[Federal Register Volume 63, Number 149 (Tuesday, August 4, 1998)]
[Proposed Rules]
[Pages 41688-41693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20731]



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Part IV





Department of the Treasury





_______________________________________________________________________



Fiscal Service



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31 CFR Part 285



Offset of Tax Refund Payments To Collect Past-Due Support; Proposed 
Rule

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

[[Page 41688]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510-AA63


Offset of Tax Refund Payments To Collect Past-Due Support

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking with request for comments.

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SUMMARY: Under Federal law, the Federal tax refund of a taxpayer who 
owes past-due support is reduced, or offset, by the amounts owed by the 
taxpayer. The funds offset from the taxpayers' tax refunds are 
forwarded to the State enforcing the collection of the past-due 
support. Effective January 1, 1999, the Department of the Treasury will 
conduct the tax refund offset program as part of the centralized offset 
program operated by the Financial Management Service (FMS), a bureau of 
the Department of the Treasury. The provisions of this proposed rule 
would prescribe the tax refund offset procedures for all Federal tax 
refunds payable after January 1, 1999, to individuals who owe past-due 
support being enforced by States. Past-due support includes delinquent 
child support or other obligations for the support of a child. This 
proposed rule would establish tax refund offset procedures that will 
supersede the procedures governing the tax refund offset program 
established by the IRS and applicable to the collection of past-due 
support (codified at 26 CFR 301.6402-5). The changes in this proposed 
rule reflect requirements necessitated by the inclusion of the tax 
refund offset program as a part of the Treasury Offset Program.

DATES: Comments will be accepted until September 3, 1998.

ADDRESSES: All comments should be addressed to Gerry Isenberg, 
Financial Program Specialist, Debt Management Services, Financial 
Management Service, Department of the Treasury, 401 14th Street S.W., 
Room 151, Washington, D.C. 20227. A copy of this proposed rule is being 
made available for downloading from the Financial Management Service 
web site at the following address: http://www.fms.treas.gov.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program 
Specialist, at (202) 874-6660; Ellen Neubauer or Ronda Kent, Senior 
Attorneys, at (202) 874-6680.

SUPPLEMENTARY INFORMATION:

Background

    Under the provisions of the Debt Collection Improvement Act of 1996 
(DCIA), Pub. L. 104-134, 110 Stat. 1321, 1358 (1996), nontax Federal 
payments to a person owing a delinquent nontax debt to the United 
States or to a State are reduced, or offset, by the amounts owed by 
that person. The offset funds are applied to the person's debt. The 
Financial Management Service (FMS), as the disbursing agency of the 
Department of the Treasury (Treasury), is responsible for the 
implementation of centralized offset of Federal payments for the 
collection of delinquent nontax debt owed to Federal agencies and to 
States, including past-due support being enforced by the States, in 
accordance with the provisions of the DCIA. In addition, FMS disburses 
more than 850 million Federal payments annually, including tax refund 
payments to taxpayers on behalf of the Internal Revenue Service (IRS).
    Under 26 U.S.C. 6402(c) and 42 U.S.C. 664, the tax refund of a 
taxpayer who owes past-due support is reduced, or offset, by the 
amounts owed by the taxpayer (also referred to as the ``debtor'' in 
this rule). The funds offset from the taxpayers' tax refunds are 
forwarded to the Department of Health and Human Services (HHS) for 
transmission to the State enforcing the collection of the past-due 
support. ``Past-due support'' means the amount of support, determined 
under a court order, or an order of an administrative process 
established under State law, for support and maintenance of a child, or 
of a child and the parent with whom the child is living, which has not 
been paid.
    The IRS has been collecting past-due support for States by tax 
refund offset since 1982. FMS has been collecting delinquent nontax 
debts and past-due support by the administrative offset of other 
Federal payments under its centralized offset program known as the 
``Treasury Offset Program.'' To improve the efficiency of Treasury's 
collection of debts, operation of the tax refund offset program will be 
included as part of the Treasury Offset Program effective January 1, 
1999. The provisions and legislative history of the DCIA clarified that 
FMS may conduct tax refund offsets to collect past-due support (see 
Secs. 31001(v)(2) of the DCIA, codified at 42 U.S.C. 664(a); 142 Cong. 
Rec., 104th Cong. 2d Sess., H4087, H4090 (Apr. 25, 1996)).
    This proposed rule would govern only the offset of one type of 
payment, tax refunds, to pay one type of delinquent debt, past-due 
support. FMS has promulgated separate rules and procedures governing 
other types of offset, such as tax refund offset for the collection of 
debts owed to the Federal Government and the offset of nontax Federal 
payments for the collection of past-due child support. FMS also will 
promulgate rules governing offset of nontax Federal payments for the 
collection of debts (other than child support) owed to Federal agencies 
and States. FMS anticipates that Part 285 of this title ultimately will 
contain all of the provisions relating to centralized offset by 
disbursing officials for the collection of debts owed to the Federal 
Government and to State governments, including past-due child support 
being enforced by States.

