[Federal Register Volume 63, Number 5 (Thursday, January 8, 1998)]
[Rules and Regulations]
[Pages 1063-1069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-310]


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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 11

RIN 3067-AC77


Debt Collection

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Interim final rule with request for comments.

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SUMMARY: Under this rule FEMA will refer delinquent debts owed to this 
Agency to the Department of the Treasury for collection under the 
Government-wide Treasury Offset Program (TOP) and for tax refund 
offsets at the same time. FEMA amends its administrative offset 
regulations to allow administrative offset against delinquent debtor 
States and units of general local government. FEMA also amends its 
regulations to change the method for calculating interest, penalty and 
administrative charges assessed on delinquent debts and to make States 
and units of general local government subject to such charges.

DATES: This interim final rule is effective January 1, 1998. We invite 
comments on the rule, which should be submitted on or before March 9, 
1998.

FOR FURTHER INFORMATION CONTACT: Richard S. Buck, IV, Financial Policy 
Division, Office of Financial Management, Federal Emergency Management 
Agency, 500 C Street SW., Washington, DC 20472, (202) 646-4091.

ADDRESSES: Please submit any comments to the Rules Docket Clerk, Office 
of the General Counsel, Federal Emergency Management Agency, 500 C 
Street SW., room 840, Washington, DC 20472. Comments may also be 
submitted to the Rules Docket Clerk by facsimile at (202) 646-4536, or 
by e:mail addressed to Crane.M[email protected]. Please refer to RIN 3067-
AC61, Debt Collection when submitting your comments.

SUPPLEMENTARY INFORMATION:

I. Background

    The Debt Collection Improvement Act of 1996 (DCIA), Pub.L. 104-134, 
Sec. 31001, 31 U.S.C. 3720A, provides that the Department of the 
Treasury ensure that any Federal Government payment to a delinquent 
non-tax Federal debtor is subject to automatic offset against any tax 
refunds that may be owed to the debtor. Creditor Federal agencies are 
to receive any funds that are offset and are to apply them against 
outstanding debts. The DCIA also provides that the Department of the 
Treasury manage the tax refund offset program, previously administered 
by the Internal Revenue Service (IRS).
    To implement these DCIA provisions, the Department of the 
Treasury's Financial Management Service (FMS) published an interim 
final rule at 62 FR 34175 on June 25, 1997, which added Sec. 285.2 to 
31 CFR and covered both TOP and the tax refund offset programs. The FMS 
rule requires that all Federal agencies revise their debt collection 
regulations so that the agencies refer their delinquent debts to the 
Department of the Treasury. This FMS rule also centralizes and 
streamlines collection of delinquent non-tax Federal debt by having the 
Department of the Treasury (Treasury) manage the tax refund offset 
program as part of the Treasury's Government-wide offset program.
    The FMS rule also requires Federal agencies to amend their debt 
collection regulations on administrative offset and tax refund offset 
by the end of 1997 to conform to the FMS rule. FEMA's interim final 
rule complies with the FMS requirement.
    Under the FMS rule, FEMA will refer delinquent debt to Treasury for 
both TOP and tax refund offset. Under FEMA's previous tax refund offset 
regulation, 44 CFR Sec. Sec. 11.61-11.65, FEMA referred to the IRS only 
those delinquent debts that could not be recovered through 
administrative or salary offset and that had been reported as 
delinquent to consumer reporting agencies (commonly known as ``credit 
bureaus''). The new FMS rule allows agencies to use the three 
collection methods concurrently. The FMS rule allows agencies to report 
delinquent consumer debt to credit bureaus either before or after 
submitting a debt to the Treasury Offset Program, that is, credit 
bureau reporting is not a prerequisite to tax refund offset under this 
rule.
    Under 31 U.S.C. 3701(c) the definition of ``persons'' who are 
subject to the administrative offset provisions (31 U.S.C. 3716) of the 
Debt Collection Act of 1982 (DCA), makes any individual, organization, 
or entity except other Federal agencies subject to such offset, 
including States and units of general local government. Under 31 U.S.C. 
3717 Federal agencies assess interest, penalty and administrative 
charges against unpaid claims of the United States, including debts 
owed by States and units of general local government. FEMA's interim 
final rule allows FEMA to use administrative offset and to assess 
interest, penalty and administrative charges against these governments. 
Previously, FEMA charged States and units of general local government 
interest under principles of common law. However, principles of common 
law did not allow creditors, such as Federal agencies, to assess 
penalties or costs of collection against States and units of general 
local government. FEMA debt collection regulations had provided for 
common law offset against these entities.
    FEMA amends Sec. 11.48 on interest, penalty and administrative 
charges to change its methods for calculating these charges.

