[Federal Register Volume 67, Number 248 (Thursday, December 26, 2002)]
[Rules and Regulations]
[Pages 78936-78946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32572]



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Part V





Department of the Treasury





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Fiscal Service



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31 CFR Part 285



Centralized Offset of Federal Payments to Collect Nontax Debts Owed to 
the United States; Final Rule

  Federal Register / Vol. 67, No. 248 / Thursday, December 26, 2002 / 
Rules and Regulations  

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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510-AA65


Centralized Offset of Federal Payments to Collect Nontax Debts 
Owed to the United States

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule describes the general rules and procedures 
applicable to the centralized offset of Federal payments to collect 
delinquent, nontax debts owed to Federal agencies. The Department of 
the Treasury's Financial Management Service has established the 
Treasury Offset Program (TOP) in order to centralize the process by 
which Federal payments are withheld or reduced (in other words, offset) 
to collect delinquent debts. This interim rule specifically applies to 
the centralized offset of all types of Federal payments by Federal 
disbursing officials to collect delinquent, nontax debts owed to the 
United States. Therefore, this interim rule affects persons who owe 
delinquent, nontax debts to the United States and who receive Federal 
payments. It also affects Federal agencies that are owed delinquent 
debts and that disburse and certify Federal payments. This rule does 
not apply to collection of child support debts and other debts owed to 
States.

DATES: This rule is effective December 26, 2002. Comments must be 
received by January 27, 2003.

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, SW., 
Room 151, Washington, DC 20227. A copy of this interim rule is being 
made available for downloading from the Financial Management Service 
Web site at the following address: http://www.fms.treas.gov/debt. 
Comments may also be received via the internet as directed on the Web 
site.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program 
Specialist, at (202) 874-6660; Tricia Long, Attorney-Advisor at (202) 
874-6680.

SUPPLEMENTARY INFORMATION:

Background

    A major goal of the Debt Collection Improvement Act of 1996 (DCIA), 
Pub. L. 104-134, 110 Stat. 1321-358 et seq. (April 26, 1996), is to 
increase the collection of delinquent, nontax debts owed to the Federal 
Government. Among other things, the DCIA established a centralized 
process for withholding or reducing eligible Federal payments to pay 
the payee's delinquent debt owed to the United States. See 31 U.S.C. 
3716(c), 31 U.S.C. 3720A(h), and 31 CFR 901.3. This process is known as 
``centralized offset'' or ``offset''.
    The Financial Management Service (FMS), a bureau of the Department 
of the Treasury (Treasury), disburses almost 900 million payments 
annually for the Federal government and is responsible for the 
implementation of centralized offset of Federal payments for the 
collection of delinquent, nontax debt. To meet this and other debt 
collection responsibilities, FMS has established TOP. By centralizing 
offset through TOP, FMS has consolidated and simplified debt collection 
procedures for the Federal Government. TOP allows agencies to submit 
debts to one centralized location for offset of all eligible Federal 
payments. By submitting debts to TOP to comply with 31 U.S.C. 
3716(c)(6) (for offset of nontax payments), agencies simultaneously 
will meet the requirement to submit past-due, legally enforceable debts 
to Treasury for purposes of tax refund offset. See 31 U.S.C. 3720A(a). 
TOP also provides a mechanism for Federal agencies to collect debt 
through the centralized offset of the salaries of Federal employees. 
See 31 CFR 285.7.
    TOP works as follows. Creditor agencies submit information about 
delinquent debts to FMS, which maintains the information in its 
delinquent debtor database. Payment agencies prepare and certify 
payment vouchers to FMS and disbursing officials at other Federal 
agencies (such as Department of Defense or the United States Postal 
Service), who then disburse payments. The payment vouchers contain 
information about the payment including the name and taxpayer 
identifying number (TIN) of the recipient. Before an eligible Federal 
payment is disbursed to a payee, FMS compares the payment information 
with debtor information in FMS' delinquent debtor database. If the 
payee's name and TIN match the name and TIN of a debtor, the disbursing 
official offsets the payment, in whole or in part, to satisfy the debt, 
to the extent legally allowed.
    FMS transmits amounts collected through offset to the appropriate 
creditor agencies after deducting fees, which FMS charges the creditor 
agencies in order to cover the cost of operating the offset program. 
The authority to charge fees is found at 31 U.S.C. 3716(c)(4) and 
3720A(d). If not otherwise prohibited by law, creditor agencies may add 
the fees to the debts as administrative costs, pursuant to 31 U.S.C. 
3717(e).
    FMS maintains information about a delinquent debt in TOP delinquent 
debtor database and continues to offset eligible Federal payments until 
the creditor agency suspends or terminates debt collection or offset 
activity for the debt. A creditor agency will suspend collection if the 
debt is subject to a bankruptcy stay or if other reasons justify 
suspension. See 31 CFR 903.2. A creditor agency will terminate 
collection of a debt if it is paid in full, compromised, discharged, or 
if other reasons justify termination. See 31 CFR 903.3.
    FMS has published rules that govern the offset of specific payment 
types to collect delinquent, nontax debts owed to the United States. 
These rules address: (1) Offset of tax refund payments to collect 
delinquent, nontax debts owed to Federal agencies (31 CFR 285.2); (2) 
offset of Federal benefit payments to collect delinquent, nontax debts 
owed to Federal agencies (31 CFR 285.4); and (3) offset of Federal 
salary payments to collect debts owed to Federal agencies (31 CFR 
285.7). Nothing in this rule is intended to contradict any provision of 
these more specific sections. Rather, this rule only describes 
requirements and procedures which are common to the centralized offset 
of all Federal payments to collect debts owed to Federal agencies. To 
the extent any provision of this rule is inconsistent with a more 
specific provision of sections 285.2, 285.4 or 285.7 of this Part, the 
more specific provision shall apply.

Section Analysis

(a) Scope

    Paragraph (a) describes the scope of this section, which governs 
the centralized offset of Federal payments to collect delinquent, 
nontax debts owed to Federal agencies in accordance with the 
requirements of 31 U.S.C. 3716(c)(6), 3720A(a), 26 U.S.C. 6402, and all 
applicable regulations.
    This regulation only applies to the extent that it does not 
conflict with the more specific provisions of the rules for tax refund 
offsets (see 31 CFR 285.2), salary payment offsets (see 31 CFR 285.7) 
and benefit payment offsets (see 31 CFR 285.4).

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    This section does not apply to administrative offsets that occur 
outside of TOP (known as ``non-centralized offsets''). Non-centralized 
offsets are governed by the Federal Claims Collection Standards (see 31 
CFR 901.3(c)) and agency-specific regulations.
    This section does not apply to the offset of payments to collect 
debts owed to States (see 31 CFR 285.8) or to collect delinquent child 
support payments (see 31 CFR 285.1 and 285.3).
    This section does not apply to garnishments or Internal Revenue 
Service levies of Federal payments. Offsets are not garnishments. An 
offset occurs when the Federal government withholds money owed to a 
person to satisfy a claim owed by that same person to the government. 
Garnishment is a process whereby a creditor attaches wages or other 
property belonging to a debtor which is in the possession of a third 
party. A levy is the means by which the Internal Revenue Service or 
other tax collecting authority seizes the delinquent taxpayer's 
property. See 26 U.S.C. 6331. Regulations governing garnishments and 
levies do not apply to offsets under this section. For example, 
regulations which exclude travel reimbursements from court-ordered, 
commercial garnishments on Federal pay (see 5 CFR 582.102) do not 
preclude offsets under this section. Therefore, payments which 
reimburse Federal employees for travel or other employment-related 
expenditures are subject to offset under this section, regardless of 
whether they may be garnished to collect debts owed to third parties.
    This section applies only to payments that a payment certifying 
agency has certified to a disbursing official for disbursement. It 
therefore does not apply to payments made directly with a government 
credit card.
    Lastly, the receipt of collections pursuant to this section does 
not preclude a Federal agency from pursuing all other available debt 
collection remedies simultaneously, provided that collections do not 
exceed the amount of the debt, including any interest, penalties, and 
administrative costs.

(b) Definitions

    Paragraph (b) of this section sets forth definitions applicable to 
this rule. It is important to note that the terms used in this section 
are defined for purposes of this section only. For example, whether a 
debt is ``legally enforceable'' for purposes of centralized offset 
pursuant to this section has no bearing on whether the debt is legally 
enforceable for purposes of placing a lien on the debtor's property or 
for some other debt collection purpose.

(c) General Rule

    Paragraph (c) of this section sets forth the general rule that 
creditor agencies must submit their delinquent debts to FMS for offset, 
and that disbursing officials must offset payments to collect those 
debts. See 31 U.S.C. 3716(c).

