do 
not show that the claim is being paid according to either a voluntary 
agreement with us or through scheduled, involuntary payments.
    (E) To pay the claim voluntarily or to discuss it, you should 
contact: [an office, administrative unit and/or individual, the 
contact's street address or post office box, and a toll-free or collect 
telephone number].
    (F) You are entitled to request a review of the intended collection 
action. We must receive your request for review within 60 days of the 
date of this notice. Such a request must be written, must be submitted 
to the address provided in this notice and must contain your Social 
Security Number. We will not refer your claim for offset while our 
review is pending.
    (G) The claim is not legally enforceable if a bankruptcy prevents 
collection of the claim.
    (H) You may want to contact your local office of the IRS before 
filing your Federal income tax return. This is true where you are 
filing a joint return, and your spouse is not liable for the food stamp 
claim and has income and withholding and/or estimated Federal income 
tax payments. In such circumstances your spouse may be entitled to 
receive his or her portion of any joint refund. Your own liability for 
this claim, including any charge for administrative costs, may still be 
[[Page 33629]] collected from your share of such a joint refund.
    (I) If you request a review of our intent to collect the claim from 
your income tax refund, you should provide documentation showing that 
at least one of the items listed below is incorrect for the claim cited 
in this notice. If you do not have such documentation, for example a 
cancelled check, you should explain in detail why you believe that the 
claim is not collectible under FTROP.
    (J) The claim cited in this notice is subject to collection from 
your tax refund for the following reasons:
    (1) The claim was properly established according to Food Stamp 
Program regulations and was caused by an inadvertent household error or 
an intentional Program violation;
    (2) No individual who is jointly and severally liable for the claim 
is also currently participating in the Food Stamp Program in [the name 
of State initiating the collection action];
    (3) The claim is for at least [the minimum dollar amount required 
by the IRS];
    (4) The date of the initial demand letter for the claim is within 
10 years of January 31, [the offset year]. If the claim was reduced to 
a final court judgment ordering you to pay the debt, this 10-year 
period does not apply, and the date of the initial demand letter may be 
older than 10 years; and
    (5) We are neither receiving voluntary payments pursuant to an 
agreed upon schedule of payments as provided in current Food Stamp 
Program regulations nor are we receiving scheduled, involuntary 
payments such as wage garnishment. Claims are considered past due and 
legally enforceable for collection from Federal income tax refunds 30 
days after the due date for such a regular payment which is not 
received.
    (K) In addition, collection of the claim is not barred by 
bankruptcy.
    (v) State agency action on requests for review. (A) For all written 
requests for review received within 60 days of the date of the 60-day 
notice, the State agency shall determine whether or not the subject 
claims are past due and legally enforceable, and shall notify 
individuals in writing of the result of such determinations.
    (B) The State agency shall determine whether or not claims are past 
due and legally enforceable based on a review of its records, and of 
documentation, evidence or other information the individual may submit.
    (C) If the State agency decides that a claim for which a review 
request is received is past due and legally enforceable, it shall 
notify the individual that:
    (1) The claim was determined past due and legally enforceable, and 
the reason for that determination. Acceptable reasons for such a 
determination include the individual's failure to provide adequate 
documentation that the claim is not past due or legally enforceable;
    (2) The State agency intends to refer the claim to the IRS for 
offset;
    (3) The individual may ask FCS to review the State agency decision. 
FCS must receive the request for review within 30 days of the date of 
the State agency decision. FCS will provide the individual a written 
response to such a request stating its decision and the reasons for its 
decision. The claim will not be referred to the IRS for offset pending 
the FCS decision; and
    (4) A request for an FCS review must include the individual's SSN 
and must be sent to the appropriate FCS regional office. The State 
agency decision shall provide the address of that regional office, 
including in that address the phrase ``Tax Offset Review.''
    (D) If the State agency determines that the claim is not past due 
or legally enforceable, in addition to notifying the individual that 
the claim will not be referred for offset, the State agency shall take 
any actions required by food stamp regulations with respect to 
establishing the claim, including holding appropriate hearings and 
initiating collection action.
