[Federal Register Volume 70, Number 13 (Friday, January 21, 2005)]
[Rules and Regulations]
[Pages 3142-3145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-1051]


=======================================================================
-----------------------------------------------------------------------

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: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule describes the general rules and procedures 
applicable to the collection, through the Treasury Offset Program 
(TOP), of delinquent, nontax debts owed to Federal agencies. TOP is a 
program administered by the Financial Management Service (FMS), a 
bureau of the Treasury Department.

DATES: This rule is effective January 21, 2005.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program 
Specialist, at (202) 874-6660; Tricia Long, Attorney-Advisor, at (202) 
874-6680. A copy of this final rule is being made available for 
downloading from the Financial Management Service Web site at the 
following address: http://www.fms.treas.gov/debt.

SUPPLEMENTARY INFORMATION: 

Background

    On December 26, 2002, FMS published an interim rule with request 
for comments (``Interim Rule'') describing the general rules and 
procedures applicable to the collection of delinquent, nontax debts 
owed to Federal agencies by the centralized offset of Federal payments. 
See 67 FR 78936.
    FMS established TOP in order to implement provisions of various 
Federal laws affecting offset, including the Debt Collection 
Improvement Act of 1996 (Pub. L. 104-134, 110 Stat. 1321-358 (April 26, 
1996)) (``DCIA''), which directed Treasury to provide 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) and 3720A.

Discussion of Comments

General

    FMS received comments from a Federal agency and a State 
comptroller's office in response to the publishing of the Interim Rule. 
In response to the comments, FMS has made the revisions reflected in 
this final rule. In addition, FMS has corrected the citation to 
Executive Order 13019 in the list of authorities for 31 CFR Part 285 
and has made minor editorial changes for purposes of consistency.

Comment Analysis

Interim Rule Sec.  285.5(a) Scope

    One commenter noted that the rule does not address how TOP 
processes offsets to collect debts for which two or more debtors are 
jointly and severally liable. FMS has not made any changes in response 
to this comment. TOP has been developed to comply with existing laws 
regarding the liability of debtors who are jointly and severally liable 
for debts, and therefore, no change to the rule is required.
    One commenter asked for clarification as to whether past-due 
support debts and other debts owed to a State are covered by the rule. 
The commenter noted that paragraph (f)(3) of this section sets forth 
the priority of collection when multiple debts (including support and 
other debts owed to States) match with the same payment. This final 
rule applies only to

[[Page 3143]]

offsets made through TOP to collect delinquent, nontax debts owed to 
the United States. Past-due support debts and debts owed to States are 
not within the scope of this rule (although nontax debts owed by States 
are covered by this rule). TOP does, however, process offsets and 
levies to collect debts pursuant to several laws and regulations. 
Paragraph (f)(3) was intended to explain what will occur if a debt 
within the scope of this rule matches with a payment at the same time 
as a debt that is not covered by this rule. We have revised the wording 
in (f)(3)(ii) and (f)(3)(ii)(B) for clarification.

Interim Rule Sec.  285.5(b) Definitions

    One commenter suggested deleting the example in the definition of 
``legally enforceable'' in paragraph (b) regarding debts under appeal. 
The commenter questioned whether a debt may ever be considered final, 
and therefore legally enforceable, when there is a pending 
administrative review process with respect to the debt. FMS has 
determined that deleting the example is not necessary. Statutes, 
regulations and agency guidance applicable to particular debts may 
provide for appeals after a final agency decision on any matter related 
to the debt.
    One commenter remarked that the definition of ``match'' allows for 
payments due to one State agency to be offset to collect delinquent 
debts incurred by another agency of the same State. This is possible 
because each State has one TIN for all its agencies. The commenter 
suggested that one State agency's payments should not be affected by 
another agency's debts, and that FMS should put in controls, such as 
using different identifiers for payment programs, in order to avoid 
such offsets. FMS disagrees. For purposes of offset, the debtor is the 
State, not the individual agency. This is also the case for 
corporations and other entities that share a TIN with subsidiaries. Two 
components of an entity using the same TIN are generally considered to 
be one legal entity responsible for debts incurred by either component. 
As a result, payments made to one component of such an entity are 
eligible for offset to collect debts owed by another component of the 
same entity. FMS realizes that States and other organizations have a 
need internally to identify components which have incurred delinquent 
debts, and FMS will work with such organizations to assist such 
communications to the extent possible.