(d) Requirements for Creditor Agencies

    Paragraph (d) sets forth the requirements for Federal creditor 
agencies with regard to centralized offset. As noted above, creditor 
agencies will meet the requirement to submit debts to Treasury for 
purposes of tax refund offset by submitting debts to FMS pursuant to 
this section. See 31 U.S.C. 3720A(a). The requirements of this section 
take into account the provisions of various statutes and regulations 
which apply to the offset of Federal payments in general, as well as to 
specific types of Federal payments.
    Paragraph (d)(1) restates the statutory requirement that creditor 
agencies notify FMS of all past-due, legally enforceable, nontax debt 
which is delinquent for more than 180 days, for purposes of collection 
by centralized offset. See 31 U.S.C. 3716(c)(6). Paragraph (d)(1) also 
provides a creditor agency with 30 days following a decision on an 
appeal within which to submit a debt that is more than 180 days 
delinquent. This rule allows for an additional 30 days, because 
immediate transfer of a debt to FMS following a decision on an appeal 
might be impractical. The 30-day period provides debtors with an 
opportunity to pay the debt or to enter into a repayment plan with the 
creditor agency before offset action is taken. When a creditor agency 
determines that a debtor is unlikely to pay the debt or enter into a 
repayment plan within the 30-day period, it should submit the debt to 
FMS immediately following a decision on an appeal.
    Paragraph (d)(2) provides that creditor agencies may notify FMS of 
debts delinquent for less than 180 days for purposes of offset. FMS 
encourages agencies to submit debts to TOP as soon as they become 
eligible, in order to maximize collections.
    Paragraph (d)(3) describes the requirements for a debt to be 
eligible for centralized offset. For a creditor agency to submit a debt 
to FMS for offset, the debt must be past due and legally enforceable in 
the amount stated by the creditor agency, be less than 10 years 
delinquent (unless the debt may be collected by offset legally if more 
than ten years delinquent, as is the case with judgment debts and 
education loans), have a balance greater than $25, and not be secured 
by collateral subject to foreclosure. Generally, the debt should not be 
secured by collateral subject to a pending foreclosure action unless 
the creditor agency certifies that offset will not affect the 
government's rights to the secured collateral. Additionally, the 
creditor agency must certify that the debt is eligible for collection 
by offset, as required in paragraph (d)(6) of this section.
    Debts owed by foreign sovereigns are excluded from the mandatory 
requirement under paragraph (d)(1) that creditor agencies notify FMS of 
all past-due, legally enforceable, nontax debt which is delinquent for 
more than 180 days, for purposes of collection by centralized offset. 
This exclusion applies only to debts owed by foreign sovereigns and 
does not apply to debts owed by privately owned foreign corporations or 
by foreign individuals. This exclusion does not preclude a creditor 
agency from voluntarily notifying Treasury of debt owed by foreign 
sovereigns for the purpose of offset to the extent allowed by law. FMS 
has excluded debts owed by foreign sovereigns from the requirement 
described in paragraph (d)(1) pursuant to 31 U.S.C. 3716(c)(5). Section 
3716(c)(5) authorizes the Secretary of the Treasury to prescribe such 
rules, regulations, and procedures as the Secretary considers necessary 
to carry out centralized offset under section 3716(c). The Secretary 
deems it necessary to exclude debts owed by foreign sovereigns because 
mandatory notification of such debts to Treasury for collection by 
offset could interfere with important foreign policy goals.
    Paragraph (d)(3)(iv) describes creditor agencies' responsibilities 
to report certain debt information to Treasury on a report known as 
Treasury Report on Receivables (TROR). When reporting amounts eligible 
for TOP, agencies must report amounts that have been excluded from TOP 
and state the reasons for the exclusions consistent with this 
paragraph. Detailed instructions on completing the TROR can be found at 
http://www.fms.treas.gov/debt/dmrpts.
    For purposes of this section, a debt is generally deemed past due 
or delinquent if it is not paid when due, whether that be the date 
specified in an initial notice or a date specified in a contract or 
other applicable agreement. Creditor agencies determine when a debt is 
delinquent based on applicable statutes, regulations and policies. 
Nothing in this section is intended to define when a debt is delinquent 
or legally enforceable for purposes of

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anything other than when a debt may be submitted to FMS for purposes of 
centralized offset. A debt is legally enforceable if there has been a 
final agency determination that the debt is due in the amount stated, 
and there are no legal bars to collection by offset. A debt is legally 
enforceable for purposes of this section as long as the 10-year 
limitation (or other applicable time limitation on offset) has not been 
exceeded, regardless of any limitation on when a claim may be brought 
in a civil action. Creditor agencies should consult with their agency 
counsel to determine the legal enforceability of debts for purposes of 
this section.
    Paragraph (d)(4) describes the requirements for creditor agencies 
to publish regulations regarding offset. Creditor agencies must 
promulgate regulations governing offset in accordance with 31 U.S.C. 
3716(b)(administrative offset), 3720A(a)(tax refund offset), and 31 CFR 
901.3(b)(4)(Federal Claims Collection Standards) prior to submitting 
debts for offset. Additionally, creditor agencies must promulgate 
regulations in accordance with 5 U.S.C. 5514, 31 CFR 285.7(d)(2), and 5 
CFR 550.1104 in order to collect debts through the centralized offset 
of Federal salary payments. Creditor agencies must comply with the 
prerequisites for the offset of all types of Federal payments in order 
to participate fully in the centralized offset through TOP. If, for 
example, a creditor agency has not published regulations concerning the 
offset of Federal salary payments, then disbursing officials cannot 
offset salary payments to collect that creditor agency's debts.
    Paragraph (d)(5) sets forth the information required for each 
delinquent debt submitted to FMS for offset. All of the information is 
necessary for the successful operation of TOP.
    Paragraph (d)(6) describes the certification that creditor agencies 
must provide to FMS for each debt. Creditor agencies must certify to 
FMS that the requirements of 31 U.S.C. 3716(a), 3720A, 26 U.S.C. 6402, 
and applicable agency-specific statutes and regulations related to 
offset have been met. The creditor agency must certify the following 
for each debt: (1) the debt meets the requirements set forth in 
paragraph (d)(3) of this section, regarding debt eligibility; (2) the 
creditor agency has given the debtor due process pursuant to 31 U.S.C. 
3716, 3720A and 26 U.S.C. 6402; and (3) the creditor agency has 
complied with 31 U.S.C. 3717 with respect to the assessment of 
interest, penalties and administrative costs. The certification must be 
executed by the head of the agency or by a person with delegated 
authority to make such certification on behalf of the head of the 
agency.
    With respect to the certification that the creditor agency has 
provided due process, neither the DCIA nor this rule changes the 
existing requirement that agencies provide due process prior to offset. 
Such due process requirements are set forth in 31 U.S.C. 3716(a), 
3720A, and any agency-specific statutes and regulations applicable to 
the debt. Creditor agencies must inform debtors by written notice that 
the creditor agencies intend to offset eligible payments and that the 
debtor has an opportunity to review applicable agency records and to 
seek a review of the determination of the debt. In accordance with the 
creditor agency's policies and procedures, the debtor may provide 
evidence to the creditor agency that collection of the debt by 
administrative offset would result in a financial hardship. The debtor 
may also make alternative payment arrangements, which are acceptable to 
the creditor agency. There is an additional due process requirement 
when the creditor agency has submitted the debt for offset of the 
debtor's Federal salary. Prior to offsetting a Federal salary, the 
creditor agency must notify the debtor that she or he has an 
opportunity for a hearing pursuant to 5 U.S.C. 5514, 5 CFR 550.1104, 
and applicable creditor agency regulations. Such notification may be 
combined with any other due process notices or may be sent separately.
    As noted in paragraph (d)(13), nothing in this section requires 
agencies to duplicate any notice, review or hearing previously provided 
to the debtor. For example, if the agency has provided the debtor with 
a hearing concerning the existence of a debt, this section does not 
require an agency to provide a second hearing concerning the same issue 
in order to submit the debt for offset. In such circumstance, however, 
the debtor may be entitled to a review (or hearing, if a Federal 
employee and the agency seeks to offset his or her Federal salary) 
concerning any other issues not addressed in the previous hearing. In 
this example, the debtor may contest the accuracy of the current debt 
balance (i.e., whether the agency had properly credited payments made 
subsequent to the hearing).
    Paragraph (d)(7) explains that creditor agencies will be asked to 
update the certifications of debts maintained by FMS in order to ensure 
that the debts continue to meet the requirements of paragraph (d)(6), 
including that the creditor agency has properly applied credits to the 
debt balance (other than collections through centralized offset). 
Periodic updates are required to ensure that information about the 
debts is current and accurate.
    Paragraph (d)(8) also explains that the certification required by 
paragraphs (d)(6) and (d)(7) of this section, and any other information 
regarding delinquent debts transmitted to FMS, will be made in a form 
and manner as prescribed by FMS. The form may include, but is not 
limited to, electronic data transmission. In order to submit 
certifications electronically, a creditor agency must sign an agreement 
with FMS agreeing that the creditor agency will certify debts in 
accordance with instructions from FMS, that any person who the creditor 
agency allows to certify debts electronically will have the delegated 
authority to certify the debts on behalf of the head of the agency, and 
that such person knows that they are certifying to all of the 
requirements of paragraph (d)(6) of this section and any other terms of 
the certification as set forth in the agreement. FMS will require any 
agreement regarding electronic certification to be re-executed 
periodically, usually on an annual basis. This periodic execution will 
ensure that creditor agency personnel remain aware of their 
responsibilities and authorities when certifying debts for centralized 
offset.
    Paragraph (d)(9) explains that agencies which designate disbursing 
officials pursuant to 31 U.S.C. 3321(c) are not required to certify 
debts arising out of their own operations for purposes of centralized 
offset under this section prior to collecting such claims by offset. 
For example, if the Department of Defense (DOD) is about to disburse a 
payment to a person who also owes a delinquent debt to it, DOD may 
offset such payment, in accordance with applicable law, without first 
certifying the debt to FMS for purposes of centralized offset.
    Paragraph (d)(10) describes the creditor agencies' responsibility 
to correct and update information contained in delinquent debt records. 
While information about a debt is maintained in TOP's delinquent debtor 
database, the creditor agency remains responsible for administering the 
debt. This means that the creditor agency remains responsible for 
answering inquiries about the debts, negotiating agreements with the 
debtor, maintaining records applicable to the debt, and applying any 
amounts received with respect to the debt other than amounts collected 
through centralized offset. Creditor agencies make all decisions