The Treasury Offset Program

    The Treasury Offset Program currently works as follows. FMS 
maintains a delinquent debtor database. The database contains 
delinquent debtor information submitted and updated by Federal agencies 
owed debts, and by States collecting debts including any past-due 
support being enforced by States. Before a Federal payment is disbursed 
to a payee, FMS compares the payee information with debtor information 
in the delinquent debtor database operated by FMS. If the payee's name 
and taxpayer identifying number (TIN) match the name and TIN of a 
debtor, the payment is offset, in whole or part, to satisfy the debt, 
to the extent allowed by law. FMS transmits amounts collected to the 
appropriate agencies or States owed the delinquent debt after deducting 
a fee charged to cover the cost of the offset program.
    Information about a delinquent debt or past-due support obligation 
remains in the debtor database for offset as long as the debt remains 
past-due and legally collectible by offset, or until debt collection 
activity for the debt is terminated because of full payment, 
compromise, write-off or other reasons justifying termination or 
removal of the debt from the database.

Offset of Tax Refund Payments To Collect Past-Due Child Support 
Under the Treasury Offset Program

    This proposed rule would establish tax refund offset procedures 
that will supersede the procedures governing the tax refund offset 
program established by the IRS and applicable to the collection of 
past-due support (codified at 26 CFR 301.6402-5). Procedures for 
processing claims by non-debtor spouses and for rejecting a taxpayer's 
election to apply his or her refund to future tax liabilities would 
remain governed by IRS rules.

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    After January 1, 1999, tax refund payments would be offset to 
collect past-due support as part of the Treasury Offset Program, 
subject to the requirements of 26 U.S.C. 6402(c) and 42 U.S.C. 664. 
Since FMS issues different payment types daily, past-due support could 
then be satisfied by the offset of a variety of Federal payment types 
including, but not limited to, vendor, salary, and retirement payments, 
as well as tax refund payments.
    As required under the provisions of 45 CFR 303.72, the HHS rules 
implementing 42 U.S.C. 664, either the State agency collecting the 
past-due support or HHS will notify debtors of the State's intention to 
submit the debt to Treasury for tax refund offset purposes. The debtors 
would be notified that the State intends to collect the past-due 
support by tax refund offset, administrative offset, or a combination 
of both, and of the applicable opportunities for review available to 
the debtor. HHS will report to FMS information on past-due support 
debts referred to HHS by States for tax refund offset purposes.
    Since under current HHS rules States are required to refer past-due 
support debts to HHS for offset of Federal payments, HHS would report 
those debts to FMS. While nothing in this rule is intended to require 
States to refer past-due support claims directly to FMS for tax refund 
offset, this rule would provide the flexibility for HHS to amend its 
rule if HHS decides to provide States with that option. For States 
submitting debts through HHS, the pre-offset procedures established by 
HHS (codified at 45 CFR 303.72) for requesting collection of past-due 
child support by tax refund offset would apply and would be unchanged 
by this rule. The pre-offset procedures contained in this rule would 
apply to past-due support debts submitted to FMS directly by States, if 
authorized by HHS. When a past-due support debt is referred to FMS for 
offset, the referred debt would be subject to collection by tax refund 
offset under the provisions of this rule.
    After a tax refund offset occurs, FMS would notify the debtor that 
the offset has occurred. FMS would provide information to the debtor 
regarding the amount and date of the offset, the State to which the 
amount offset was paid, and a contact in the State that would handle 
concerns or questions regarding the delinquent debt that resulted in 
the tax refund offset. The notice also would advise any non-debtor 
spouse who may have filed a joint tax return with the debtor of the 
steps that the non-debtor spouse may take to secure his or her proper 
share of the tax refund. IRS would continue to be responsible for 
reviewing tax refund claims by non-debtor spouses. FMS would provide 
States, whether through HHS or directly, with sufficient information to 
identify the past-due support obligation for which amounts have been 
collected from tax refunds. FMS also would report tax refund offset 
information to the IRS at least weekly, to HHS at such time and in such 
manner as FMS and HHS agree but no less than annually, and to States 
that deal directly with FMS on a periodic basis.
    FMS developed this proposed rule in consultation with the IRS and 
HHS and acknowledges their constructive assistance. As required by 42 
U.S.C. 664(b)(1), HHS has approved this proposed rule.