    (E) The State agency shall not refer for offset a claim for which a 
timely State agency review request is received unless by October 31 
preceding the offset year the State agency determines the claim past 
due and legally enforceable, and notifies the individual of that 
decision as specified in paragraphs (g)(5)(v)(C)(1), (g)(5)(v)(C)(2) 
and (g)(5)(v)(C)(3) of this section.
    (vi) FCS action on appeals of State agency reviews.
    (A) FCS shall act on all timely requests for FCS reviews of State 
agency review decisions as specified in paragraph (g)(5)(v)(C) of this 
section. A request for FCS review is timely if it is received by FCS 
within 30 days of the date of the State agency's review decision.
    (B) If a timely request for FCS review is received, and the State 
agency's decision is dated on or before October 31 of the year prior to 
the offset year, FCS shall:
    (1) Complete a review and notification as specified in paragraphs 
(g)(5)(vi)(D), (g)(5)(vi)(E), and (g)(5)(vi)(F) of this section, 
including providing State agencies and individuals the required 
notification of its decision; or
    (2) Notify the State agency that it has not completed its review 
and that the State agency must delete the claims in question from files 
to be certified to FCS according to paragraph (g)(5)(vii) of this 
section. If FCS fails to timely notify the State agency and because of 
that failure a claim is offset which FCS later finds does not meet the 
criteria specified in paragraph (g)(5)(ii) of this section, FCS will 
provide funds to the State agency for refunding the charge for the 
offset fee.
    (C) If a timely request for FCS review is received, and the State 
agency's decision is dated after October 1 of the year prior to the 
offset year, FCS shall complete a review as specified in paragraphs 
(g)(5)(vi)(D), (g)(5)(vi)(E) and (g)(5)(vi)(F) of this section, but the 
claim shall not be referred for offset as specified in paragraph 
(g)(5)(v)(E) of this section.
    (D) When FCS receives an individual's request to review a State 
agency decision, FCS shall:
    (1) Request pertinent documentation from the State agency about the 
claim. Such documentation shall include such things as printouts of 
electronic records and/or copies of claim demand letters, results of 
fair hearings, advance notices of disqualification hearings, the 
results of such hearings, records of payments, 60-day notices, review 
requests and documentation, decision letters, and pertinent records of 
such things as telephone conversations; and
    (2) Decide whether the State agency correctly determined the claim 
in question is past due and legally enforceable.
    (E) If FCS finds that the State agency correctly determined that 
the claim is past due and legally enforceable, FCS will notify the 
State agency and individual of its decision, and the reason(s) for that 
decision, including notice to the individual that any further appeal 
must be made through the courts.
    (F) If FCS finds that the State agency incorrectly determined that 
the claim is past due and legally enforceable, FCS will notify the 
State agency and individual of its decision, and the reason(s) for that 
decision. FCS will also notify the State agency about any corrective 
action the State agency must take with respect to the claim and related 
procedures.
    (vii) Referral of claims for offset. (A) State agencies shall 
submit to FCS a certified file of claims for collection through FTROP 
by the date specified by FCS in schedules which FCS will provide as 
stated in paragraph (g)(5)(i) [[Page 33630]] of this section. At the 
same time State agencies shall also provide to their FCS regional 
office a letter which specifically certifies that all claims contained 
in that certified file meet the criteria for claims referable for FTROP 
as specified in paragraph (g)(5)(ii) of this section, and that for all 
such claims a notice and opportunity to request a review as required in 
paragraphs (g)(5)(iii), (g)(5)(iv), (g)(5)(v) and (g)(5)(vi) of this 
section have been provided. The certification letter shall also state 
that the State agency has not included in the certified file of claims 
any claim which, as provided in paragraph (g)(5)(vi) of this section, 
FCS notified the State agency is not past due or is not legally 
enforceable, or any claim for which FCS notified the State agency that 
it has not completed a timely requested review, or for which the State 
agency has not completed a timely requested review. Finally, the 
certification letter shall also state that with the exception of State-
specific information such as names and positions and State-specific 
information required for State agency contacts, the State agency's 60-
day notice contains only the information specified in paragraph 
(g)(5)(iv) of this section.