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concerning their debts. Creditor agencies determine whether debts are 
eligible for offset and whether offset funds should be returned to 
debtors who claim that the debts were not eligible for offset.
    If creditor agencies receive funds from any source other than 
centralized offset, they must submit the updated balance information to 
FMS; however, FMS will apply any funds received through centralized 
offset to the debt balances within TOP and notify creditor agencies of 
such collections.
    Creditor agencies are also responsible for notifying FMS 
immediately if there is a change in the status of the legal 
enforceability of any debt. For example, if a creditor agency learns 
that a debtor has filed for bankruptcy protection and the automatic 
stay is in effect, that creditor agency must notify FMS, in the manner 
prescribed by FMS, that the debt is no longer legally enforceable. 
Likewise, if the bankruptcy is dismissed, the debt has not been 
discharged, and there are no other legal obstacles to collection, the 
creditor agency should notify FMS immediately that the debt is once 
again legally enforceable. As a practical matter, this means that 
creditor agencies must have procedures in place to track the status of 
their debts which are in bankruptcy and to update FMS promptly. 
Creditor agencies should seek legal advice from their agency counsel 
concerning the impact of the Bankruptcy Code, particularly 11 U.S.C. 
106, 362, and 553, on pending, contemplated or completed collections by 
offset.
    If a debt is being collected and serviced by FMS or another debt 
collection center, pursuant to 31 U.S.C. 3711(g), FMS, or the 
applicable debt collection center, will manage the creditor agency's 
responsibilities under paragraph (d)(10) of this section.
    Paragraph (d)(11) addresses debts which have been transferred to 
FMS or a Treasury-designated debt collection center for purposes of 
collection pursuant to 31 U.S.C. 3711(g) (known as ``cross-servicing'') 
or which have been referred to the Department of Justice (DOJ) for 
enforced collection. A debt collection center will also be responsible 
for submitting debts it is servicing to TOP on behalf of the creditor 
agencies. FMS, on behalf of the creditor agencies, will submit debts in 
its cross-servicing program to TOP in accordance with the requirements 
of this section. See 31 CFR 285.11 for certification requirements when 
transferring debts to FMS for debt collection purposes. DOJ will submit 
debts to FMS for centralized offset on behalf of the creditor agency, 
as DOJ deems appropriate, for all debts which have been referred to DOJ 
for collection enforcement.
    Paragraph (d)(12) explains that if a creditor agency has determined 
that the offset amount allowed by law would result in financial 
hardship to the debtor, and that a lesser offset amount is reasonable 
and appropriate based upon the debtor's financial circumstances, then 
the creditor agency may specify that the disbursing official offset a 
lesser amount.

(e) Payments Made By the United States

    Paragraph (e) discusses the rules applicable to Federal payments 
covered by this section. This section generally applies to all Federal 
payments (regardless of the payment mechanism used, e.g., check or 
electronic funds transfer), unless offset against such type of payment 
is expressly prohibited under the DCIA or other Federal statute. See 31 
U.S.C. 3716(e)(2).
    Paragraph (e)(1) notes that judgments paid pursuant to 31 U.S.C. 
1304 (Judgments, awards and compromise settlements) are eligible for 
centralized offset pursuant to 31 U.S.C. 3716(c). Nothing in this rule 
affects the setoff of amounts to be paid pursuant to such a judgment in 
accordance with 31 U.S.C. 3728 (Setoff against judgments), which 
authorizes the Secretary of the Treasury to withhold amounts to be paid 
on a judgment to offset a debt. Setoff under section 3728 occurs before 
the Secretary certifies the payment for disbursement. This rule, 
however, only addresses centralized offset of such payments after the 
Secretary has certified them for disbursement. See volume I, part 6, 
chapter 3100 of the Treasury Financial Manual for information on the 
setoff and certification of judgment fund payments.
    Paragraph (e)(2) provides a list of payment types that are excluded 
from offset. In addition to payments exempt by law, this rule exempts 
from offset all Federal loan payments other than payments for travel 
advances pursuant to 31 U.S.C. 3716(c)(5). Section 3716(c)(5) 
authorizes the Secretary of the Treasury to prescribe such rules, 
regulations, and procedures as the Secretary considers necessary to 
carry out centralized offset under section 3716(c). The Secretary deems 
it necessary to exempt Federal loan payments other than travel advances 
from centralized offset. If a loan payment is offset, the debtor/payee 
pays off one agency by creating a debt owed to another agency. The 
government's interests in debt collection through offset are not 
advanced by paying off a debt owed to one agency by creating a debt 
owed to another. Therefore, pursuant to 31 U.S.C. 3716(c)(5), the 
Secretary exempts Federal loan payments other than travel advances from 
centralized offset.
    Although travel advance payments to Federal employees are 
considered loans, except in limited circumstances (see 54 Comp. Gen. 
190, 191 (B-180672, September 5, 1974) and 1994 WL 158116 (B-251865, 
April 28, 1994)), the Secretary does not deem it necessary to exempt 
travel advances from centralized offset under this section for three 
reasons. First and foremost, Federal employees are ethically obligated 
to ``satisfy in good faith their obligations as citizens, including all 
just financial obligations, especially those such as Federal, State, or 
local taxes that are imposed by law.'' See 5 CFR 2635.101(b)(12). If 
the Federal employee is unable to pay a debt, the employee should 
contact the creditor agency to make satisfactory repayment arrangements 
in order to avoid offsets of travel advances under this section. Absent 
such action by the Federal employee, any travel advances made to that 
employee should be offset to pay an employee's delinquent debts. The 
employee remains responsible for traveling, if required for the 
performance of his or her duties. Second, unlike traditional Federal 
loan programs, travel advances are short-term debts, which are repaid 
as soon as the employee travels. Third, delinquent debtors are barred 
from receiving Federal loans (see 31 U.S.C. 3720B), yet agencies 
generally do not access employees' credit reports or other sources of 
information to verify whether an employee owes a delinquent Federal 
debt prior to issuing a travel advance. Failing a bar by the agency 
issuing the travel advance, it is appropriate for the Government to 
offset the travel advance payment to satisfy the employee's delinquent 
debts.
    Paragraph (e)(3) explains that specific rules apply to the 
centralized offset of tax refunds, certain benefit payments and Federal 
salary payments. See 31 CFR 285.2, 285.4, and 285.7, respectively. This 
section applies only to the extent that it is not inconsistent with the 
provisions of the rules that apply to each payment type.
    Paragraph (e)(4) states that a payment made jointly to two or more 
persons (i.e., ``joint payees''), may be offset in its entirety to 
satisfy the debt of any one of the joint payees. FMS assumes that joint 
payments are made to persons who each own an undivided interest in the 
whole payment. A joint payee who believes that he or she is entitled to 
a portion of the monies that have been offset must