Proposed Changes Under Treasury Offset Program

    As described in detail below, this proposed rule would change 
certain procedures established by the IRS (codified at 26 CFR 301.6402-
5) applicable to the collection of past-due support on behalf of 
States. The changes would not affect a debtor's ability to dispute the 
nature or amount of the past-due support obligation since States are 
required to provide the same due process opportunities to debtors under 
this rule as required by HHS rules codified at 45 CFR 303.72.
    The changes in this proposed rule reflect requirements necessitated 
by the inclusion of the tax refund offset program as a part of the 
Treasury Offset Program. For example, since FMS would implement tax 
refund offset, under this rule HHS would transmit past-due support 
information to FMS, instead of IRS. FMS, rather than IRS, would provide 
post-offset notices and information to debtors and HHS or States. By 
including the tax refund offset program as a part of the Treasury 
Offset Program, States would be permitted to report increases to the 
amount of the debt as long as the State provided proper notice to the 
debtor and complied with any other requirements of State law or 
procedure.
    In addition, while not currently allowed under HHS rules, this 
proposed rule would provide the flexibility for HHS to authorize States 
to refer information directly to FMS, rather than submitting 
information through HHS. This proposed rule also would allow States to 
submit debts for collection by tax refund offset on an ongoing basis, 
rather than annually, if authorized by HHS.

Section Analysis

(a) Definitions

    This rule, as proposed, would include the following definitions.
    Debt. For purposes of this rule, the term ``debt'' would mean past-
due support unless otherwise indicated. The definition of debt 
contained in this rule would not alter the meaning of the term as 
contained in 31 U.S.C. 3701(b)(1) or other regulations governing the 
collection of debts other than past-due support. It merely would limit 
the scope of this rule to debt based on past-due support.
    Past-due support. As defined in 42 U.S.C. 664(c), ``past-due 
support'' would mean the amount of support determined under a court 
order or an order of an administrative process established under State 
law for support and maintenance of a child, or of a child and the 
parent with whom the child is living, which has not been paid.
    Qualified child. ``Qualified child'' would mean a child (A) who is 
a minor, or (B) who, while a minor, was determined to be disabled under 
subchapters II or XVI, Chapter 7, Title 42, United States Code, and for 
whom an order of support is in force. The age of majority is determined 
under State law.
    State. ``State'' would mean the several States of the United 
States. The term ``State'' also would include the District of Columbia, 
American Samoa, Guam, the United States Virgin Islands, the 
Commonwealth of the Northern Mariana Islands, and the Commonwealth of 
Puerto Rico. Treasury considered including legal subdivisions of States 
within the definition of ``State'' to ensure that there were no 
impediments to collecting past-due support being enforced at, for 
example, the county level. Legal subdivisions of States were not 
included in the definition of ``State'' because of concerns about the 
potential impact on current relationships between States and their 
legal subdivisions in the collection of past-due support. The public is 
invited to comment on the impact of including or excluding legal 
subdivisions of States in the definition of ``State'' as well as any 
other provision of this rule. The public also is invited to comment 
about whether tribal governments operating child support enforcement 
programs should be treated in the same manner as States for purposes of 
this rule.
    Tax refund offset. For purposes of this rule, the term ``tax refund 
offset'' would mean withholding or reducing a tax refund payment by an 
amount necessary to satisfy a debt owed by the payee(s) of a tax refund 
payment. This rule would

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govern the offset of tax refund payments under 26 U.S.C. 6402(c) and 42 
U.S.C. 664. This rule would not cover the offset of Federal payments 
other than tax refund payments for the collection of past-due support. 
See 31 CFR 285.1.
    Tax refund payment. For purposes of this rule, the term ``tax 
refund payment'' would mean the amount to be refunded to the taxpayer 
after the IRS has applied the taxpayer's overpayment to the taxpayer's 
past-due tax liabilities in accordance with 26 U.S.C. 6402(a) and 26 
CFR 6402-3(a)(6)(i).