    (B) The State agency shall provide to FCS the name, address and 
toll-free or collect telephone numbers of State agency contacts to be 
included in IRS notices of offset. State agencies shall state in the 
letter required in paragraph (g)(5)(vii)(A) of this section how they 
determined that such information is accurate and shall provide FCS 
updates of that information if and when that information changes.
    (viii) State agency actions on offsets made. (A) Promptly after 
receiving notice from FCS that offsets have been made, the State agency 
shall notify affected individuals of offsets made, including the amount 
charged for offset fees, and the status of the claims in question.
    (B) As close in time as possible to the notice of offset required 
in paragraph (g)(5)(viii)(A) of this section, the State agency shall 
refund to the individual (as required by paragraph (i)(4) of this 
section) any over collection which resulted from the offset of the 
individual's Federal income tax refund.
    (C) If an offset results from a State agency including in the 
certified file of claims required by paragraph (g)(5)(vii)(A) of this 
section a claim which does not meet the criteria specified in paragraph 
(g)(5)(ii) of this section, the State agency shall refund the amount 
offset to the individual, including any amounts collected to pay for 
the offset fee charged by the IRS. The State agency may claim any such 
latter amount as an allowable administrative cost under Part 277 of 
this chapter. The State agency shall not be responsible for refunding 
any portion of the charges for offset fees incurred for IRS reversals 
of offsets when, for example, the IRS refunds amounts offset, including 
offset fees, to taxpayers who properly notified the IRS that they are 
not liable for claims which were collected in whole or part from their 
share of a joint Federal income tax refund.
    (ix) Monitoring and reporting offset activities. State agencies 
shall monitor FTROP activities and shall take all necessary steps to:
    (A) Update IRS files, reducing the amounts of or deleting claims 
from those files to reflect payments made after referral to FCS, or 
deleting claims which for other reasons no longer meet the criteria for 
being collectible under FTROP.
    (B) Promptly refund to the individual any over collection of claims 
as required in paragraph (g)(5)(viii)(B) of this section.
    (C) Annually and no later than the tenth of October of the year 
prior to the offset year report in writing to the FCS regional office 
the number of 60-day notices mailed and the total dollar value of the 
claims associated with those notices.
    (D) Submit data security and voluntary payment reports as required 
by FCS and the IRS.
    (E) Report collections of all recipient claims collected under the 
procedures of paragraph (g)(5) of this section on the appropriate Form 
FCS-209, Status of Claims Against Households, as required by paragraph 
(i)(2) of this section.
    (6) Federal salary offset program.
    (i) Claims subject to salary offset. All recipient claims submitted 
by State agencies participating in the Federal income tax refund offset 
program (FTROP) shall be subject to the matching procedures specified 
in this paragraph. Individuals identified by the match shall be subject 
to the salary offset procedures specified in this paragraph.
    (ii) Identification of recipient claims owed by Federal employees. 
(A) FCS will match all recipient claims submitted by State agencies 
participating in FTROP against Federal employment records maintained by 
the Department of Defense (DoD) and the United States Postal Service 
(USPS). FCS will remove recipient claims matched during this procedure 
from the list of recipient claims to be referred to the Internal 
Revenue Service (IRS) for collection through FTROP.
    (B) When FCS receives a list of Federal employees matched against 
recipient claims for a particular State agency, it will notify the 
State agency in writing accompanied by a data security and 
confidentiality agreement containing the requirements specified in 
paragraph (g)(6)(ii)(C) of this section for the State agency to sign 
and return. When that agreement is returned, signed by an appropriate 
official of the State agency, FCS will provide the list of matched 
Federal employees to the State agency.