[[Page 78940]]

contact the payment agency which issued the payment. The payment agency 
must determine, based upon applicable laws and policies, if a refund of 
any portion of the offset amount is appropriate. If a couple files a 
joint Federal income tax return, and a resulting refund is offset to 
collect a debt which is owed by only one of the spouses, the spouse 
that does not owe the debt (i.e., the ``injured spouse'') must contact 
the Internal Revenue Service to claim the portion of the tax refund to 
which he or she is entitled. The IRS Web site, found at www.irs.gov, 
contains instructions for the injured spouse to make a claim for his or 
her portion of the tax refund. At the time of writing, such claims are 
processed on IRS Form 8379.
    Paragraph (e)(5) states that payments made to representative payees 
(i.e., the named payee is receiving the payment solely in the person's 
capacity as a representative for the beneficiary of the payment) will 
only be offset to collect delinquent debt owed by the payment 
beneficiary. For example, if a payment is made to an attorney solely 
for the benefit of his or her client, FMS will offset such payment only 
to collect a debt owed by the client. FMS will not offset the payment 
to collect a debt owed by the named payee attorney. Payment agencies 
are responsible for properly identifying representative payees.
    Paragraph (e)(6) addresses the offset of payments which have been 
assigned to a third party (known as ``assigned payments''). In certain 
circumstances, FMS may offset an assigned payment to collect debts owed 
by either the assignor or the assignee. See 31 U.S.C. 3716(e)(2) 
(offset permissible if not prohibited). For example, if a Federal 
contractor has assigned the right to receive payment under a Federal 
contract to a financial institution, FMS may offset the payment to 
collect a debt owed by either the contractor or the financial 
institution. FMS will offset assigned payments made to Federal 
contractors within the limits of 41 U.S.C. 15, 31 U.S.C. 3727 and 
implementing regulations (including, as applicable, the Federal 
Acquisition Regulation (48 CFR Chapter 1)). This rule does not address 
the validity of any assignment of payments. At the time of the 
publication of this regulation, FMS has not yet fully implemented 
offset of assigned payments. FMS will provide guidance to payment 
agencies prior to implementation.
    Paragraph (e)(7) describes how payment agencies may request that 
the Secretary exempt payment types from centralized offset and how the 
Secretary will evaluate and respond to such requests. The DCIA requires 
the Secretary to exempt from centralized offset payments made under 
means-tested programs when the head of the payment agency requests such 
exemption in writing. The DCIA also authorizes the Secretary to exempt 
payments made under non-means-tested programs at the written request of 
the head of the payment agency. See 31 U.S.C. 3716(c)(3)(B). FMS has 
published and made available on its Web site (www.fms.treas.gov/debt) 
standards and procedures for the exemption of classes of payments from 
centralized offset. Paragraph (e)(7)(i) explains when an exemption 
request for means-tested payments will be granted. Paragraph (e)(7)(ii) 
explains that the Secretary may exempt non-means-tested payments in 
accordance with the published standards. Paragraph (e)(7)(iii) explains 
that the requests for exemptions must be made in writing following 
guidance issued by FMS pursuant to 31 U.S.C. 3716(c)(3)(B). Exemptions 
apply to classes of payments and not to individual payments. A list of 
payments exempt from offset may be found on the FMS Web site at 
www.fms.treas.gov/debt.
    Consistent with the foregoing paragraph, contracting officials at 
Federal agencies do not have the authority to exempt contract payments 
from centralized offset. Payments are exempt from centralized offset 
only if expressly made exempt by statute or if the Secretary grants an 
exemption. Therefore, contract clauses prohibiting a Federal agency 
from offsetting a payment generally do not apply to centralized offset 
pursuant to this section, regardless of whether such clauses may be 
effective as to offsets made by the contracting agency pursuant to 
other authorities.
    Paragraph (e)(8) explains that payment agencies must prepare and 
submit payment vouchers in the manner prescribed by FMS or other 
disbursing official, in order to maximize the number of legally-
eligible offsets. Also, payment agencies are responsible for notifying 
the Secretary of any legal bars to offset of payments which the agency 
certifies for payment.
    Paragraph (e)(9) explains that when a payment is offset, both the 
disbursing official and the payment agency have met their obligations 
with respect to making the payment. Neither the payment agency nor the 
disbursing official is liable for any portion of the payment which was 
offset. See 31 U.S.C. 3716(c)(2). For example, if an agency certifies a 
payment to a Federal contractor for work completed, and that payment is 
offset to collect a delinquent debt that the contractor owes to another 
Federal agency, the contractor has been paid in full for its services. 
When the creditor agency credits the offset amount to the contractor's 
delinquent debt, the contractor has received full value for the 
services performed under the contract. Payment agencies should be 
careful not to issue an overpayment to a contractor who claims non-
receipt of payment after the initial payment is offset to pay the 
contractor's debt. Contractors should contact the creditor agency to 
which the debt is owed for questions about the debt or to make 
repayment arrangements.

(f) Offset

    Paragraph (f) describes the offset process, including amounts to be 
offset and the priority of how offsets are applied when it is 
determined that a payee owes more than one delinquent debt. Generally, 
a payment will be offset by the lesser of the amount of the payment, or 
the amount of the delinquent debt, including associated interest, 
penalties, and administrative costs. The offset amount is limited for 
certain Federal payments. See for example, 31 CFR 285.4 and 285.7 for 
limitations on offsets of certain Federal benefit payments and Federal 
salaries. Creditor agencies may specify that a lesser amount be offset 
based on a written agreement between the creditor agency and the 
debtor, or based upon the creditor agency's determination that the 
amount allowed by law would create a financial hardship.
    Paragraph (f)(2) establishes that a recurring Federal retirement 
annuity payment made by the Office of Personnel Management (OPM) will 
be offset up to a maximum of 25 percent to collect a delinquent debt 
under this section. For example, if an OPM annuity payment is $850.00, 
the amount offset would be no more than $212.50. Although the DCIA did 
not expressly provide for any such limitation on OPM recurring 
retirement annuity payments, limitations apply to other types of 
payments considered income. For example, the Consumer Credit Protection 
Act limits the amount of pay subject to garnishment by a private 
creditor to 25% under most circumstances. Limitations on other types of 
Federal payments, such as Federal salary and social security payments 
apply. Therefore, as authorized by 31 U.S.C. 3716(c)(5), the Secretary 
has determined that a limitation on the offsets of OPM retirement 
payments is necessary to carry out the centralized offset program. 
After balancing the Government's

[[Page 78941]]

interest in collecting large dollar debts within a reasonable time 
frame with the interest of the debtor/payee in receiving some 
retirement income, FMS has determined that a 25% limitation should be 
applied.
    Paragraph (f)(3) describes the order in which deductions will be 
applied when more than one delinquent debt is submitted to FMS for the 
same payee. If the Internal Revenue Service has served a tax levy 
through TOP, amounts deducted will first be applied to such tax levy. 
Deductions for tax levies are not governed by this section, but have a 
higher legal priority. See 31 U.S.C. 3716(c)(8). Remaining amounts will 
be applied in the following order; first, to debts for past-due support 
assigned to a State pursuant to sections 402(a)(26) and 471(a)(17) of 
the Social Security Act; second, to debts owed to Federal agencies; 
third, to any qualifying past due support debts not assigned to a 
State; and fourth, to debts owed to States for obligations other than 
past-due support.
    Paragraph (f)(3) also explains what happens when a recurring 
payment is being offset to collect a debt, and a debt with a higher 
legal priority is submitted to TOP. The debtor may not, in all such 
cases, receive an additional warning notice when the offsets are 
applied to the higher priority debt. See paragraph (g)(2) of this 
section. For example, FMS collects delinquent tax debts through TOP 
when the Internal Revenue Service serves a levy. Levies to collect 
delinquent tax debts have a higher legal priority than offsets to 
collect nontax debts. See 31 U.S.C. 3716(c)(8). If a recurring payment 
is being offset under this section to collect a nontax debt when the 
Internal Revenue Service serves a levy to collect a tax debt, offsets 
may be interrupted until the tax levy is satisfied or released. In this 
case, immediately upon satisfaction of the tax debt, FMS may resume 
offsetting the payment to collect the Federal nontax debt without 
further warning notice to the debtor. As with all offsets, the 
disbursing official (or FMS, on behalf of the disbursing official) will 
send an offset notice (see paragraph (g)(3)) at the time of the offset.

(g) Notices

    Paragraph (g) describes the two types of notices that disbursing 
officials will provide to the debtor/payee--warning notices and offset 
notices. Where the payment offset is a recurring payment, the 
disbursing official (or FMS, on behalf of the disbursing official) will 
send a warning notice prior to the first offset. The warning notice 
will state when the offsets will begin and the anticipated amount of 
the offset. When the offset will begin may be stated as a certain 
number of days or number of payments from the date of the warning 
notice. If appropriate, the anticipated amount of the offset may be 
stated as a percentage of the payment. Recipients of recurring payments 
also will receive offset notices at the time the disbursing official 
offsets the payments. Where the payment offset represents a one-time 
payment or non-recurring payment, the disbursing official will not send 
a warning notice. The disbursing official (or FMS on behalf of the 
disbursing official) will send an offset notice at the time the offset 
occurs. Offset notices identify the payment, the amount offset, the 
creditor agency that requested the offset, and the name of a contact 
within the creditor agency. Pursuant to 31 U.S.C. 3716(c)(7)(B), the 
failure of the debtor to receive an offset notice shall not impair the 
legality of the offset.