(b) General Rule

    Paragraph (b)(1) states that past-due support information would be 
submitted to FMS, instead of IRS, for collection by tax refund offset. 
Currently, the IRS rules governing tax refund offset for collection of 
past-due support are codified at 26 CFR 301.6402-5. The procedures in 
this rule would supersede the procedures in the IRS rule. This rule 
would not change the procedures codified at 45 CFR 303.72 which require 
States to submit past-due support to HHS for collection by tax refund 
offset. This rule only would give States the option of submitting 
information directly to FMS, or through HHS, to the extent authorized 
by HHS rules.
    Paragraph (b)(2) describes the offset process.

(c) Notification of Past-Due Support

    Paragraph (c) describes the process by which past-due support debt 
information would be submitted to FMS for tax refund offset. HHS rules 
require States to participate in the tax refund offset program. HHS 
rules do not mandate that a State participate in the administrative 
offset program (offset of nontax Federal payments) created pursuant to 
the DCIA and operated pursuant to the rules in section 285.1 of this 
part. For those States electing to collect past-due support debts by 
administrative offset as well as tax refund offset, nothing in this 
proposed rule or section 285.1 would require a State to submit 
duplicate past-due support debt information for collection by offset 
under both rules. Further, nothing in this proposed rule would prohibit 
a State from combining into a single notice to the debtor the pre-
offset notification required under this proposed rule, Section 285.1, 
and other laws or regulations.
    Paragraph (c)(1) describes the type of past-due support eligible 
for collection by tax refund offset based on the requirements of 26 
U.S.C. 6402(c) and 42 U.S.C. 664. HHS rules establish a minimum past-
due support requirement of $150 when support has been assigned to the 
State. Paragraph (c)(1)(i)(A) of this proposed rule would not change 
the requirement but would provide HHS with the flexibility to reduce 
the minimum amount to $25 for assigned cases. Paragraph (c)(1)(i)(B) 
reflects the statutory provision in 42 U.S.C. 664(b)(2) that 
establishes a minimum past-due support requirement of $500 for cases 
for which a State agency is providing support collection services for 
parents who are not receiving welfare benefits (non-assigned cases). 
For non-assigned cases, tax refund offset may be used only to collect 
past-due support owed to or on behalf of a qualified child, or in some 
circumstances, a qualified child and the parent with whom the child is 
living.
    Paragraph (c)(2) describes the information that must be included 
for each past-due support debt owed when a State submits notification 
to HHS for transmission to FMS. The procedures by which States submit 
notification of liability to HHS are detailed in 45 CFR 303.72. This 
rule would not change those procedures. FMS and HHS will provide States 
with more specific instructions regarding the formatting of information 
and the required data elements.
    Under the existing IRS regulation, codified at 26 CFR 301.6402-5, 
States are required to submit past-due support information to HHS, 
which transmits the information to IRS for offset. Paragraph (c)(3) 
adds a new procedure whereby States, at their option and to the extent 
authorized by HHS, would be permitted to submit past-due support 
information for offset directly to FMS, instead of through HHS.
    Under paragraphs (c)(2) and (c)(3), States would be required to 
certify compliance with pre-offset procedures contained in this rule 
and imposed by State law or procedures. The certifying official would 
be required to have both the knowledge and authority to certify, on 
behalf of the State, that the requirements have been met.
    Paragraph (c)(4) reiterates the requirements codified at 42 U.S.C. 
664 and 45 CFR 303.72 concerning the notice and opportunities that 
States are required to provide to individuals who owe past-due support 
before initiating collection by tax refund offset. This proposed rule 
would not change the procedures.
    Paragraph (c)(5) describes the procedures for correcting and 
updating information transmitted to FMS by a State. If the information 
is transmitted to FMS through HHS, States would correct and update 
information through HHS. As currently operated by the IRS, States may 
submit past-due support debts once each year for tax refund offset and 
may not increase the amount owed after the debt is submitted. As 
operated under the Treasury Offset Program, debts would be submitted 
for offset on an ongoing basis, rather than annually only, if provided 
for in HHS rules. Therefore, unlike the IRS rule codified at 26 CFR 
301.6402-5(c)(4), under the Treasury Offset Program and this rule, 
States would be able to increase the amount of past-due support owed by 
an obligor after the debt is submitted for offset, subject to 
compliance with pre-offset State law and certification requirements. 
Decreases in the amount owed also will be reported in the manner and 
time frames provided by FMS or HHS.
    Paragraph (c)(6) would require States that are enforcing a past-due 
support order issued by another State, or otherwise have knowledge that 
another State is involved in enforcing a particular past-due support 
order, to inform any other State involved in enforcing the order that 
it has notified FMS of the past-due support and of any amounts received 
as a result of an offset. The purpose of this proposed notification is 
to avoid duplicate offsets for the same debt referred by more than one 
State and to ensure that debt balances are maintained accurately.