II. Section-by-Section Analysis of the Regulations

    Section 11.43, Administrative Offset, is changed to allow FEMA to:
    1. Take administrative offsets against States and units of general 
local government;
    2. Collect, through the use of administrative offset and tax refund 
offset, debts owed by individuals and other private sector delinquent 
debtors to States and local governments, which arise under programs 
administered by FEMA. FEMA will take such action under the provisions 
of 31 U.S.C. 3716(h)(1) and reciprocal agreements entered into by the 
Secretary of the Treasury and the States concerned. For instance, FEMA 
administers the Individual & Family Grant (IFG) program, which is 
funded 75% by the FEMA and 25% by the States. If a debtor owed a debt 
under the IFG Program, then FEMA could use administrative and tax 
refund offsets to recover the State's 25% share;
    3. Refer specifically delinquent debt to the Department of the 
Treasury for TOP in addition to conducting Agency administrative 
offset. Previously, the FEMA regulation (Sec. 11.43(a)) only allowed 
FEMA to use administrative offset against any monies due to the debtor 
from the United States;

[[Page 1064]]

    4. Change the period in which the debtor could request an 
administrative review from 15 days after receipt of the administrative 
offset notice to 60 days after FEMA mails such notice to the debtor. 
Since the period is calculated from the date of mailing rather than 
from date of receipt of notice, FEMA no longer has to use expensive 
certified mail, return receipt requested, for mailing such notices. See 
Sec. 11.43(c). Administrative review means that FEMA considers evidence 
and arguments submitted by the debtor and takes a fresh look as to 
whether FEMA should continue collection efforts for the full amount of 
the debt. 31 U.S.C. 3716(a)(3) provides that agencies must afford 
debtors a right to a ``review within the agency'' before taking 
administrative offset;
    5. Stay offset action where the debtor made a request for 
administrative review within the 60-day request period until FEMA has 
rendered a decision on the debtor's request;
    6. Continue offset action where the debtor has made a late request 
(after the 60-day period) for administrative review. Under such 
circumstances, FEMA will review the debtor's evidence and arguments. If 
the FEMA Administrative Review Official (ARO) finds that the debtor 
owes less than amounts already offset at the time of the decision, then 
FEMA will refund the difference to the debtor;
    7. Use offset under principles of common law in addition to FEMA's 
having the ability to collect by administrative offset. This implements 
DCIA Sec. 31001 (d)(2), 31 U.S.C. 3716(d);
    8. Determine that the debtor's failure to receive FEMA's notice of 
administrative offset, where this Agency had mailed the notice to 
debtors' last known address, will not affect the validity of the 
administrative offset action;
    9. Make debtors liable for all costs incurred by the Federal 
Government administrative offsets. For instance, delinquent debtors 
will have to pay the charges, now (in 1997) $7.02 per offset, that the 
Department of the Treasury incurs in making a TOP offset. 
Administrative offset costs are ``administrative costs'' provided for 
in Sec. 11.48(d).
    Section 11.44, Collection of debts from Federal agencies or States 
or units of general local government by common law offset has been 
removed and the section reserved. The DCIA now allows Federal agencies 
to use DCA administrative offset against States and units of general 
local government, and excepts Federal departments and agencies from 
administrative offset. Before the enactment of the DCIA, FEMA provided 
procedures by which FEMA would exercise common law offsets against 
these entities.

Section 11.48, Interest, Penalty and Administrative Charges

    The DCIA, by changing the definition of ``persons'' subject to 
interest, penalty and administrative costs of collection under 31 
U.S.C. 3717, now allows Federal agencies to assess such charges against 
States and units of general local government. Previously, FEMA had 
assessed interest against these entities only under principles of 
common law. At common law, any creditor could charge interest against 
debtors who were tardy in making payments of debts. In United States v. 
Texas, 507 U.S. 529 (1993), the Supreme Court approved a Federal 
department's charging a State interest on a past-due debt. However, 
principles of common law did not permit creditors, or Federal agencies, 
to assess penalties and administrative costs of collection against 
delinquent debtors. FEMA's prior rule, Sec. 11.48(c), excluded States 
and units of local government from penalty or administrative charge 
assessments. Sections 11.48(b), 11.48(d) and 11.48(e) now allow FEMA to 
assess interest, penalties and administrative charges against these 
entities under the provisions of 31 U.S.C. 3717.
    Section 11.48(a) contains a definition of ``delinquent debt'' to be 
used in all FEMA's debt collection regulations (Sec. 11.30-11.65). A 
debt becomes delinquent when it is not paid for by the due date or if a 
debtor has entered into a payment plan and fails to make a payment when 
due under the plan.
Waiver of Interest and Penalties
    Section 11.48(f)(5) now provides that the FEMA Agency Collections 
Officer (ACO) or the ACO's designee may waive assessment of interest 
where such assessment would be against equity and good conscience and 
not in the best interests of the United States. The section gives two 
situations where such waiver may be granted. Under Sec. 11.34(a)(1) 
FEMA's Chief Financial Officer also serves as FEMA's Agency Collections 
Officer.
Penalty Charges
    FEMA is changing its method of calculating penalty charges in 
Sec. 11.48(d). Previously, FEMA deemed a debt to be delinquent if the 
debtor did not pay the debt in full within 30 days after FEMA first 
notified the debtor that the debt was due. Since the Debt Collection 
Act of 1982, 31 U.S.C. 3717(e)(2), assesses penalty charges where a 
debt is 90 days past due, FEMA did not begin charging penalty charges 
until the 120th day after notification with accrual starting with the 
31st day after notification.
    Under revised Sec. 11.48(d), debtors will not be liable for penalty 
charges so long as they pay their debts in full within 90 days after 
the date that FEMA first sent notice that this Agency would assess 
penalty. See 31 U.S.C. 3717(e)(2). The penalty accrual period will 
start with the date of notification rather than 30 days after the date 
of the notification letter. Penalty will accrue also on unpaid interest 
as it accumulates and on administrative charges from the date that the 
Federal Government incurred them.
    Under the new Sec. 11.48(f)(5), if FEMA were to delay unduly in 
rendering an administrative review decision, then the ACO may waive 
assessment of penalty during the period of unreasonable delay.
    Revised Sec. 11.48(f)(1)(iv) grants FEMA authority to waive 
impositions of interest in accordance with standards set out in the 
Federal Claims Collection Standards (FCCS) at 4 CFR 102.13(c) and 
FEMA's debt collection regulations relating waiver, termination and 
suspension of debts at Secs. 11.50 and 11.51. FEMA is eliminating as 
grounds for waiver of interest and penalty the debtor's having a valid 
dispute with FEMA on issues involved in the debt.
    In the non-applicability of interest, penalty and administrative 
charges subsection (Sec. 11.48(g)), FEMA provides that only Federal 
agencies are exempt from these charges. As previously mentioned, with 
the passage of the DCIA, States and units of general local government 
no longer are exempt from assessment of such charges under the Debt 
Collection Act of 1982 (31 U.S.C. 3717).
    Where a debtor owes FEMA more than one debt and the debtor makes an 
involuntary partial payment the FMS states that the payment should be 
applied to the oldest debt first. FEMA has revised Sec. 11.48(h) to 
require that such partial payments will be applied to the oldest debt 
first. However, where the debtor makes a voluntary payment the debtor 
may choose to which debt the payment may be credited. This latter rule 
follows principles of common law.
    FEMA has revised its rule, Sec. 11.48(i)(1), relating to waiver of 
interest, penalty and administrative charge waivers as applied to 
States and local governments. If such governments can demonstrate to 
the satisfaction of the ACO or a designated deputy that the 
government's revenues are insufficient to enable the government to 
provide essential public services, then FEMA