(h) Notification to Creditor and Payment Agencies

    Paragraph (h) explains the information that creditor and payment 
agencies will receive when an offset occurs.

(i) Disposition of Amounts Collected

    Paragraph 285.5(i) describes the process for disposition of amounts 
collected by means of offset. After offsetting a payment, FMS will 
normally deduct any fees charged in accordance with paragraph 285.5(j) 
before transmitting the remaining amount to the appropriate creditor 
agency. Alternatively, FMS may bill the creditor agency.
    If FMS learns that an offset has been taken erroneously, FMS will 
notify the creditor agency of the erroneous offset, and will collect 
the amount paid under the erroneous offset by deducting the amount from 
future amounts payable to the creditor agency. An erroneous offset 
occurs when the payee was not entitled to the payment or there was 
another error in the payment or offset process. Erroneous offsets do 
not include offsets which occurred because the creditor agency should 
not have certified the debt. If a debt should not have been certified 
for offset, the creditor agency will resolve the matter directly with 
the debtor. Generally, a disbursing official is not responsible for 
refunding money to debtors if a debt should not have been collected by 
offset.

(j) Fees

    Paragraph (j) describes the fee that FMS will charge for its 
services under this section. The fee may include administrative fees 
charged by salary paying agencies that match their salary payments with 
debts in the TOP database and conduct the offset of, or calculate the 
correct amount to be offset from, Federal salary payments on behalf of 
disbursing officials. Under 31 U.S.C. 3716(c)(4), FMS' fee may cover 
the full cost of implementing centralized offset, including certain 
costs incurred by non-Treasury disbursing officials performing offsets. 
In accordance with 31 U.S.C. 3711(g)(7), FMS may reimburse non-Treasury 
disbursing officials for certain expenses associated with 
governmentwide debt collection unless otherwise prohibited by law.

(k) Waiver of Certain Provisions Under the Computer Matching Privacy 
and Protection Act of 1988

    The DCIA includes provisions intended to simplify the matching 
process involving delinquent debtor records certified by creditor 
agencies and payment records certified by payment agencies for purposes 
of offsetting payments other than tax refunds. In particular, where a 
creditor agency certifies that the due process requirements of 31 
U.S.C. 3716(a) have been met, the DCIA authorizes the Secretary to 
waive provisions of the Computer Matching and Privacy Protection Act of 
1988 (CMPPA), Pub. L. No. 100-503, as amended, that require matching 
agreements, as well as post match notice and verification of the 
results of individual matches. See 5 U.S.C. 552a(o) and (p). Once a 
waiver has been granted by the Secretary, the DCIA also simplifies the 
CMPPA review and reporting requirements codified at 5 U.S.C. 552a(u) by 
placing all such responsibility with the data integrity board of the 
Department of the Treasury. Paragraph (k) of this section provides 
notice that this waiver authority has been delegated to FMS, and 
clarifies that FMS has granted a general waiver for all agencies that 
certify to FMS that the requirements of paragraph (d)(6) of this 
section have been met. A waiver is not required for matching debts for 
purposes of tax refund offset. See 5 U.S.C. 552a(a)(8)(B).

Special Analysis

    FMS is promulgating this interim rule without opportunity for prior 
public comment pursuant to the Administrative Procedure Act, 5 U.S.C. 
553 (the ``APA''), because FMS has determined that a comment period 
would be unnecessary, impracticable, and contrary to the public 
interest. Because no notice of proposed rulemaking is required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do 
not apply.

[[Page 78942]]

    The public is invited to submit comments on the interim rule which 
will be taken into account before a final rule is issued.
    FMS has determined that good cause exists to make this interim rule 
effective upon publication without providing the 30-day period between 
publication and the effective date contemplated by 5 U.S.C. 553(d). The 
purpose of a delayed effective date is to afford persons affected by a 
rule a reasonable time to prepare for compliance. However, in this 
case, as required by the DCIA, agencies already participate in TOP. 
Inasmuch as this interim rule provides important guidance that is 
expected to facilitate implementation of the authority contained in the 
law, FMS believes that good cause exists to make the rule effective 
upon publication.

Regulatory Analysis

    This interim 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 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 small businesses who receive 
payments from Federal agencies and who are delinquent on debts owed to 
the Federal government.

List of Subjects in 31 CFR Part 285

    Administrative practice and procedure, Black lung benefits, Child 
Support, Claims, Credit, Debts, Disability benefits, Federal employees, 
Garnishment of wages, Hearing and appeal procedures, Loan programs, 
Privacy, Railroad retirement, Railroad unemployment insurance, 
Salaries, Social Security benefits, Supplemental Security Income (SSI), 
Taxes, Veteran's benefits, Wages.

Authority and Issuance

    For the reasons set forth in the preamble, 31 CFR part 285 is 
amended as follows:

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

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

    Authority: 5 U.S.C. 5514; 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 
3711, 3716, 3719, 3720A, 3720D; E.O. 13019; 3 CFR, 1996 Comp., p. 
216.


    2. Section 285.5 is added to Part 285, Subpart A, to read as 
follows:


Sec.  285.5  Offset of Federal payments to collect nontax debt owed to 
the United States.

    (a) Scope. (1) This section governs the centralized offset of 
Federal payments to collect delinquent, nontax debts owed to Federal 
agencies in accordance with 31 U.S.C. 3716, 3720A and 26 U.S.C. 6402 
and applicable regulations. The Department of the Treasury's Financial 
Management Service (FMS) administers centralized offset through the 
Treasury Offset Program. Offset occurs when the Federal government 
withholds part or all of a debtor's Federal payment to satisfy the 
debtor's delinquent debt owed to the government.
    (2) Special rules apply to the collection of delinquent, nontax 
debts through the centralized offset of certain types of Federal 
payments, including tax refunds (31 CFR 285.2), Federal benefit 
payments (31 CFR 285.4), and Federal salary payments (31 CFR 285.7). 
While this rule applies to such payments, nothing in this rule is 
intended to contradict any provision of those more specific sections. 
To the extent any provision of this rule is inconsistent with a more 
specific provision of Sec. Sec.  285.2, 285.4 or 285.7 of this part, 
the more specific provision shall apply.
    (3) The receipt of collections pursuant to this section does not 
preclude a Federal agency from pursuing other debt collection remedies 
in conjunction with centralized offset. Nothing in this section 
precludes an agency from pursuing all available debt collection 
remedies simultaneously, provided that collections do not exceed the 
amount of the debt, including any interest, penalties, and 
administrative costs.
    (b) Definitions. As used in this section:
    Agency or Federal agency means a department, agency or subagency, 
court, court administrative office, or instrumentality in the 
executive, judicial, or legislative branch of the Federal Government, 
including government corporations.
    Centralized offset means the offset of Federal payments through the 
Treasury Offset Program to collect debts which creditor agencies have 
certified pursuant to 31 U.S.C. 3716(c), 3720A(a) and applicable 
regulations. The term ``centralized offset'' includes the Treasury 
Offset Program's processing of offsets of Federal payments disbursed by 
disbursing officials other than FMS.
    Creditor agency has the same meaning as found at 31 U.S.C. 
3701(e)(1) and means any Federal agency that is owed a claim or debt 
that seeks to collect that claim or debt through offset of Federal 
payments.
    Debt or claim has the meaning contained in 31 U.S.C. 3701(b) and 
means any amount of money, funds, or property that has been determined 
by an appropriate official of the Federal government to be owed to the 
United States by a person, organization, or entity, except another 
Federal agency. The terms ``debt'' and ``claim'' are synonymous and 
include debt administered by a third party acting as an agent for the 
Federal Government. For purposes of this section, the term ``debt'' 
does not include debts arising under the Internal Revenue Code of 1986 
(26 U.S.C. 1 et seq.), the tariff laws of the United States, or the 
Social Security Act (42 U.S.C. 301 et seq.), except to the extent 
provided in sections 204(f) and 1631(b)(4) of such Act (42 U.S.C. 
404(f) and 1383(b)(4)(A), respectively) and 31 U.S.C. 3716(c).
    Debt collection center means a Federal agency or a unit or 
subagency within a Federal agency that has been designated by the 
Secretary to collect debt owed to the United States.
    Debtor means a person who owes a debt to the United States.
    Delinquent or past-due refers to the status of a debt and means a 
debt has not been paid by the date specified in the agency's initial 
written demand for payment, or applicable agreement or instrument 
(including a post-delinquency payment agreement), unless other payment 
arrangements satisfactory to the creditor agency have been made. 
Nothing in this section is intended to define whether a debt is 
delinquent or past-due for purposes other than offset under this 
section.
    Delinquent debt record means information about a past-due, legally 
enforceable debt submitted by a creditor agency to FMS for purposes of 
offset in accordance with the provisions of this section. Information 
about a past-due, legally enforceable debt includes, but is not limited 
to, the amount of the debt and the debtor's name, address, and taxpayer 
identifying number.
    Disbursing official means an official who has authority to disburse 
public money pursuant to 31 U.S.C. 3321 or another law, including an 
official of the Department of the Treasury, the Department of Defense, 
the United States Postal Service, or any other government corporation, 
or any official of the United States designated by the Secretary of the 
Treasury to disburse public money.
    FMS means the Financial Management Service, a bureau of the 
Department of the Treasury and its disbursing office. FMS is 
responsible for administering centralized offset.