(d) Priorities for Offset

    This paragraph describes how a tax refund payment would be applied 
when a taxpayer owes multiple past-due support debts certified for 
offset. Since the priorities are mandated by statute, 26 U.S.C. 
6402(c), the priorities as stated in the IRS regulation, codified at 26 
CFR 301.6402-5, would not change. Before authorizing FMS to disburse a 
tax refund payment, the IRS would apply any amount of overpayment by 
the taxpayer to tax liabilities of the taxpayer. See definition of 
``tax refund payment'' in paragraph (a) of this section.
    Paragraph (d)(1) states that, unless otherwise provided by Federal 
law, the tax refund payment will be reduced and applied to a taxpayer's 
debts in the following order of priority: first by the amount of any 
past-due support assigned to a State; second, by the amount of any 
past-due, legally enforceable debt owed to a Federal agency; and third, 
by the amount of any qualifying past-due support not assigned to a 
State. The public is invited to comment on how a tax refund payment 
should be applied to a taxpayer's multiple debts within the same 
category e.g., if a taxpayer owes

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two or more support obligations that have been assigned to a State.
    Paragraph (d)(2) reiterates that the tax refund payment would be 
applied to the outstanding nontax debts of a taxpayer prior to the 
taxpayer's future estimated tax liabilities. Any amounts remaining 
after offset would be applied to estimated tax, or would be refunded to 
the taxpayer.

(e) Post-Offset Notice

    Under this paragraph (e), once an offset of a tax refund payment 
has occurred, FMS, rather than IRS, would provide notice to the payee 
and HHS or the State that refers past-due support directly to FMS. In 
its notice to the payee, FMS also would notify a non-debtor spouse who 
files a joint income tax return with a debtor of the procedures that 
may be taken to secure his or her proper share of the tax refund. FMS 
would notify the IRS of any offsets. At such time and in such manner as 
FMS and HHS agree, but no less than annually, FMS would provide HHS 
with statistical information regarding offsets for collection of past-
due support.

(f) Offset Made With Regard to a Tax Refund Payment Based Upon Joint 
Return

    This paragraph (f) states that a non-debtor spouse who files a 
joint income tax return with a debtor should take appropriate action to 
secure his or her proper share of a tax refund from which an offset was 
made. Such procedures are governed by IRS rules and would not be 
affected by this rule.

(g) Disposition of Amounts Collected

    This paragraph (g) describes how amounts collected from tax refund 
payments would be transmitted to HHS or the appropriate State.

(h) Fees

    As did the IRS, FMS would charge a fee to cover the costs of the 
tax refund offset program incurred by FMS, including any costs charged 
to FMS by the IRS. FMS would deduct the fee from the amount offset 
before that amount is transmitted to the State or HHS. The fee will be 
established annually in such amount as FMS and HHS agree to be 
sufficient to reimburse FMS for the full cost of the offset procedure. 
FMS would provide notification, in advance, of any changes in the fee.

(i) Review of Tax Refund Offsets

    As provided in 26 U.S.C. 6402(f), the reduction of a taxpayer's 
refund made pursuant to 26 U.S.C. 6402(c) shall not be subject to 
review by any court of the United States or by the Secretary of the 
Treasury, FMS, or IRS in an administrative proceeding. This provision 
does not impact any rights a debtor may otherwise have to dispute the 
existence or amount of the debt.

(j) Access to and Use of Confidential Tax Information

    Access to and use of confidential tax information in connection 
with the tax refund offset program is governed by 26 U.S.C. 6103. 
Paragraph (j) describes permitted uses of confidential tax information 
in connection with tax refund offset.