[[Page 1065]]

may waive these charges. However, FEMA may demand that the requesting 
government provide accounting, economic, and demographic data to enable 
the ACO or the deputy to reach an informed conclusion as to whether to 
grant the waiver.
    Under revised Sec. 11.48(i) States and local governments that 
request review of proposed offsets will be charged interest, penalty or 
administrative charges on the amounts found to be due and owing after 
the completion of the administrative review process, just as any other 
debtor would be. Where a statute or regulation provides for a mandatory 
review, FEMA must waive interest and penalty charges (see the Federal 
Claims Collection Standards, 4 CFR 102.13(h)). Under Sec. 11.48(j), 
interest and penalty will continue to accrue on debts until debtors' 
payments actually are received at the place of payment designated by 
FEMA.

Sections 11.61 Through 11.65, Covering Tax Refund Offsets

    Since the Department of the Treasury has assumed management of the 
entire tax refund offset program in lieu of the IRS, FEMA has revised 
Sec. Sec. 11.61-11.65 to substitute ``Department of the Treasury'' 
wherever ``Internal Revenue Service'' or ``IRS'' previously appeared. 
These sections have been changed so that the procedures may be applied 
against any tax refund, whether the refund is for customs, alcohol, 
tobacco and firearms, or any other tax collected under the aegis of the 
Department of the Treasury. FEMA's prior regulation only covered 
``income tax refunds'' even though the Debt Collection Act of 1982 (31 
U.S.C. 3720A) covered tax refunds generally.
    The Debt Collection Act (31 U.S.C. 3720A(b)(2) requires agencies to 
grant the debtor at least 60 days to present evidence that their debt 
was not past-due or legally enforceable. FEMA's prior tax refund offset 
regulations granted debtors 65 days from the mailing of notice that 
FEMA was intending to use tax refund offset to collect delinquent debt. 
The additional five days was to allow time for the mails. However, to 
make times uniform for debtors to file requests for administrative 
review and reviews within the agency throughout FEMA's debt collection 
regulations, Sec. Sec. 11.30-11.65 set the time in which debtors may 
make a timely request for such reviews at 60 days from the mailing of 
the notice.

Section 11.61, Referral of Debt for Tax Refund Offset

    Based on former IRS regulations, the previous Sec. 11.61(a) limited 
referral of delinquent debts for tax refunds to those debts:
    1. that had already been reported to consumer reporting agencies 
(``credit bureaus'');
    2. that were not collectable through Federal salary, uniformed 
services pay, or Federal Government service retirements; or
    3. that were not collectable by using administrative offsets under 
31 U.S.C. 3716.
    In this interim final rule FEMA no longer eliminates certain 
debtors from the tax refund offset process. FEMA will continue 
aggressive use of credit bureau reporting of delinquent debtors, of 
collection by offsets against Federal employees, members of the 
uniformed services, and Federal retirees, and of administrative 
offsets, such as TOP.

Section 11.63, Notice to Debtor Before Tax Refund Offset

    Aside from the amendments made to all FEMA's tax refund offset 
regulations described above, this section has been amended to refer to 
``tax refund offsets'' generically, rather than ``income tax refund 
offsets'' as previously.
    Under Sec. Sec. 11.63(a)(2)(iv) through 11.63(b) the FEMA Office of 
General Counsel (OGC) will decide debtors' requests for review within 
the Agency. Previously, the ACO rendered such decisions. This is to 
transfer this quasi-adjudicatory function from the ACO to OGC, which 
bears responsibility for legal interpretations of FEMA regulations.