Interim Rule Sec.  285.5(d)(5) Delinquent Debt Information Requirements

    One commenter suggested that creditor agencies be required to 
supply the address and phone number of the primary contact within the 
agency who will respond to inquiries about the debt. The commenter also 
suggested that this information be included in the offset notice 
described in paragraph (g)(3). This suggestion is consistent with the 
applicable portions of the Federal Claims Collection Standards as set 
forth in 31 CFR 901.2, and this final rule incorporates that suggestion 
in (d)(5)(iv) and (g)(3)(iii).
    The commenter also suggested that FMS require creditor agencies to 
supply the nature of the debt to FMS, so such information could be 
included in offset and warning notices. FMS does not believe that such 
a requirement is appropriate or necessary. The debtor can ascertain 
information about the nature of the debt and other information 
pertaining to the debt by contacting the creditor agency using the 
contact information provided in the notices. Also, FMS does not need 
this information to facilitate offset. The nature of the debt is not 
relevant to its legal enforceability, nor is it necessary for TOP to 
match the debt with the payment. For these reasons, FMS has not 
included this requirement in this final rule.

Interim Rule Sec.  285.5(d)(6) Creditor Agency Certification

    As described in paragraph (ii)(A), the creditor agency must certify 
that it has sent written notice regarding the debt to the debtor's most 
current address known to the agency. One commenter requested that, when 
the debtor is a State agency, the rule require that copies of these 
notices (as well as those sent by disbursing officials pursuant to 
paragraph (g)(3)) be sent to the State comptroller or treasurer, in 
order to facilitate communications among State agencies. FMS believes 
that such a requirement would create an undue burden on Federal 
agencies to ascertain the central point of contact for each State 
entity with which it does business. With respect to the creditor 
agency's obligation to notify the debtor of the debt, the legal 
requirement is to send written notice to the last known address. The 
last known address generally is the one supplied by the debtor to the 
creditor agency, unless the creditor agency has obtained an updated 
address through its independent research. The State has the option of 
supplying its comptroller's or treasurer's address to each Federal 
agency with which it does business, as the official address for sending 
such notices. With respect to the disbursing official's obligation to 
send notices regarding the offset of a payment, the disbursing official 
sends such notice to the address to which the payment would have been 
sent, if a payment address is available. In the case of payments made 
by electronic funds transfer, payment addresses are generally not 
available, and notices are therefore sent to the address for the 
debtor, which is supplied by the creditor agency. For these reasons, 
this final rule does not require creditor agencies or disbursing 
officials to send additional copies of notices to a central point of 
contact within a State.

Interim Rule Sec.  285.5(d)(10) Correcting and Updating Debt 
Information

    One commenter suggested that FMS revise paragraph (v) to state that 
it does not apply to offsets when the paying agency is also the 
creditor agency. The commenter asserted that FMS would be notified in 
such cases by the creditor agency's compliance with paragraphs 
(d)(10)(i) through (d)(10)(iv). FMS requires that creditor agencies 
notify FMS if they have refunded monies to the debtor in order to 
assure that FMS's debt and accounting records are accurate. The fact 
that the creditor agency is also the paying agency does not necessarily 
result in FMS being notified of the refund through other means. 
Additionally, it is noted that paragraphs (d)(10)(i) through 
(d)(10)(iv) do not require agencies to specify whether the collections 
they credit pursuant to those paragraphs are due to refunds or other 
types of collections.
    In reviewing (d)(10)(v) to respond to the commenter's suggestion, 
we determined that this paragraph should be clarified to indicate that 
the creditor agency must notify FMS any time the creditor agency 
refunds money to the debtor/payee, in accordance with paragraph (i)(3). 
Accordingly, we have incorporated this clarification in the final rule 
in both paragraphs (d)(10)(v) and (i)(3).