[[Page 78943]]

    Legally enforceable refers to a characteristic of a debt and means 
there has been a final agency determination that the debt, in the 
amount stated, is due, and there are no legal bars to collection by 
offset. Debts that are not legally enforceable for purposes of this 
section include, but are not limited to, debts subject to the automatic 
stay in bankruptcy proceedings or debts covered by a statute that 
prohibits collection of such debt by offset. For example, if a 
delinquent debt is the subject of a pending administrative review 
process required by statute or regulation, and if collection action 
during the review process is prohibited, the debt is not considered 
legally enforceable for purposes of this section. Nothing in this 
section is intended to define whether a debt is legally enforceable for 
purposes other than offset under this section.
    Match means the taxpayer identifying number and name (or derivative 
thereof) of the payee on a payment record are the same as the taxpayer 
identifying number and name of the debtor on a delinquent debt record.
    Offset means withholding funds payable by the United States to, or 
held by the United States for, a person to satisfy a debt owed by the 
payee.
    Past-due has the same meaning as ``delinquent'', as defined above.
    Payee means a person who is due a payment from a disbursing 
official as certified by the payment agency. For purposes of this 
section, a ``payee'' is a person who is entitled to the benefit of all 
or part of a payment from a disbursing official.
    Payment agency means any agency that transmits payment requests, in 
the form of certified payment vouchers or other similar forms, to a 
disbursing official for disbursement.
    Payment record means information contained on a payment request, in 
the form of a certified payment voucher or other similar form, that has 
been transmitted to a disbursing official for disbursement in 
accordance with the provisions of 31 U.S.C. 3325 and 3528 or other 
applicable law. For purposes of matching, ``payment record'' may 
include information extracted from a payment request. Such information 
could include, but is not limited to, the amount and type of payment 
and the payee's name, address, and taxpayer identifying number.
    Person means an individual, corporation, partnership, association, 
organization, State or local government, or any other type of entity 
other than a Federal agency.
    Recurring payment means a payment to an individual that is expected 
to be payable to a payee at regular intervals, at least four times 
annually. The term ``recurring payment'' does not include payments made 
pursuant to a Federal contract, grant or cooperative agreement.
    Representative payee means a person named as payee on the payment 
voucher certified by the payment agency who is acting on behalf of a 
person entitled to receive the benefit of all or part of the payment.
    Secretary means the Secretary of the Treasury.
    Taxpayer identifying number means the identifying number described 
under section 6109 of the Internal Revenue Code of 1986 (26 U.S.C. 
6109). For an individual, the taxpayer identifying number is generally 
the individual's social security number.
    (c) General rule. (1) Creditor agencies shall submit delinquent 
debts to FMS for purposes of offset in accordance with paragraph (d) of 
this section.
    (2) Disbursing officials shall compare payment records with 
delinquent debt records submitted to FMS for collection by offset. When 
a match occurs, and all other requirements for offset have been met, 
the disbursing official shall offset the payment to satisfy, in whole 
or part, the payee's debt to the extent allowed by law. The disbursing 
official shall pay any amounts not offset to the payee. See paragraphs 
(e), (f), (g), and (h) of this section.
    (d) Requirements for creditor agencies--(1) Mandatory notification 
of delinquent debts. As required by 31 U.S.C. 3716(c)(6), and in 
accordance with the provisions of this section, a creditor agency shall 
notify FMS of all legally enforceable debts over 180 days delinquent 
that are owed to the creditor agency. By complying with this 
requirement, creditor agencies will satisfy the requirement of 31 
U.S.C. 3720A(a) to notify the Secretary of past due, legally 
enforceable debt for purposes of tax refund offset. If a debt which is 
over 180 days delinquent is considered not legally enforceable solely 
because it is under review as described in paragraph (d)(6)(ii)(C) of 
this section, the agency must submit the debt to FMS for collection by 
offset within 30 days of completing the review.
    (2) Discretionary notification of delinquent debts. Creditor 
agencies may notify FMS of any debt that is less than 180 days 
delinquent, so long as the requirements of paragraph (d)(3) of this 
section are met.
    (3) Debt eligibility. (i) A debt submitted to FMS for collection by 
centralized offset must be:
    (A) Past-due in the amount stated by the creditor agency;
    (B) Legally enforceable;
    (C) Less than 10 years delinquent, unless the debt legally may be 
offset if more than 10 years delinquent;
    (D) More than $25, or such other amount as FMS may prescribe; and
    (E) Not secured by collateral subject to a pending foreclosure 
action, unless the creditor agency certifies that offset will not 
affect the Government's rights to the secured collateral.
    (ii) The creditor agency must certify that the debt is eligible for 
collection by offset, as required in paragraph (d)(6) of this section.
    (iii) Debts owed by foreign sovereigns may be referred to Treasury 
Offset Program at the discretion of the creditor agency to the extent 
allowed by law, but are excluded from mandatory referral under 
paragraph (d)(1) of this section.
    (iv) In accordance with 31 U.S.C. 3719 and the procedures 
promulgated thereunder, creditor agencies must report to Treasury the 
amount of debt over 180 days delinquent eligible for the Treasury 
Offset Program. The procedures require that such report include the 
amount of debt over 180 days delinquent that the creditor agency has 
determined is not eligible for the Treasury Offset Program and the 
reasons for such determination.
    (4) Creditor agency regulations. Prior to submitting a debt to FMS 
for purposes of offset, Federal agencies shall prescribe regulations in 
accordance with the requirements of 31 U.S.C. 3716(b), 31 CFR 
901.3(b)(4), 31 U.S.C. 3720A(a), and 31 CFR 285.2(c). Before submitting 
debts to FMS for purposes of offsetting Federal salary payments, 
creditor agencies must also publish regulations pursuant to 5 U.S.C. 
5514, 31 CFR 285.7(d)(2), and 5 CFR 550.1104.
    (5) Delinquent debt information requirements. For each debt 
submitted to FMS for offset, the creditor agency shall provide the 
following information:
    (i) Name and taxpayer identifying number of the person who owes the 
debt;
    (ii) Debtor's address last known to the creditor agency;
    (iii) The amount of the debt (including, as applicable, interest, 
penalties and administrative costs) and the date on which the debt 
became delinquent;
    (iv) The contact within the creditor agency who will handle 
questions, concerns or communications regarding the debt;
    (v) Written certification as required in paragraph (d)(6) of this 
section; and

[[Page 78944]]