Section 11.64, Review Within Federal Emergency Management Agency

    Section 11.64 changes to 60 days after mailing of the notice the 
time in which the debtor may make a timely request for a review within 
FEMA. However, Sec. 11.64(c) allows FEMA to consider requests for 
review filed after the 60-day period. If the request is filed late, 
FEMA will consider the debtor's arguments and evidence but the Federal 
Government will not stay offset while preparing a decision. If the 
decision results in the debtor owing less (possibly zero) than amounts 
previously offset, then FEMA will refund the difference to the debtor.
    We amend 11.64 to substitute the OGC for the ACO as the office to 
render decisions where debtors request administrative reviews. This 
rule transfers an adjudicative function from the ACO, whose staff is 
charged with collecting debts, to OGC where the staff is concerned with 
legal interpretations and determining equities of situations. 
Procedures for conducting reviews within the Agency will be the same as 
those for administrative reviews under Sec. 11.43(d).

Section 11.65, Stay of Offset

    This section is changed only to substitute ``Department of the 
Treasury'' where IRS had previously been used.

Administrative Procedure Act Determination

    FEMA is publishing this interim final rule without opportunity for 
prior public comment under the Administrative Procedure Act, 5 U.S.C. 
553. FEMA has determined that a comment period would be unnecessary, 
impractical, and contrary to the public interest. This interim final 
rule does not contain any significant, substantive changes from the 
Internal Revenue Service regulations and does not change how the tax 
refund offset program affects the taxpayer who owes delinquent nontax 
debt. This interim rule reflects changes to internal procedures under 
which FEMA as a creditor agency will submit delinquent debt information 
to the Department of the Treasury in compliance with requirements of 
the Debt Collection Improvement Act.
    Procedures affecting debtors remain substantially unchanged. The 
procedural changes do not affect the rights of the debtor to dispute 
the nature or the amount of the debt or method of collection; they 
reflect changes required by merger of the tax refund offset with the 
Treasury Offset Program, or by enactment of the Debt Collection 
Improvement Act. Further, the procedural changes in this interim final 
rule primarily affect how FEMA will participate in the offset program. 
In order to implement the offset programs for tax refund payments made 
after January 1, 1998, FEMA needs to modify and publish its offset 
regulations. FEMA determines that good cause exists and that it is in 
the public interest to issue this interim final rule without 
opportunity for prior public comment. We invite public comments on the 
interim final rule, which comments will be taken into account when the 
final rule is published.

Regulatory Flexibility Act

    The Director certifies that this interim final rule is exempt from 
the requirements of the Regulatory Flexibility Act because it makes 
minor and technical amendments mandated by statute, 31 U.S.C. 3720A and 
by Department of the Treasury Interim Rule. This interim final rule 
does not contain any significant substantive changes from FEMA's 
present debt collection regulations and does not

[[Page 1066]]

substantially change how FEMA collects debts owed the United States 
that arise under FEMA programs. The Regulatory Flexibility Act does not 
apply to this interim final rule; no regulatory analysis has been 
prepared.

Paperwork Reduction Act

    The information collection requirements contained in this interim 
final rule have been approved by the Office of Management & Budget 
(OMB) under the provisions of the Paperwork Reduction Act of 1980 (44 
U.S.C. 3501 et seq.) and have been assigned OMB control number 3067-
0122.

Executive Order 12866, Regulatory Planning and Review

    Promulgation of this interim final rule is required by statute, 31 
U.S.C. 3716 and 3720A, and is not a significant regulatory action 
within the definition of E.O. 12866. To the extent possible under the 
statutory requirements of 31 U.S.C. 3720A this interim final rule 
adheres to the principles of regulation set forth in Executive Order 
12866. This interim final rule was not reviewed by the Office of 
Management and Budget under Executive Order 12866.

Congressional Review of Agency Rulemaking

    FEMA has submitted this interim final rule to the Congress and to 
the General Accounting Office under the Congressional Review of Agency 
Rulemaking Act, Pub. L. 104-121. This interim final rule is not a 
``major rule'' within the meaning of that Act. It does not result in 
nor is it likely to result in an annual effect on the economy of 
$100,000,000 or more; it will not result in a major increase in costs 
or prices for consumers, individual industries, Federal, State, or 
local government agencies, or geographic regions; and it will not have 
``significant adverse effects'' on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises.
    This interim final rule is exempt (1) from the requirements of the 
Regulatory Flexibility Act, as certified previously, and (2) from the 
Paperwork Reduction Act.
    This interim final rule is not an unfunded Federal mandate within 
the meaning of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4. 
It does not meet the $100,000,000 threshold of that Act.

List of Subjects in 44 CFR Part 11

    Administrative practices and procedures, Claims, Debts, Offsets, 
Taxes, Refunds.

    Accordingly, Secs. 11.43, 11.44, 11.48, and 11.61 through 11.65 of 
44 CFR are amended as follows:
    1. The authority citation for Part 11 is revised to read as 
follows:

    Authority: 31 U.S.C. 3701 et seq.

    2. Section 11.43 is revised to read as follows:


Sec. 11.43  Collection by administrative offset.