    (C) State agencies which receive lists of matched employees shall 
take the actions specified in this paragraph to ensure the security and 
confidentiality of information about those employees and their apparent 
debts, and shall ensure that any contractors or other non-State agency 
entities to which the records may be disclosed also take these actions:
    (1) By such means as card keys, identification badges and security 
personnel, limit access to computer facilities handling the data to 
persons who need to perform official duties related to the salary 
offset procedures. By means of a security package, limit access to the 
computer system itself to such persons;
    (2) During off-duty hours, keep magnetic tapes and other hard copy 
records of data in locked cabinets in locked rooms. During on-duty 
hours, maintain those records under conditions that restrict access to 
persons who need them in connection with official duties related to 
salary offset procedures;
    (3) Use the data solely for salary offset purposes as specified in 
paragraph (g)(6) of this section, including not extracting, duplicating 
or disseminating the data except for salary offset purposes;
    (4) Retain the data only as long as needed for salary offset 
purposes as specified in paragraph (g)(6) of this section, or as 
otherwise required by FCS;
    (5) Destroy the data by shredding, burning or electronic erasure; 
and
    (6) Advise all personnel having access to the data about the 
confidential nature of the data and their responsibility to abide by 
the security and confidentiality provisions stated in paragraph 
(g)(6)(ii)(C) of this section.
    (D) Prior to taking any action to collect recipient claims as 
specified in paragraph (g)(6)(iii) of this section, State agencies 
shall review the claims records of matched Federal employees to verify 
the amount of the recipient claim owed, and to remove from the list of 
claims any recipient claims which have been paid, which are being paid 
according to [[Page 33631]] an agreed to schedule, or which for other 
reasons are not collectible.
    (iii) State agency advance notice of salary offset. (A) Following 
the review specified in paragraph (g)(6)(ii)(D) of this section, State 
agencies shall provide each Federal employee verified as owing a 
recipient claim (debtor) with an advance notice of salary offset 
(advance notice). This advance notice shall be mailed to the debtor at 
the address provided by FCS, or shall be otherwise provided, within 60 
days of State agency receipt of the list specified in paragraph 
(g)(6)(ii)(B) of this section.
    (B) Within 90 days of the date of the advance notice, the State 
agency shall refer to FCS all claims for which the State agency does 
not receive timely and adequate response as specified in the advance 
notice. Such referrals shall consist of a copy of the advance notice 
sent to the debtor and copies of records relating to the recipient 
claim. Records relating to the recipient claims include such things as 
copies of printouts of electronic records and/or copies of claim demand 
letters, results of fair hearings, advance notices of disqualification 
hearings, the results of such hearings, records of payments, review 
requests and documentation, decision letters, and pertinent records of 
such things as telephone conversations.
    (C) The advance notice shall state that:
    (1) According to State agency records the debtor is liable for a 
claim for a specified dollar amount due to receiving excess food stamp 
benefits. State agencies are encouraged to include as much other 
information about the claim as possible, including such things as 
whether it was caused by household error or intentional Program 
violation, the date of the initial demand letter, any hearings or court 
actions which relate to the claim, and what, if any, payments have 
reduced the amount of the original claim;
    (2) Through a computer match the debtor was found to be employed by 
[the name and address of the employing agency of the debtor]. The 
computer match was conducted under the authority of and according to 
procedures required by the Privacy Act of 1974, as amended;
    (3) Collection from the wages of Federal and USPS employees for 
debts such as food stamp recipient claims is authorized by the Debt 
Collection Act of 1982. The claim will be referred to FCS for such 
collection action unless within 30 days of the date of the advance 
notice the State agency receives either:
    (i) Payment of the claim in full. Claims of $50 or less shall be 
paid in full within 30 days or they will be referred to FCS for 
collection from the individual's Federal salary; or
    (ii) The first installment payment for the claim. Claims of more 
than $50, if not paid in full within 30 days, must be paid in 
installments of at least $50 a month. Debtors may pay more than $50 on 
any installment payment. The advance notice shall state the monthly due 
date of installment payments and that if a monthly installment payment 
of at least $50 is not received by the due date, the claim will be 
referred to FCS for offset from the individual's Federal salary with no 
further opportunity to enter a voluntary repayment agreement;
    (4) The name, address and a toll-free or collect telephone number 
of a State agency contact (an individual or unit) for repayment and/or 
discussion of the claim; and
    (5) Debtors may submit documentation to State agencies showing such 
things as payments of claims or other circumstances which would prevent 
collection of claims. Unless the State agency receives such 
documentation within 30 calendar days of the date of the advance notice 
and the documentation clearly shows that the claim has been paid or is 
not legally collectible, the State agency shall refer the claim to FCS 
for collection from the debtor's salary. The State agency shall notify 
debtors in writing when claims for which an advance notice was issued 
will not be referred for collection from salaries. Debtors have the 
right to a formal appeal to FCS. Notification about how to make such 
appeals is required and will be provided to debtors before any 
collection action from salaries is taken.