(k) Effective Date

    The inclusion of the tax refund offset program as a part of the 
administrative offset program conducted by FMS will be effective for 
all tax refund payments payable after January 1, 1999. Before that 
date, States would be required to comply with all of the tax refund 
offset prerequisites, such as providing notice to debtors, in order to 
submit debts for collection from tax refund payments payable after 
January 1, 1999.

Regulatory Analyses

    This proposed rule is not a significant regulatory action as 
defined in Executive Order 12866. It is hereby certified that this rule 
will not have a significant economic impact on a substantial number of 
small entities. Therefore, a regulatory flexibility analysis is not 
required. This regulation will not impose significant costs on small 
businesses because this regulation only impacts individuals who receive 
tax refunds and who owe past-due support.
    The public is invited to submit comments on the proposed rule which 
will be taken into account before a final rule is issued.

List of Subjects in 31 CFR Part 285

    Administrative practice and procedure, Child support, Child 
welfare, Claims, Debts, Privacy, Taxes.

Authority and Issuance

    For the reasons set forth in the preamble, 31 CFR Part 285 is 
proposed to be amended as follows:

PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION 
IMPROVEMENT ACT OF 1996

    1. The authority citation for part 285 is revised to read as 
follows:

    Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3716, 3720A; 42 U.S.C. 
664; E.O. 13019.

    2. Section 285.3 is proposed to be added to subpart A to read as 
follows:


Sec. 285.3  Offset of tax refund payments to collect past-due support.

    (a) Definitions. For purposes of this section:
    Debt as used in this section is synonymous with the term past-due 
support unless otherwise indicated.
    Debtor as used in this section means a person who owes past-due 
support.
    FMS means the Financial Management Service, a bureau of the 
Department of the Treasury.
    HHS means the Department of Health and Human Services, Office of 
Child Support Enforcement.
    IRS means the Internal Revenue Service, a bureau of the Department 
of the Treasury.
    Past-due support means the amount of support, determined under a 
court order, or an order of an administrative process established under 
State law, for support and maintenance of a child, or of a child and 
the parent with whom the child is living, which has not been paid, as 
defined in 42 U.S.C. 664(c).
    Qualified child means a child:
    (i) Who is a minor, or
    (ii) Who, while a minor, was determined to be disabled under 
subchapters II or XVI, Chapter 7, Title 42, United States Code, and for 
whom an order of support is in force.
    State means the several States of the United States. The term 
``State'' also includes the District of Columbia, American Samoa, Guam, 
the United States Virgin Islands, the Commonwealth of the Northern 
Mariana Islands, and the Commonwealth of Puerto Rico.
    Tax refund offset means withholding or reducing a tax refund 
payment by an amount necessary to satisfy a debt owed by the payee(s) 
of a tax refund payment.
    Tax refund payment means any overpayment of Federal taxes to be 
refunded to the person making the overpayment after the IRS makes the 
appropriate credits as provided in 26 U.S.C. 6402(a) and 26 CFR 6402-
3(a)(6)(i) for any liabilities for any tax on the part of the person 
who made the overpayment.
    (b) General rule. (1) Past-due support will be collected by tax 
refund offset upon notification to FMS in accordance with 26 U.S.C. 
6402(c), 42 U.S.C. 664 and this section. Collection by offset under 26 
U.S.C. 6402(c) is a collection procedure separate from the collection 
procedures provided by 26 U.S.C. 6305 and 26 CFR 301.6305-1, relating 
to the assessment and collection of certain child and spousal support 
liabilities. Tax refund offset may be used separately or in conjunction 
with the collection procedures provided in 26

[[Page 41692]]