    (a) General. The Agency Collections Officer (ACO) or the ACO's 
designee may collect debts owed to the United States by means of 
offsets against monies due from the United States under provisions of 
31 U.S.C. 3716 and the procedures set forth below. Under provisions of 
31 U.S.C. 3716(h)(1) and reciprocal agreements entered into by the 
Secretary of the Treasury and the States concerned, the ACO or the 
ACO's designee may institute administrative offsets covered in this 
section to collect debts that are owed to States and which arise under 
programs administered by FEMA. The procedures prescribed by this 
section shall not be used if the debtor has executed a written 
agreement satisfactory to the ACO or the ACO's designee for the payment 
of the debt so long as the debtor adheres to the provisions of the 
agreement. Before using the procedures of this section, the ACO or the 
ACO's designee shall examine the debt to determine whether the 
likelihood of collecting such a debt and the best interests of the 
United States justify the use of administrative offset. If the debt is 
over 6 years old but is not 10 years old, the ACO or the ACO's designee 
shall examine the debt and decide whether using these procedures is 
cost effective. Further, FEMA shall not use administrative offset 
procedures on debts existing for more than 10 years after the 
Government's right to collect the debt first accrued unless facts 
material to the Government's right to collect the debt were not known 
and could not have been known by the officials of the Government who 
were charged with responsibility to discover and collect the debt. FEMA 
may refer debts to the Department of the Treasury for Government-wide 
administrative offset under the provisions of 31 U.S.C. 3716(c) and for 
offsets against Federal tax refunds under provisions of 31 U.S.C. 
3720A.
    (b) Written notice. After the ACO or the ACO's designee has 
examined the debt under procedures set forth in paragraph (a) of this 
section, FEMA shall hand deliver or send by mail a notice to the debtor 
advising the debtor of:
    (1) Nature and amount of the debt determined by the Agency to be 
due, and of intention to collect by administrative offset;
    (2) Rights available under this section;
    (3) Opportunity to inspect and copy the records relating to the 
debt;
    (4) Opportunity for review within the Agency with respect to the 
debt; and
    (5) Opportunity to enter into an agreement with the ACO with 
respect to the debt. Such agreement may include voluntary but 
nonrevocable withholding of monies due from the United States to the 
debtor.
    (c) Review within the Federal Emergency Management Agency. The 
debtor may request, within sixty calendar days after mailing or hand-
delivery of the written notice specified in paragraph (b) of this 
section, review within the Agency as to the existence or amount of the 
debt or terms of repayment. An attorney in the Office of General 
Counsel, acting as an Administrative Review Official (ARO), shall 
conduct the review. The ARO may determine that no debt is due, that the 
amount of the debts should be reduced, that terms of repayment should 
be set, or that the demanded amount should be paid in full.
    (1) If the debtor has made a timely request for a review within the 
Agency, then FEMA shall stay any offsets until the ARO has rendered a 
decision. However, interest, penalties and administrative charges, as 
specified in Sec. 11.48, shall continue to accrue during the pendency 
of the review within the Agency. If the debtor files a request for a 
review within the Agency after the 60 days specified above, then FEMA 
shall continue with the offset action. However, if the ARO finds that 
the debtor owes less than the amount offset, then FEMA will refund the 
amount over-withheld. For purposes of determining whether the debtor 
has filed a timely request for administrative review, the date of 
FEMA's receipt of the debtor's request establishes the time of filing.
    (2) The ARO shall transmit the decision on the debtor's request for 
review within the Agency. The ARO may contact the debtor directly to 
request additional information and data in order to allow the ARO to 
reach a knowledgeable decision. The ARO's decision shall be final 
insofar as FEMA's administrative processing of the debt is concerned.
    (3) FEMA shall use procedures in this section to decide debtors' 
requests for

[[Page 1067]]

review within FEMA under the provisions of Sec. 11.64(d).
    (d) If the debtor does not execute a written agreement, if the 
debtor does not request review within the Agency, or if the review 
within the Agency determines that a debt is due, then FEMA shall use 
administrative offset against monies payable by the United States in 
accordance with this section and appropriate regulations. However, if a 
statute or FEMA agreement either prohibits or explicitly provides for 
collection through administrative offset for the debt or the type of 
debt involved then the provisions of that statute or FEMA agreement 
rather than the provisions of this section shall be used for such 
offset.
    (e) If the debtor has a judgment against the United States, then 
notice shall be provided to the General Accounting Office for offset in 
accordance with 31 U.S.C. 3728.
    (f) In addition to administrative offset remedies described above, 
FEMA may use its rights to collect debts by offsets conducted under 
principles of common law.
    (g) The debtor's failure to receive notice, described in paragraph 
(b) of this section, mailed by FEMA to the debtor's last-known address, 
shall not impair the validity of offsets taken under this section.
    (h) If FEMA or any other Federal department or agency incurs costs 
in taking offsets to collect delinquent debts, then the debtor shall be 
liable for such costs as administrative costs in accordance with 
section 11.48(d).


Sec. 11.44  [Removed and reserved]

    3. Section 11.44 is removed and reserved.
    4. Section 11.48 is revised read as follows:


Sec. 11.48  Interest, penalties, and administrative charges.