    (iv) State agency retention and reporting of collections. (A) State 
agencies shall retain collections of recipient claims paid voluntarily 
to State agencies and to FCS through salary offsets at the rates 
specified in paragraph (h) of this section for the appropriate 
reporting period for Form FCS-209, Status of Claims Against Households. 
From time to time as volume warrants, FCS will report and transfer 
amounts collected from salaries to State agencies. Collections by State 
agencies and by FCS on all such claims shall be included on the 
appropriate FCS-209.
    (B) If a debtor fails to make an installment payment, within 60 
days of the date the payment was due, State agencies shall refer the 
claim to FCS, reporting the default, the dollar amount collected and 
the balance due.
    (v) FCS actions on claims referred by State agencies. Departmental 
procedures at 7 CFR 3.51-3.68 shall apply to claims referred by State 
agencies to FCS as required by paragraphs (g)(6)(iii)(B) and 
(g)(6)(iv)(B) of this section subject to the following modifications:
    (A) In addition to the definitions set forth at 7 CFR 3.52, the 
term ``debts'' shall further be defined to include recipient claims 
established according to this section; and the terms ``State agency'' 
and ``FCS'' shall be defined as set forth in section 271.2 of this 
chapter.
    (B) Pursuant to 7 CFR 3.34(c)(4) and 7 CFR 3.55(d), the Secretary 
has determined that collection of interest, penalties and 
administrative costs provided at 7 CFR 3.65 is not in the best 
interests of the United States and hereby waives collection of such 
charges.
    (C) In addition to providing the right to inspect and copy 
Departmental records as specified at 7 CFR 3.60(a), the Secretary shall 
provide copies of records relating to the debt in response to timely 
requests. For a request to be timely, FCS must receive it within 30 
calendar days of the date of the notice of intent.
    (D) Pursuant to 5 CFR 550.1104(d)(6), an opportunity to establish a 
written repayment agreement provided at 7 CFR 3.61 shall not be 
provided.
    (E) The notice of intent for FSP salary offset shall comply with 
the requirements of the Departmental notice of intent which are set 
forth at 7 CFR 3.55, subject to the following modifications:
    (1) In addition to the statement that the debtor has the right to 
inspect and copy Departmental records relating to the debt, the notice 
of intent shall state that if timely requested by the debtor, the 
Secretary shall provide the debtor copies of such records. It shall 
further advise, as required by 7 CFR 3.60(a), that to be timely such 
requests must be received within 30 days of the date of the notice of 
intent; and
    (2) The statement of the right to enter a written repayment 
agreement provided by 7 CFR 3.55(f) shall not be included.
* * * * *
    Dated: June 23, 1995.
Ellen Haas,
Under Secretary for Food, Nutrition and Consumer Services.
[FR Doc. 95-15887 Filed 6-27-95; 8:45 am]
BILLING CODE 3410-30-U