[Federal Register Volume 76, Number 19 (Friday, January 28, 2011)]
[Rules and Regulations]
[Pages 5070-5072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1697]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510-AB29


Offset of Tax Refund Payments To Collect Delinquent State 
Unemployment Compensation Debts

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Interim rule with request for comments.

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SUMMARY: This rule implements the authority added by the SSI Extension 
for Elderly and Disabled Refugees Act of 2008 (``2008 Act''), as 
amended by the Claims Resolution Act of 2010 (2010 Act'') to offset 
overpayments of Federal taxes (referred to as ``tax refund offset'') to 
collect delinquent State unemployment compensation debts. The 
Department of the Treasury (Treasury) will incorporate the procedures 
necessary to collect State unemployment compensation debts as part of 
the Treasury Offset Program (TOP), a centralized offset program 
operated by the Financial Management Service (FMS), a Treasury bureau. 
FMS has promulgated a rule governing the offset of federal tax refunds 
to collect delinquent State income tax obligations. This rule amends 
FMS regulations to include unemployment compensation debts among the 
types of State debts that may be collected by tax refund offset. This 
rule does not affect any of the requirements or procedures for 
collecting delinquent State income tax obligations.

DATES: This rule is effective January 28, 2011. Comments must be 
received by March 29, 2011.

ADDRESSES: Treasury participates in the U.S. government's eRulemaking 
Initiative by publishing rulemaking information on http://www.regulations.gov. Regulations.gov offers the public the ability to 
comment on, search, and view publicly available rulemaking materials, 
including comments received on rules. Comments on this rule should be 
submitted using only the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions on the Web site for submitting comments.
    Mail: Thomas Dungan, Senior Policy Analyst, U.S. Department of the 
Treasury, Financial Management Service, 401 14th St., SW., Washington, 
DC 20227.
    All submissions received must include the agency name (``Fiscal 
Service'') and the title of this rulemaking. In general, comments 
received will be published on Regulations.gov without change, including 
any business or personal information provided. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Thomas Dungan, Senior Policy Analyst, 
at (202)874-6660, or Tricia Long, Senior Counsel, at (202) 874-6680.

SUPPLEMENTARY INFORMATION:

I. Background

    General. The Internal Revenue Code authorizes the Secretary of the 
Treasury to offset Federal tax refund payments to satisfy debts owed to 
the United States, past-due support collected by States, and income tax 
debts owed to States. The 2008 Act amended section 6402 of the Internal 
Revenue Code to authorize tax refund offset to collect an additional 
type of debt unemployment compensation debts owed to the States which 
were incurred as a result of fraud, and which were not outstanding for 
more than ten years. The 2010 Act expanded that authority to include 
all unemployment compensation debts incurred as a result of the 
debtor's failure to report earnings, whether or not the failure 
constituted fraud. The 2010 Act also eliminated the ten-year time 
limitation on collection, the requirement that the debtor reside in the 
State seeking to collect the debt, and the requirement to use certified 
mail with return receipt for pre-offset notices.
    This rule governs the offset of one type of payment (i.e., Federal 
tax refunds) to pay one type of delinquent debt (i.e., past-due, 
legally enforceable State unemployment debts). FMS has promulgated 
separate rules and procedures governing other types of offset, such as 
tax refund offset to collect nontax debt owed to the United States (see 
section 285.2 of this title).
    The Treasury Offset Program. FMS operates TOP to carry out offsets 
under the Internal Revenue Code and other laws. TOP is a centralized 
offset program by which FMS offsets payments to collect delinquent 
debts owed to Federal agencies and States. TOP currently works as 
follows. FMS maintains a database containing information about 
delinquent debts submitted and updated by Federal and State agencies. 
Before Federal payments, including Federal tax refund payments, are 
disbursed to a payee, FMS compares the payee information with debt 
information in the TOP delinquent debt database. If the name and 
taxpayer identifying number (TIN) associated with a payment match the 
name (or derivative of the name) and TIN associated with a debt, the 
payment is offset in whole or part to satisfy the debt. FMS transmits 
amounts collected to the appropriate agencies or States owed the 
delinquent debts after deducting a fee charged to cover the cost of the 
offset program. Information about a delinquent debt or past-due, 
legally enforceable debt will remain in the debtor database for offset 
as long as the debt remains past due and legally collectible by offset.
    Offset of Tax Refund Payments To Collect Debts Owed to States 
Through the Treasury Offset Program. TOP will be expanded to include 
the collection of past-due, legally enforceable State unemployment 
compensation debts. As is done by States for State income tax debts, 
before submitting a debt to the database, States will certify to FMS 
that the debt is past due, legally enforceable

[[Page 5071]]

and that all due process prerequisites have been met.
    This rule establishes procedures for such collection, and amends 
section 285.8, which governs tax refund offset to collect State income 
tax obligations, because the two types of offset are similar.

II. Procedural Analyses

Administrative Procedure Act

    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, for the following 
reasons, that a comment period would be unnecessary and contrary to the 
public interest. The authority to offset tax refund payments to collect 
delinquent State unemployment debt incurred as a result of fraud was 
effective on September 30, 2008, and the authority to collect 
unemployment compensation debts not resulting from fraud was effective 
December 8, 2010. A comment period is unnecessary because this interim 
rule is not required in order to exercise this authority and does not 
change the ongoing TOP offset process. It only provides guidance for 
State agencies and Federal disbursing officials to facilitate the 
addition of State unemployment debts into TOP. Under this interim rule, 
State agencies are required to provide to the debtor the same pre 
offset notice, opportunities, and rights to dispute the debt and seek 
waiver as currently required by 26 U.S.C. 6402. Since this interim rule 
provides important guidance ensuring that debtors receive appropriate 
notices and opportunities from States that elect to participate, FMS 
believes that it is in the public interest to issue this interim rule 
without delaying the effective date to wait for prior public comment.
    For the same reasons, 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)(3). The public is invited to submit comments on the 
interim rule, which will be taken into account before a final rule is 
issued.