    (a) Definition. In Sec. Sec. 11.30 through 11.65 of this part, a 
debt is deemed to be delinquent if the debtor has not paid the debt by 
the collection due date and if the debtor has not entered into a 
repayment agreement satisfactory to FEMA. A debt is also deemed 
delinquent if the debtor has not made payment by the date specified in 
the applicable agreement.
    (b) Interest. FEMA's delinquent debtors shall be charged interest 
on the outstanding principal balance due on debts owed the United 
States at the rate published by the Secretary of the Treasury under 
provisions of 31 U.S.C. 3717(a). The interest rate in effect at the 
time that FEMA first mailed or hand delivered to the debtor written 
notice, stating that the debt was due and that interest would be 
assessed on the debt, shall be the rate applied throughout the duration 
of the debt until the debt is paid in full.
    (1) However, if the debtor defaults on a debt repayment agreement 
made with the ACO or the ACO's designee, then interest shall accrue at 
the rate published by the Secretary of the Treasury under the 
provisions of 31 U.S.C. 3717(a)(1) that was in effect when the debtor 
defaulted on the repayment agreement. Interest shall accrue either from 
the date that FEMA first informed the debtor that the Agency would 
assess interest on the debt or some subsequent date specified in the 
written notice given by FEMA to the debtor stating that interest would 
be assessed.
    (2) However, where FEMA first sent the notice of indebtedness prior 
to October 25, 1982, interest shall run from the date on or after that 
date when FEMA first sent the debtor a letter notifying the debtor that 
the Agency would assess interest.
    (c) Exceptions to interest charges. However, no interest, described 
in paragraph (a) of this section, shall be charged if:
    (1) The amount due is paid in full within 30 days of the mailing of 
the demand. However, the ACO or the ACO's designee, as documented by a 
memorandum in the debt collection file, may extend this 30-day period 
on a case-by-case basis for good cause shown in accordance with the 
Federal Claims Collection Standards (4 CFR 102.13(g)), or
    (2) The applicable statute, regulation required by statute, loan 
agreement or contract either prohibits the charging of interest or 
explicitly fixes interest or charges, which apply to the debt involved.
    (d) Penalty charges. Except in the situation described in paragraph 
(c) of this section, the debtor shall be liable for a penalty of 6% 
annually on the unpaid principal, interest, and administrative charges 
if the debtor fails to pay the debt in full within 90 days of the date 
after the first written notice by FEMA that FEMA would assess penalty 
charges. However, if the debtor enters into a repayment agreement, 
satisfactory to the ACO or the ACO's designee within the 90-day period, 
then FEMA will not assess penalty so long as the debtor adheres to the 
provisions of the agreement. Penalty shall accrue starting on and 
including the day of FEMA's first written notice where FEMA mentioned 
that it would assess penalty charges on the debt. Penalty will not be 
assessed against Federal agencies. Penalty charges shall accrue on 
administrative charges, starting on the day that FEMA incurred the 
administrative charge. However, if the debtor pays the debt in full 
within 90 days of FEMA's first notice that the Agency would assess 
penalty charges or if the debtor enters into a repayment agreement 
satisfactory to the ACO or the ACO's designee within that time, then 
FEMA will not assess penalty on accrued administrative charges.
    (e) Administrative costs for processing delinquent debts. Debtors 
shall pay the United States for costs incurred by the Government in 
collecting the debt in accordance with 31 U.S.C. 3717(e)(1). 
Administrative cost calculations will be based upon actual costs 
incurred by FEMA or upon analyses establishing an average of actual 
costs incurred by FEMA in processing debts in similar stages of 
delinquency.
    (f) Standards for waiver of interest, penalties, and administrative 
charges.
    (1) The ACO or the ACO's designee may waive interest, penalties and 
administrative charges, either in whole or in part, if the ACO or the 
ACO's designee finds that:
    (i) The debtor is financially unable to pay;
    (ii) The Agency's enforcement policy will be adequately served if 
there is a waiver in whole or in part;
    (iii) The debtor has shown good cause, satisfactory to the ACO, 
that the claim was not timely paid. If waiver is granted, the 
administrative claims file shall be adequately documented; or
    (iv) The ACO or the ACO's designee may waive imposition of interest 
in accordance with standards set forth in 4 CFR 102.13 and 
Sec. Sec. 11.50 and 11.51 of this subpart.
    (2) The ACO, with the concurrence of the General Counsel, may waive 
interest, penalties and administrative costs based on criteria set 
forth in paragraphs (f)(3) through (f)(5) of this section. When such 
charges are waived, the Agency Collections Officer or the ACO's 
designee shall prepare a memorandum for the debt collection file 
stating the reasons for not collecting such charges.
    (3) If the costs of collection exceed the projected recovery then 
interest, penalties and administrative costs may be waived.
    (4) If FEMA determines that the debtor is unable to pay, as shown 
by complete and sworn statements as to his or her assets and projected 
income, then the ACO or the ACO's designee may waive interest, 
penalties and administrative charges in whole or in part. If the 
principal outstanding amount of the debt exceeds $5,000, the