U.S.C. 6305, as well as other collection procedures.
    (2) FMS will compare tax refund payment records, as certified by 
the IRS, with records of debts submitted to FMS. A match will occur 
when the taxpayer identifying number (as that term is used in 26 U.S.C. 
6109) and name of a payment certification record are the same as the 
taxpayer identifying number and name of a delinquent debtor record. 
When a match occurs and all other requirements for tax refund offset 
have been met, FMS will reduce the amount of any tax refund payment 
payable to a debtor by the amount of any past-due support debt owed by 
the debtor. Any amounts not offset will be paid to the payee(s) listed 
in the payment certification record.
    (c) Notification of past-due support. (1) Past-due support eligible 
for tax refund offset. Past-due support qualifies for tax refund offset 
if:
    (i)(A) There has been an assignment of the support obligation to a 
State and the amount of past-due support is not less than $25.00; or
    (B) A State agency is providing support collection services under 
42 U.S.C. 654(5), the amount of past-due support is not less than 
$500.00, and the past-due support is owed to or on behalf of a 
qualified child (or a qualified child and the parent with whom the 
child is living if the same support order includes support for the 
child and the parent); and
    (ii) A notification of liability for past-due support has been 
received by FMS as prescribed by paragraphs (c)(2) or (c)(3) of this 
section.
    (2) Notification of liability for past-due support transmitted to 
FMS by HHS. States notifying HHS of past-due support shall do so in the 
manner and format prescribed by HHS. The notification of liability 
shall be accompanied by a certification that the State has complied 
with the requirements contained in paragraph (c)(4) of this section and 
with any requirements applicable to the offset of Federal tax refunds 
to collect past-due support imposed by State law or procedures. HHS 
shall consolidate and transmit to FMS the information contained in the 
notifications of liability for past-due support submitted by the States 
provided that the State has certified that the requirements of 
paragraph (c)(4) of this section have been met.
    (3) Notification of liability for past-due support transmitted 
directly to FMS by States. States notifying FMS of past-due support 
shall do so in the manner and format prescribed by FMS to the extent 
authorized by HHS regulations. The notification of liability shall be 
accompanied by a certification that the State has complied with the 
requirements contained in paragraph (c)(4) of this section and with any 
requirements applicable to the offset of Federal tax refunds to collect 
past-due support imposed by State law or procedures. FMS may reject a 
notification of past-due support which does not comply with the 
requirements of this section. Upon notification of the rejection and 
the reason for rejection, the State may resubmit a corrected 
notification.
    (4) Advance notification to debtor of intent to collect by tax 
refund offset. The State is required to provide a written notification 
to the debtor, pursuant to the provisions of 45 CFR 303.72, informing 
the debtor that the State intends to refer the debt for collection by 
tax refund offset. The notice also shall:
    (i) Instruct the debtor of the steps which may be taken to contest 
the State's determination that past-due support is owed or the amount 
of the past-due support;
    (ii) Advise any non-debtor who may file a joint tax return with the 
debtor of the steps which a non-debtor spouse may take in order to 
secure his or her proper share of the tax refund; and
    (iii) In cases when a debt is being enforced by more than one 
State, advise the debtor of his or her opportunities to request a 
hearing with the State enforcing collection or the State issuing the 
support order as prescribed by the provisions of 45 CFR 303.72(g).
    (5) Correcting and updating notification. The State shall, in the 
manner and in the time frames provided by FMS or HHS, notify FMS or HHS 
of any deletion or net decrease in the amount of past-due support 
referred to FMS, or HHS as the case may be, for collection by tax 
refund offset. The State may notify FMS or HHS of any increases in the 
amount of the debt referred to FMS for collection by tax refund offset 
provided that the State has complied with the requirements of paragraph 
(c)(4) of this section with regard to those debts.
    (6) Collection of past-due support enforced by multiple States. 
When a State has knowledge that the debt is being enforced by more than 
one State, the State notifying FMS, or HHS as the case may be, of the 
debt shall inform any such other State involved in enforcing the debt 
when it receives the offset amount.
    (d) Priorities for offset. (1) As provided in 26 U.S.C. 6402 as 
amended, a tax refund payment shall be reduced first by the amount of 
any past-due support assigned to a State (welfare cases) which is to be 
offset under 26 U.S.C. 6402(c), 42 U.S.C. 664 and this section; second, 
by the amount of any past-due, legally enforceable debt owed to a 
Federal agency which is to be offset under 26 U.S.C. 6402(d), 31 U.S.C. 
3720A and Sec. 285.2 of this part; and third, by the amount of any 
qualifying past-due support not assigned to a State (non-welfare cases) 
which is to be offset under 26 U.S.C. 6402(c), 42 U.S.C. 664 and this 
section.
    (2) Reduction of the tax refund payment pursuant to 26 U.S.C. 
6402(a), (c), and (d) shall occur prior to crediting the overpayment to 
any future liability for an internal revenue tax. Any amount remaining 
after tax refund offset under 26 U.S.C. 6402(a), (c), and (d) shall be 
refunded to the taxpayer, or applied to estimated tax, if elected by 
the taxpayer pursuant to IRS regulations.
    (e) Post-offset notice. (1) (i) FMS shall notify the debtor in 
writing of:
    (A) The amount and date of the offset to satisfy past-due support;
    (B) The State to which this amount has been paid or credited; and
    (C) A contact point within the State that will handle concerns or 
questions regarding the offset.
    (ii) The notice in paragraph (e)(1)(i) of this section also will 
advise any non-debtor who may have filed a joint tax return with the 
debtor of the steps which a non-debtor spouse may take in order to 
secure his or her proper share of the tax refund. See paragraph (f) of 
this section.
    (2) FMS will advise HHS of the names, mailing addresses, and 
identifying numbers of the debtors from whom amounts of past-due 
support were collected, of the amounts collected from each debtor 
through tax refund offset, the names of any non-debtor spouses who may 
have filed a joint return with the debtor, and of the State on whose 
behalf each collection was made. Alternatively, FMS will provide such 
information to each State that refers debts directly to FMS. FMS will 
inform HHS and each State that the payment source is a tax refund 
payment.
    (3) At least weekly, FMS will notify the IRS of the names and 
taxpayer identifying numbers of the debtors from whom amounts owed for 
past-due support were collected from tax refund offsets and the amounts 
collected from each debtor.
    (4) At such time and in such manner as FMS and HHS agree, but no 
less than annually, FMS will advise HHS of the States which have 
furnished notices of past-due support, the number of cases in each 
State with respect to which such notices have been furnished, the 
amount