    (vi) Other information as may be requested by FMS.
    (6) Creditor agency certification. At the time the creditor agency 
notifies FMS of a debt for purposes of collection by offset, the 
creditor agency shall provide, in the manner required by FMS, written 
certification to FMS that:
    (i) The debt meets the requirements described in paragraph 
(d)(3)(i) of this section;
    (ii) In compliance with 31 U.S.C. 3716, 3720A, 26 U.S.C. 6402, and 
applicable regulations, the creditor agency has made a reasonable 
attempt to provide each debtor with:
    (A) Written notification, at least sixty days prior to submitting 
the debt and at the debtor's most current address known to the agency, 
of the nature and the amount of the debt, the intention of the creditor 
agency to collect the debt through offset, and an explanation of the 
rights of the debtor;
    (B) An opportunity to inspect and copy the records of the creditor 
agency with respect to the debt;
    (C) An opportunity for a review within the creditor agency of the 
determination of indebtedness, including the opportunity to present 
evidence that all or part of the debt is not past-due or legally 
enforceable;
    (D) An opportunity to enter into a written repayment agreement with 
the creditor agency; and
    (E) In the case of Federal employees, an opportunity for a hearing 
prior to submitting the debt for Federal salary offset. See 5 U.S.C. 
5514 and 5 CFR 550.1104. (See 31 CFR 285.7(d), which describes the 
authority to waive the salary offset certification as a prerequisite to 
referring the debt for other types of offsets.)
    (iii) The creditor agency has complied with all statutes, 
regulations, and policies applicable to the creditor agency's 
assessment of interest, penalties and administrative costs (including, 
as applicable, 31 U.S.C. 3717), and that the creditor agency has 
provided a written notice to debtors explaining the creditor agency's 
requirements concerning any such charges assessed against those 
debtors;
    (iv) The individual signing the certification has the delegated 
authority to execute the certification on behalf of the head of the 
creditor agency; and
    (v) such additional information that FMS may from time to time 
require in compliance with law, regulation or policy.
    (7) Updating Certification. After a debt has been submitted to FMS 
for purposes of collection by offset, the creditor agency shall 
provide, at least annually, in the manner and time frames required by 
FMS, written certification to FMS that:
    (i) The debt continues to meet the requirements described in 
paragraph (d)(3) of this section; and
    (ii) The creditor agency has properly credited all collections to 
the debt balance (other than collections received through centralized 
offset).
    (8) FMS instructions to creditor agencies. Agencies will provide 
the certification in a form and manner prescribed by FMS. FMS will 
instruct agencies as to the form such written certifications will take 
and how certifications can be delivered to FMS, including, but not 
limited to, the use of electronic data transmission.
    (9) Agencies which are both creditor and disbursing officials. A 
creditor agency that also designates disbursing officials pursuant to 
31 U.S.C. 3321(c) is not required to certify debts arising out of its 
operations to FMS before such agency's disbursing officials offset to 
collect such claims. This paragraph (d)(9) does not apply to FMS when 
it submits debts which it is servicing pursuant to 31 U.S.C. 3711(g).
    (10) Correcting and updating debt information. (i) When submitting 
debts for offset, the creditor agency must properly credit all 
collections, other than collections received from centralized offset.
    (ii) The creditor agency shall update delinquent debt records, in 
the manner and time frames required by FMS, to reflect any amounts 
credited by the creditor agency to the debtor's account after 
submission of the debt to FMS (other than credits for amounts collected 
by centralized offset).
    (iii) The creditor agency may update delinquent debt records to 
reflect any increases in the amount of the debt submitted to FMS for 
collection by offset provided that the creditor agency has complied 
with the requirements of paragraph (d)(6) of this section with regard 
to the increased amounts.
    (iv) The creditor agency shall notify FMS immediately of any change 
in the status of the legal enforceability of the debt--for example, if 
the creditor agency receives notice that the debtor has filed for 
bankruptcy protection.
    (v) The creditor agency shall notify FMS if it has returned any 
moneys to the debtor/payee because of an offset that should not have 
occurred, as described in paragraph (i)(2) of this section.
    (11) Debts at FMS, a debt collection center, or the Department of 
Justice. If a creditor agency has transferred a debt to FMS or a 
Treasury-designated debt collection center pursuant to 31 U.S.C. 
3711(g) and 31 CFR 285.12, or if a creditor agency has referred a debt 
to the Department of Justice for enforced collection, then FMS, the 
debt collection center, or the Department of Justice, as the case may 
be, is responsible for submitting the debt information to FMS to 
satisfy the creditor agency's obligations under 31 U.S.C. 3716(c)(6) 
and this section.
    (12) Certification of amount to be offset if different than maximum 
allowed by law. Generally, the amount of an offset will be calculated 
as set forth in paragraph (f)(2) of this section. If the creditor 
agency certifies to FMS that the creditor agency has determined the 
offset amount allowed by law would result in financial hardship to the 
debtor and that a lesser offset amount (specified either in dollar 
amount or as a percentage of the payment) is reasonable and appropriate 
based on the debtor's financial circumstances, then the disbursing 
official shall offset such lesser amount specified by the creditor 
agency.
    (13) Duplication of notices not required. Nothing in this section 
requires any creditor agency to duplicate any notice or opportunity for 
hearing or review provided to the debtor prior to offset.
    (e) Payments made by the United States--(1) Payments eligible for 
offset. Except as set forth in paragraph (e)(2) of this section, all 
Federal payments are eligible for offset under this section. Eligible 
Federal payments include, but are not limited to, Federal wage, salary, 
and retirement payments, vendor and expense reimbursement payments, 
certain benefit payments, travel advances and reimbursements, grants, 
fees, refunds, judgments (including those certified for payment 
pursuant to 31 U.S.C. 1304), tax refunds, and other payments made by 
Federal agencies.
    (2) Payments excluded from offset under this section. This section 
does not apply to the following payments:
    (i) Black Lung Part C benefit payments, or Railroad Retirement tier 
2 payments;
    (ii) Payments made under the tariff laws of the United States;
    (iii) Veterans Affairs benefit payments to the extent such payments 
are exempt from offset pursuant to 38 U.S.C. 5301;
    (iv) Payments made under any program administered by the Secretary 
of Education under title IV of the Higher Education Act of 1965 for 
which payments are certified by the Department of Education;
    (v) Payments made under any other Federal law if offset is 
expressly prohibited by Federal statute;
    (vi) Payments made under any program for which the Secretary has

[[Page 78945]]

granted an exemption in accordance with the provisions of 31 U.S.C. 
3716(c)(3)(B) and paragraph (e)(7) of this section; and
    (vii) Federal loan payments other than travel advances.
    (3) Specific rules for certain payment types. (i) Specific rules 
apply with respect to the offset of the following types of payments:
    (A) Social Security benefit payments (excluding Supplemental 
Security Income payments), Black Lung (part B) payments, and Railroad 
Retirement (other than tier 2) payments to the extent such payments are 
subject to offset under 31 U.S.C. 3716(c)(3)(A) (see 31 CFR 285.4);
    (B) Federal salary payments (see 31 CFR 285.7; 5 CFR 550.1101 
through 550.1108); and
    (C) Tax refund payments (see 31 CFR 285.2).
    (ii) This section governs the offset of such payments to the extent 
that this section is not inconsistent with the special rules that apply 
for a particular type of payment.
    (4) Payments made to joint payees. If a payment is certified to 
more than one payee (i.e., joint payees), the entire payment (including 
a tax refund payment) will be subject to offset for a debt of either 
payee, unless otherwise prohibited by law or regulation. See 31 CFR 
285.2(g) regarding offset of joint tax refunds and claims to return 
offset funds to the non-debtor, joint payee.
    (5) Payments made to representative payees. If a payment is made to 
a person solely in that person's capacity as a representative payee for 
another person having the beneficial interest in a payment, the 
disbursing official shall offset that payment only to collect debts 
owed by the person having the beneficial interest in the payment. 
Payment agencies are responsible for identifying representative payees.
    (6) Assigned payments. (i) If a person, including a Federal 
contractor, assigns the right to receive a Federal payment to a third 
party (the ``assignee''), the assigned payment will be subject to 
offset to collect a delinquent debt owed by the assignee.
    (ii) An assigned payment will also be subject to offset to collect 
delinquent debts owed by the assignor unless:
    (A) In accordance with 41 U.S.C. 15(e)-(f), the payment has been 
properly assigned to a financial institution pursuant to a Federal 
contract, the contract contains provisions prohibiting the payment from 
being reduced or offset for debts owed by the contractor, and the debt 
arose independently of the contract; or
    (B) pursuant to 31 U.S.C. 3727, the payment is being made to the 
assignee as settlement or satisfaction of a claim brought by the 
assignee against the creditor agency based upon the contract, and the 
debt of the contractor arises independently of the contract; or
    (C) the debtor has properly assigned the right to such payments and 
the debt arose after the effective date of the assignment.
    (7) Payment agency requests for exemptions from centralized offset 
pursuant to 31 U.S.C. 3716(c)(3)(B)--(i) Means-tested payments. The 
Secretary will exempt from centralized offset payments made under 
means-tested programs when requested by the head of the agency making 
such payments. For purposes of this section ``means-tested programs'' 
are those which base eligibility on a determination that the income 
and/or assets of the beneficiary are inadequate to provide the 
beneficiary with an adequate standard of living without program 
assistance.
    (ii) Payments made under programs which are not means-tested. Upon 
written request from the payment agency, the Secretary may exempt 
classes of payments which are not means-tested. Payment agencies may 
request that the Secretary exempt 100% of each payment in a payment 
class or that the Secretary exempt a specific lesser percentage. The 
Secretary will consider such requests under standards prescribed by the 
Secretary and published on the FMS Web site. See www.fms.treas.gov/debt.
    (iii) Procedures for requesting exemptions. The head of the payment 
agency must make a request for exemption in writing. The request must 
comply with the procedures published by FMS and made available at its 
Web site. See www.fms.treas.gov/debt.
    (iv) Exemptions apply to classes of payments. The Secretary will 
only exempt classes of payments. Requests for exemption of individual 
payments will not be considered.
    (8) Payment agency responsibilities. (i) Payment agencies shall 
prepare and submit payment vouchers in the manner prescribed by the 
disbursing official to ensure that all payments legally eligible for 
offset will be offset and all payments not eligible will not be offset. 
Payment agencies shall notify the disbursing agency, in the manner 
prescribed by FMS, that a payment is a recurring payment.
    (ii) Payment agencies shall also review the nature of payments the 
agency certifies and notify FMS of any legal bars to centralized offset 
of payments.
    (9) Payment and disbursing officials have satisfied the obligation 
underlying the payment. When an offset occurs, the debtor has received 
payment in full for the underlying obligation represented by the 
payment. Pursuant to 31 U.S.C. 3716(c)(2)(A), neither the disbursing 
official nor the payment agency shall be liable for the amount of the 
offset on the basis that the underlying obligation was not satisfied. 
For example, if an agency certifies a payment to a Federal contractor 
for work completed or services provided, and that payment is offset to 
collect a delinquent debt that the contractor owes to another Federal 
agency, the contractor has been paid in full for its services. When the 
creditor agency credits the offset amount to the contractor's 
delinquent debt, the contractor has received full value for the 
services performed under the contract.
    (f) Offset--(1) When offset occurs. When a match occurs and all 
other requirements for offset under 31 U.S.C. 3716(c), 3720A, and 
applicable regulations have been met, the disbursing official shall 
offset the payee's Federal payment to satisfy, in whole or part, the 
debt owed by the debtor. Offsets will continue until the debt, 
including any interest, penalties, and administrative costs, is paid in 
full or otherwise resolved to the satisfaction of the creditor agency.
    (2) Offset amount. (i) Except as otherwise provided in 31 CFR 
285.4(e) and 285.7(g) (addressing centralized offset of certain Federal 
benefit payments and salary payments, respectively), the disbursing 
official shall offset the lesser of:
    (A) The amount of the payment as shown on the payment record; or
    (B) The amount of the debt, including any interest, penalties and 
administrative costs; or
    (C) In the case of retirement annuity payments certified by the 
Office of Personnel Management, up to twenty-five percent of the amount 
of the payment as shown on the payment record.
    (ii) Notwithstanding paragraph (f)(2)(i) of this section, if a 
creditor agency has specified another amount, either in dollars or as a 
percentage of the payment, pursuant to paragraph (d)(15) of this 
section, the disbursing official shall offset the amount specified by 
the creditor agency.
    (3) Priorities for collecting multiple debts owed by the payee. (i) 
A levy pursuant to the Internal Revenue Code of 1986 shall take 
precedence over deductions under this section.
    (ii) When a payment may be offset to collect more than one debt 
under this section, amounts offset will be applied:

[[Page 78946]]

    (A) First, to satisfy any past due support debts assigned to a 
State pursuant to sections 402(a)(26) and 471(a)(17) of the Social 
Security Act (see 26 U.S.C. 6402(c) and sections 285.1 and 285.3 of 
this part);
    (B) Second, to satisfy any debts owed to Federal agencies;
    (C) Third, to satisfy any qualifying past-due support claims not 
assigned to a State (see 26 U.S.C. 6402(c) and sections 285.1 and 285.3 
of this part); and
    (D) Fourth, to any debts owed to States for debts other than past-
due support (see Sec.  285.8 of this part).
    (iii) If a recurring payment is being offset to collect a debt when 
another debt owed by the payee with a higher priority is submitted to 
FMS, and if the amount that may be legally offset from such payment is 
insufficient to satisfy both debts, then collections for the first, 
lower-priority debt will be suspended or reduced until the debt with 
the higher priority is satisfied or is otherwise uncollectible.
    (g) Notices--(1) Warning notice by disbursing official to payee/
debtor. Before offsetting a recurring payment, the disbursing official, 
or FMS on behalf of the disbursing official, will notify the payee in 
writing when offsets will begin (which may be stated as a number of 
days or number of payments from the time of the notice) and the 
anticipated amount of such offset (which may be stated as a percentage 
of the payment). Such notice shall also provide the information 
contained in paragraph(g)(3) of this section.
    (2) No additional warning notice when collections are suspended and 
resumed. As described in paragraph (f)(3)(iii) of this section, FMS may 
suspend or reduce the application of collections from a recurring 
payment for one debt when another debt, which is owed by the same 
debtor and has a higher legal priority, is submitted to FMS for 
collection. The disbursing official is not required to send additional 
warning notices when collections for the lower priority debt resume; 
however, pursuant to paragraph (g)(3) of this section, each offset will 
be accompanied by an offset notice, which explains how the offset 
amounts were applied.
    (3) Offset notice. When an offset occurs under this section, the 
disbursing official, or FMS on behalf of the disbursing official, shall 
notify the payee in writing that an offset has occurred including:
    (i) A description of the payment and the amount of offset taken;
    (ii) The identity of the creditor agency requesting the offset; and
    (iii) A contact point within the creditor agency who will handle 
concerns regarding the offset.
    (h) Notification to creditor and payment agencies. (1) FMS will 
notify the creditor agency of all offsets made to collect the creditor 
agency's debts. Such notification shall include the complete name and 
taxpayer identifying number of each debtor/payee, the total amounts 
collected from each debtor/payee's payment, and the amount of any fees 
charged by FMS and any other disbursing official conducting offsets. 
FMS will not advise the creditor agency of the source of payment from 
which such amounts were collected.
    (2) When a non-Treasury disbursing official conducts the offset, 
that disbursing official will transmit to FMS all of the information 
necessary for FMS to send notification under paragraph (h)(1) of this 
section, including the amount of any fees that the creditor agency is 
responsible for paying.
    (3) FMS will make available to the payment agency the information 
contained in the notification of offset, so that the payment agency may 
direct any questions concerning the claim to the appropriate contact 
person in the creditor agency.
    (i) Disposition of amounts collected. (1) FMS will transmit amounts 
collected for debts, less fees charged pursuant to paragraph (j) of 
this section, to the appropriate creditor agency or agencies. 
Alternatively, FMS may bill the creditor agency for any fees charged 
pursuant to paragraph (j) of this section.
    (2) If FMS learns from a paying agency that a payment should not 
have been made, and thus not offset, FMS will notify the creditor 
agency. FMS may deduct the offset amount from future amounts payable to 
the creditor agency. Alternatively, upon FMS's request, the creditor 
agency shall return promptly to the disbursing official an amount equal 
to the amount of the offset (without regard to whether any other 
amounts payable to such disbursing official have been paid).
    (3) Generally, the disbursing official is not responsible for 
refunding money to debtors. The creditor agency shall notify FMS any 
time the creditor agency returns all or any part of an offset payment 
to an affected payee. FMS and the creditor agency shall adjust the 
debtor records appropriately.
    (j) Fees. FMS may charge a fee sufficient to cover the full cost of 
implementing the centralized offset program, including the amount of 
any fees charged by other disbursing officials conducting an offset 
under this section. FMS may deduct the fees from amounts collected by 
offset or may bill the creditor agencies. FMS will charge fees only for 
actual offsets collected.
    (k) Waiver of certain provisions under the Computer Matching 
Privacy and Protection Act of 1988. As authorized by 31 U.S.C. 3716(f), 
FMS, under a delegation of authority from the Secretary, has waived 
certain requirements of the Computer Matching and Privacy Protection 
Act of 1988, Pub. L. No. 100-503, as amended, for matches between 
delinquent debt records and payment records for offset purposes upon 
written certification by the head of the creditor agency that the 
requirements of 31 U.S.C. 3716(a) have been met. Specifically, for 
administrative offset of Federal payments other than tax refunds, FMS 
has waived the requirements for a computer matching agreement contained 
in 5 U.S.C. 552a(o) and for post-match notice and verification 
contained in 5 U.S.C. 552a(p) so long as the creditor agency provides 
certification to FMS in accordance with the provisions of paragraph 
(d)(6) of this section. Such waiver is not necessary for offset of 
Federal tax refunds, pursuant to 5 U.S.C. 552a(a)(8)(B). The Data 
Integrity Board of the Department of the Treasury shall review and 
include in reports under 5 U.S.C. 552a(u)(3)(D) a description of the 
matching activities conducted for centralized offset under this 
section. No other Data Integrity Board is required to take any action 
under 5 U.S.C. 552a(u) concerning these computerized comparisons.

    Dated: December 19, 2002.
Richard L. Gregg,
Commissioner.
[FR Doc. 02-32572 Filed 12-24-02; 8:45 am]
BILLING CODE 4810-35-P