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determination shall be made by the ACO. If the principal outstanding 
amount of the debt is $5,000 or less, the determination may be made by 
the DCO, the ACO, or a person designated by the ACO.
    (5) The ACO or the ACO's designee may waive assessing interest, 
penalty, and administrative charges if such assessment would be against 
equity and good conscience or not in the best interests of the United 
States. Examples include, but are not limited to:
    (i) FEMA's undue delay in rendering a decision where the debtor had 
requested an administrative review or review within the Agency. Under 
these circumstances, interest and penalty would be waived during the 
period of undue delay.
    (ii) The amount of interest is so large, in relation to the 
debtor's ability to pay that assessment of interest would leave the 
debtor perpetually indebted to the United States.
    (g) Nonapplicability. The provisions of this section do not apply 
to debts owed by Federal agencies.
    (h) Installment collections or partial payments. When a debtor pays 
a debt either partially or in installments, the payments shall first be 
applied to administrative costs, second to penalty charges, third to 
accrued interest, and finally to principal. Partial payments shall be 
deemed to be made when received at the FEMA office designated to 
receive the payments. If the debtor owes more than one debt, then the 
ACO or the ACO's designee will apply the partial payment to the oldest 
debt first unless the debtor is making a voluntary installment payment. 
Under voluntary circumstances, the debtor may designate to which debt 
the payment is to be applied.
    (i) Collection of interest, penalties, and administrative charges 
while an appeal is pending. If the debtor requests administrative 
review of the existence or the amount of the debt, interest, penalties, 
and administrative charges may be waived or suspended by the ACO or the 
ACO's designee under the following circumstances:
    (1) If a State or local government requests review within the 
Agency of a proposed referral to the Treasury Offset Program or an 
administrative review of a proposed administrative offset, then the ACO 
or the ACO's designee may waive interest, penalty or administrative 
charges if the State or local government shows to the satisfaction of 
the ACO or the ACO's designee that its taxes and other revenues would 
be insufficient to allow the State or local government to provide 
essential public services if FEMA were to collect interest, penalty, 
administrative charges, or any two or more, either in whole or in part. 
The ACO or the ACO's designee may require that the State or local 
government provide FEMA with such economic, accounting, financial or 
demographic data as the ACO or the ACO's designee may deem necessary to 
reach an informed decision as to waiver.
    (2) If a debtor notes an appeal or requests an administrative 
review that is mandated by law, then FEMA shall not assess interest and 
penalties while the appeal is pending from the time that the debtor 
requests an administrative review or an appeal until the Agency has 
taken final action on the administrative review or the appeal.
    (3) When a debtor notes an appeal or requests an administrative 
review that is permissive under statute or regulation, then interest, 
penalties and administrative charges may be waived if:
    (i) There is no fault or lack of good faith on the part of the 
debtor and if the amount of interest, penalties and administrative 
charges is so high in relation to affordable installment repayments 
that the debt would never be repaid. In determining whether interest 
and penalties should be waived, the ACO, the ACO's designee, or the DCO 
may demand that the debtor provide such financial data as he or she may 
determine is necessary to reach an informed decision.
    (ii) FEMA unreasonably delays in rendering a decision on a debtor's 
request for an administrative review or review within the Agency, then 
the ACO or the ACO's designee may waive assessment of interest, 
penalty, and administrative charge during the period of the 
unreasonable delay.
    (iii) The ACO or the ACO's designee may waive or suspend the 
collection of interest, penalty and administrative charges, for good 
cause shown and if such waiver or suspension would serve FEMA's 
interests. The FEMA official making such a waiver shall prepare a 
memorandum describing the circumstances and stating the reasons for the 
grant of a waiver or suspension.
    (j) Accrual of interest and penalty. Interest and penalty will 
accrue on delinquent FEMA debts until FEMA receives payment at the 
address designated by the ACO or the ACO's designee.
    5. Sections 11.61 through 11.65 are revised to read as follows:


Sec. 11.61  Referral of delinquent debts to Department of the Treasury 
for offsets against tax refunds.

    (a) FEMA may refer delinquent debts to the Department of the 
Treasury for offset against tax refunds in accordance with 31 U.S.C. 
3720A and that Department's implementing regulations.
    (b) FEMA will provide information to the Department of the Treasury 
within time limits prescribed by the Secretary of the Treasury or his 
or her designee and in accordance with agreements entered into between 
FEMA and the Department of the Treasury and its constituent agencies.
    (1) Information submitted to the Department of the Treasury shall 
include a description of:
    (i) The size and age of FEMA's inventory of delinquent debts; and
    (ii) The prior collection efforts that the inventory reflects; and
    (2) In accordance with time limits and record transmission 
requirements established by the Department of the Treasury or its 
constituent agencies, FEMA may submit magnetic media containing 
information on debtors being referred to that Department for tax refund 
offset. FEMA may use the electronic data transmissions facilities of 
other federal agencies in transmitting data on debtors or for referral 
of debts to the Department of the Treasury.
    (c) FEMA shall establish a collect-call or toll-free telephone 
number that the Department of the Treasury or its constituent agencies 
will furnish to debtors whose refunds have been offset to obtain 
information from FEMA concerning the offsets taken.
    (d) Tax refund offset procedures described in Secs. 11.61 through 
11.64 shall apply to debts owed to the United States that are past-due 
and legally enforceable, and
    (1) Except in the case of a judgment debt, the debt has been 
delinquent for at least three months but has not been delinquent for 
more than ten years at the time the offset is made; and
    (2) Where FEMA has given the debtor at least 60 days from the date 
of mailing of the notification (described in Sec. 11.63 of this part) 
to request a review within FEMA and to present evidence that all or 
part of the debt is not past-due or legally enforceable. If the debtor 
has requested a review and presented evidence, then FEMA has considered 
the debtor's evidence and reasons and has determined that all or a part 
of the debt is past-due and legally enforceable; and
    (3) With respect to which FEMA has notified or has made a 
reasonable attempt to notify the debtor that the debt is past-due and, 
unless repaid within 60 days of the mailing of the notification the 
debt will be referred to the Department of the Treasury for offset 
against any overpayment of tax; and
    (4) Is at least $25.00; and

[[Page 1069]]

    (5) Meets all other requirements of 31 U.S.C. 3720A and the 
Department of the Treasury regulations relating to the eligibility of a 
debt for tax refund offset have been satisfied.