[[Page 41693]]

of past-due support sought to be collected by each State, and the 
amount of such tax refund offset collections actually made in the case 
of each State.
    (f) Offset made with regard to a tax refund payment based upon 
joint return. If the person filing a joint return with a debtor owing 
the past-due support takes appropriate action to secure his or her 
proper share of a tax refund from which an offset was made, the IRS 
will pay the person his or her share of the refund and request that FMS 
deduct that amount from amounts payable to HHS or the State, as the 
case may be. FMS and HHS, or the appropriate State, will adjust their 
debtor records accordingly.
    (g) Disposition of amounts collected. FMS will transmit amounts 
collected for debts, less fees charged under paragraph (h) of this 
section, to HHS or to the appropriate State. If FMS learns that an 
erroneous offset payment is made to HHS or any State, FMS will notify 
HHS or the appropriate State that an erroneous offset payment has been 
made. FMS may deduct the amount of the erroneous offset payment from 
amounts payable to HHS or the State, as the case may be. Alternatively, 
upon FMS'' request, the State shall return promptly to the affected 
taxpayer or FMS an amount equal to the amount of the erroneous payment 
(unless the State previously has paid such amounts, or any portion of 
such amounts, to the affected taxpayer). HHS and States shall notify 
FMS any time HHS or a State returns an erroneous offset payment to an 
affected taxpayer. FMS and HHS, or the appropriate State, will adjust 
their debtor records accordingly.
    (h) Fees. The State will pay a fee to FMS for the full cost of 
administering the tax refund offset program. The fee will be 
established annually in such amount as FMS and HHS agree to be 
sufficient to reimburse FMS for the full cost of the offset procedure. 
FMS will deduct the fees from amounts collected prior to disposition 
and transmit a portion of the fees deducted to reimburse the IRS for 
its share of the cost of administering the tax refund offset program. 
Fees will be charged only for actual tax refund offsets completed.
    (i) Review of tax refund offsets. In accordance with 26 U.S.C. 
6402(f), any reduction of a taxpayer's refund made pursuant to 26 
U.S.C. 6402(c) shall not be subject to review by any court of the 
United States or by the Secretary of the Treasury, FMS or IRS in an 
administrative proceeding. No action brought against the United States 
to recover the amount of this reduction shall be considered to be a 
suit for refund of tax.
    (j) Access to and use of confidential tax information. Access to 
and use of confidential tax information in connection with the tax 
refund offset program is permitted to the extent necessary in 
establishing appropriate agency records, locating any person with 
respect to whom a reduction under 26 U.S.C. 6402(c) is sought for 
purposes of collecting the debt, and in the defense of any litigation 
or administrative procedure ensuing from a reduction made under section 
6402(c).
    (k) Effective date. This section applies to tax refund payments 
payable under 26 U.S.C. 6402 after January 1, 1999.

    Dated: July 29, 1998.
Richard L. Gregg,
Commissioner.
[FR Doc. 98-20731 Filed 8-3-98; 8:45 am]
BILLING CODE 4810-35-P