Interim Rule Sec.  285.5(d)(11) Debts at FMS, a Debt Collection Center, 
or the Department of Justice

    One commenter suggested that paragraph (d)(11) be changed to 
clarify that creditor agencies may opt to send debts to TOP directly, 
even if those debts are already at FMS or a designated debt collection 
center for cross-servicing. FMS has not made any changes to the rule in 
response to this comment. The rule states that FMS or a designated debt 
collection center may

[[Page 3144]]

fulfill the agency's requirement to refer debts to TOP. While direct 
referral to TOP is not the preferred practice, the rule, as written, 
does not prohibit creditor agencies from sending debts directly to TOP. 
If the creditor agency wishes to fulfill its obligation by sending 
debts directly, such intention should be stated clearly in any 
agreement between the creditor agency and the entity performing its 
cross-servicing.

Interim Rule Sec.  285.5(e)(2) Payments Excluded From Offset Under This 
Section

    One commenter suggested that claims on certain types of benefits 
should be exempted payments under the rule. The comment focused on 
whether the State or an individual is actually liable for the debt 
being collected from such payments. Paragraph (e)(2) addresses which 
classes of payments are excluded from offset. It does not address who 
is liable for the debt. The determination as to who is liable for a 
debt is made solely by the creditor agency based upon the laws and 
regulations applicable to the program under which the debt arose. Such 
determination is beyond the scope of this rule. Therefore, no change 
has been made to this provision in the rule.

Interim Rule Sec.  285.5(e)(7) Payment Agency Requests for Exemptions 
From Centralized Offset Pursuant to 31 U.S.C. 3716(c)(3)(B)

    One commenter suggested that the rule require FMS to consult with 
creditor agencies prior to granting a debtor-specific payment 
exemption. Such consultation is not necessary, because only classes of 
payments may be exempted from centralized offset, not classes of debts 
or debtors.

Interim Rule Sec.  285.5(g) Notices

    One commenter suggested that disbursing officials and creditor 
agencies send notices electronically. As of this writing, FMS is 
exploring the legal and operational issues of sending its notices 
electronically. Creditor agencies may also explore this possibility. At 
this time, FMS is not contemplating a rule that would mandate that any 
notices be sent electronically.
    The commenter also suggested that the rule specify that disbursing 
officials send notices to the address of the payee (rather than the 
debtor). The rule currently does not specify an address. When a payment 
voucher contains the address of the payee, FMS uses that address. In 
the case of payments made by electronic funds transfer, the payment 
agency does not supply an address to FMS on the payment voucher. 
Therefore, the only address available to TOP is the debtor address 
supplied by the creditor agency. No change has been made to this final 
rule in response to the comment.
    The commenter also suggested that the warning notice described in 
(g)(1) be sent for all types of payments where more than one payment to 
a payee is contemplated, not just recurring payments. Warning notices 
are a courtesy that disbursing officials can provide, because the debt 
will eventually be collected in full from recurring payments. When a 
warning notice is sent, the disbursing official loses the opportunity 
to offset a payment for one payment cycle. Disbursing officials do not 
have any way of knowing what other types of payments may be made on a 
recurring basis. If a payment is not expected to be made on a recurring 
basis, there is no reasonable certainty that the debt will be collected 
in full. Therefore, in situations of non-recurring payments, TOP cannot 
forego collection during a payment cycle before collecting a debt while 
granting the debtor an additional warning. The rule will not be changed 
to provide for warning notices on additional payments.
    While reviewing comments received on the requirements for warning 
notices, FMS determined that the rule should be clarified to reflect 
that failure to send out a warning notice does not affect the validity 
of an offset. Disbursing officials send warning notices as a courtesy 
only. They are not part of any required due process. FMS has added 
language at the end of (g)(1) to provide such clarification.
    One commenter suggested that the offset notice include the amount 
of debt collection fees and penalties assessed by the federal creditor 
agency. Disbursing officials do not have this information. Creditor 
agencies have differing rules and policies about recouping fees and 
costs from the debtor. Additionally, disbursing officials have no 
knowledge of penalties that a creditor agency may assess. Therefore, it 
would be operationally impractical to include such information on a 
notice. Further, the debtor can always obtain this information from the 
creditor agency. The due process letter that the creditor agency sends 
the debtor (as described in (d)(5)) contains information about the 
interest, costs and fees that may be charged to the debtor. The debtor 
may also contact the creditor agency to determine what fees and 
penalties have been added to the debt balance.