Sec. 11.62  Administrative charges incurred in referrals for tax refund 
offset.

    In accordance with Sec. 11.48(e), all administrative costs incurred 
in connection with the referral of the debts to the Department of the 
Treasury for collection by tax refund offset shall be added to the 
amount owed by the debtor. Such costs will include, but not be limited 
to, a pro-rata share of total costs of taking offsets incurred by the 
Department of the Treasury in accordance with agreements executed by 
FEMA, the Department of the Treasury and the Department's constituent 
agencies.


Sec. 11.63  Notice to debtor before tax refund offset.

    (a) FEMA will refer a debt to the Department of the Treasury for 
tax refund offset only after FEMA:
    (1) Makes a determination that the debt is owed to the United 
States;
    (2) Sends the debtor a notice of FEMA's intent to use Department of 
the Treasury tax refund offset that provides the debtor with items of 
information described in paragraphs (a)(2) (i) through (vii) as 
follows:
    (i) Debtor owes FEMA an amount due; and
    (ii) The debt is past due; and
    (iii) Unless the debt is repaid within 60 days of the date of 
FEMA's mailing the notice of intent described above, FEMA intends to 
collect the debt by requesting the Department of the Treasury to take 
offset to reduce the debtor's federal tax refund by the amount of the 
principal amount of the debt and all accumulated interest, penalty, and 
other charges; and
    (iv) Debtor has an opportunity to present arguments and evidence 
within 60 days of mailing of the notice of intent that all or a part of 
the debt is not due. A debtor requesting a review within the Agency 
shall send these arguments to the FEMA office that sent the notice of 
intent under Sec. 11.63(a)(2); and
    (v) Debtor has had an opportunity to arrange to inspect and copy 
records relating to the debt by mailing a request to the FEMA office 
sending the notice of intent under Sec. 11.63(a)(2); and
    (vi) If no reply is received from the debtor within 60 days of 
mailing of the notice, FEMA may refer the debt to the U.S. Department 
of the Treasury after reviewing the file and determining that the debt 
is due; and
    (vii) Debtor may negotiate a repayment agreement, satisfactory to 
FEMA, for the repayment of the debt.
    (b) If the debtor has presented evidence and arguments as described 
in subsection (a)(2)(iv) FEMA will refer the debt to the Department of 
the Treasury only after the FEMA Office of General Counsel has rendered 
a decision under provisions of Secs. 11.64 and 11.65 of this subpart 
concerning the debtor's arguments and evidence, if any, and has 
determined that the debt is due either in whole or in part. If the 
debtor has submitted evidence in accordance with paragraph 
(a)(2)(iv)(g) of this section, the FEMA Office of General Counsel shall 
notify the debtor of the Agency's final determination.
    (c) If the debtor has questions concerning the debt or procedures 
being used, the debtor may contact FEMA at an address and telephone 
number provided in the notice of intent under Sec. 11.63(a)(2).


Sec. 11.64  Review within Federal Emergency Management Agency.

    (a) Notification by debtor. A debtor receiving notice of intent 
under Sec. 11.63(a)(2) has the right to present evidence and arguments 
within 60 days of mailing of the notice of intent that all of the debt 
is not past-due or not legally enforceable. To exercise this right, the 
debtor must:
    (1) Send a written request for review of evidence to the FEMA 
office sending the notice of intent; and
    (2) State in the request the amount disputed and the reasons why 
the debtor believes that the debt is not past-due or is not legally 
enforceable; and
    (3) Include in the request any documents that the debtor wishes to 
be considered, or state that additional information will be submitted 
within the remainder of the 60-day period. FEMA is not obligated to 
consider any of debtor's evidence received after the 60-day period, 
except as specified in paragraph (c) of this section.
    (b) Submission of evidence. The debtor may submit evidence that all 
or part of the debt is not past due or legally enforceable along with 
the notification required by paragraph (a) of this section. Debtor's 
failure to submit the notification and evidence within the 60-day 
period may result in FEMA's referral of the debt to the Department of 
the Treasury with only a review by the ACO or the ACO's designee that 
FEMA's records show that the debt is actually due FEMA.
    (c) Late filed requests for review within FEMA. If the debtor 
submits a request for review after the 60-day time limit in paragraph 
(a) of this section, FEMA shall render a decision as described in 
paragraph (d) of this section, but FEMA shall not stay offset action as 
described in Sec. 11.65. However, if FEMA, after the review of the 
debtor's evidence and arguments, determines that the debtor owes less 
than the amounts that FEMA has taken through offset, then FEMA shall 
refund any difference between any amounts offset and amounts that the 
review within the Agency determines is actually owed.
    (d) Review of the evidence. FEMA will review the debtor's arguments 
and evidence in accordance with procedures set forth in Sec. 11.43(c).


Sec. 11.65  Stay of tax refund offset action.

    If the debtor notifies FEMA that the debtor is exercising rights 
described in Sec. 11.64 and submits evidence within time limits 
specified in Sec. 11.64, any notice to the Department of the Treasury 
concerning tax refund offset will be stayed until the issuance of a 
written decision that sustains, amends, or ends collection action 
resulting from FEMA's original debt collection decision.

    Dated: December 31, 1997.
James L. Witt,
Director.
[FR Doc. 98-310 Filed 1-7-98; 8:45 am]
BILLING CODE 6718-01-P