Interim Rule Sec.  285.5(j) Fees

    One commenter stated that collection of fees to recoup costs would 
be a burden on State debtors and suggested that there should be a cap 
on fees paid by States. Disbursing officials are authorized by 31 
U.S.C. 3716 to cover the costs of delinquent debt collection through 
the imposition of fees. Disbursing officials charge these fees to the 
creditor agencies, and the amount of fees are capped at the cost of 
collection. The creditor agencies decide, based upon applicable laws 
and policies, whether to charge the cost of such fees to debtors. Based 
on this, FMS has decided not to impose a cap on fees paid by States. As 
stated above, FMS will, however, work with States to assist with 
communications issues that delay resolution of delinquent debts and 
which may result in additional fees.

Regulatory Analysis

    This final rule is not a significant regulatory action as defined 
in Executive Order 12866. Because no notice of proposed rulemaking was 
required for this rule, the provisions of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) do not apply.

Special Analysis

    FMS has determined that good cause exists to make this final 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, Treasury has been collecting delinquent nontax debt pursuant to 
the Debt Collection Improvement Act of 1996 since its passage. 
Moreover, this final rule makes only minor clarifications to the 
currently effective interim final rule and provides guidance that is 
expected to facilitate Federal agencies' participation in the 
centralized offset program.

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.

[[Page 3145]]

Authority and Issuance

0
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

0
1. The authority citation for part 285 is revised 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, 61 FR 51763, 3 CFR, 1996 
Comp., p. 216.


0
2. Section 285.5 is amended to revise the section heading, and 
paragraphs (d)(5)(iv),(d)(10)(v), (f)(3), (g)(1), (g)(3)(iii), and 
(i)(3) to read as follows:


Sec.  285.5  Centralized offset of Federal payments to collect nontax 
debts owed to the United States.

* * * * *
    (d) * * *
    (5) * * *
    (iv) The address and telephone number of the contact point within 
the creditor agency who will handle questions, concerns or 
communications regarding the debt;
* * * * *
    (10) * * *
    (v) The creditor agency shall notify FMS if it has returned any 
monies to the debtor/payee.
* * * * *
    (f) * * *
    (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, 
amounts offset will be applied:
    (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 Sec. Sec.  285.1 and 285.3 of 
this part);
    (B) Second, to satisfy any debts owed to Federal agencies, as 
described in this Sec.  285.5;
    (C) Third, to satisfy any qualifying past-due support claims not 
assigned to a State (see 26 U.S.C. 6402(c) and Sec. Sec.  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).
* * * * *
    (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. Failure to send such 
notice does not affect the validity of the offset.
* * * * *
    (3) * * *
    (iii) The address and telephone number of the contact point within 
the creditor agency who will handle concerns regarding the offset.
* * * * *
    (i) * * *
    (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. See paragraph (d)(10)(v) of this section. FMS and 
the creditor agency shall adjust the debtor records appropriately.
* * * * *

Richard L. Gregg,
Commissioner.
[FR Doc. 05-1051 Filed 1-19-05; 8:45 am]
BILLING CODE 4810-35-P