Request for Comment on Plain Language

    Executive Order 12866 requires each agency in the executive branch 
to write regulations that are simple and easy to understand. We invite 
comment on how to make the proposed rule clearer. For example, you may 
wish to discuss: (1) Whether we have organized the material to suit 
your needs; (2) whether the requirements of the rule are clear; or (3) 
whether there is something else we could do to make this rule easier to 
understand.

Regulatory Analysis Planning and Review

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

Federalism

    This rule has been reviewed under Executive Order 13132, 
Federalism. This rule will not have substantial direct effects on 
States, on the relationship between the national government and the 
States, or on distribution of power and responsibilities among the 
various levels of government. Participation in the program governed by 
this rule is voluntary for the States; this rule only sets forth the 
general procedures for State participation. States already participate 
in offset of tax refunds to collect delinquent State income tax 
obligations pursuant to 31 CFR 285.8. This rule merely updates the 
regulations to reflect the statutory change authorizing States to 
submit additional debts to TOP for collection by tax refund offset. 
Therefore, in accordance with Executive Order 13132, it is determined 
that this rule does not have sufficient federalism implications to 
warrant the preparation of a federalism summary impact statement.

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, Unemployment compensation, Veterans' benefits, Wages.

    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 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, 37203, 3720D; 42 U.S.C. 664; E.O. 13019, 61 
FR 51763, 3 CFR, 1996 Comp., P. 216.

0
2. Amend Sec.  285.8 as follows:
0
a. Revise the section heading.
0
b. In paragraph (a), revise the definition of ``Debt'', revise the 
definition of ``Debtor'', and add a definition of ``Unemployment 
compensation debt'' in alphabetical order.
0
c. Revise paragraph (b).
0
d. In paragraph (c), revise the heading, paragraphs (c)(1), (c)(3)(i), 
and (c)(3)(ii).
0
e. In paragraph (d)(2), remove the words ``6402(a), (c), (d) and (e)'' 
wherever they appear, and add, in their place, ``6402(a), (c), (d), (e) 
and (f)''.
0
f. In paragraph (i), revise the first sentence.
0
g. In paragraph (j), remove the word ``6402(e)'' and add, in its place, 
``6402(e) or (f)'' wherever it occurs.
0
h. Remove paragraph (k).
0
i. In paragraphs (c)(4), (e)(1)(i), and (f), remove the words ``State 
income tax obligation'' and add, in their place, ``State income tax 
obligation or unemployment compensation debt'' wherever they occur.
0
j. In paragraphs (e)(3), (e)(4), and (h), remove the words ``State 
income tax obligations'' and add, in their place, ``State income tax 
obligations or unemployment compensation debts'' wherever they occur.
    The revision and additions read as follows:


Sec.  285.8  Offset of tax refund payments to collect certain debts 
owed to States.

    (a) * * *
    Debt means past-due, legally enforceable State income tax 
obligation or unemployment compensation debt unless otherwise 
indicated.
    Debtor means a person who owes a debt.
* * * * *
    Unemployment compensation debt has the same meaning as the term 
``covered unemployment debt'' as defined in 26 U.S.C. 6402(f)(4), and 
means
    (1) A past-due debt for erroneous payment of unemployment 
compensation due to fraud or the person's failure to report earnings 
which has become final under the law of a State certified by the 
Secretary of Labor pursuant to 26 U.S.C. 3304 and which remains 
uncollected;
    (2) Contributions due to the unemployment fund of a State for which 
the State has determined the person to be liable and which remain 
uncollected; and
    (3) Any penalties and interest assessed on such debt.

[[Page 5072]]

    (b) General rule. (1) FMS will offset tax refunds to collect debt 
under this section in accordance with 26 U.S.C. 6402(e) and (f) and 
this section.
    (2) FMS will compare tax refund payment records, as certified by 
the IRS, with records of debts submitted to FMS. A match will occur 
when the taxpayer identifying number (as that term is used in 26 U.S.C. 
6109) and name on a payment certification record are the same as the 
taxpayer identifying number and name (or derivative of the name) on a 
delinquent debt record. When a match occurs and all other requirements 
for tax refund offset have been met, FMS will reduce the amount of any 
tax refund payment payable to a debtor by the amount of any past-due, 
legally enforceable State income tax obligation or unemployment 
compensation debt owed by the debtor. Any amounts not offset will be 
paid to the payee(s) listed in the payment certification record.
    (3) FMS will only offset a tax refund payment for a State income 
tax obligation if the address shown on the Federal tax return for the 
taxable year of the overpayment is an address within the State seeking 
the offset.
    (c) Notification of past-due, legally enforceable State income tax 
obligations or unemployment compensation debts. (1) Notification. 
States shall notify FMS of debts in the manner and format prescribed by 
FMS. The notification of liability must be accompanied by a 
certification that the debt is past due and legally enforceable and 
that the State has complied with the requirements contained in 
paragraph (c)(3) of this section and with all Federal or State 
requirements applicable to the collection of debts under this section. 
With respect to State income tax obligations only, the certification 
must specifically state that none of the debts submitted for collection 
by offset are debts owed by an individual who has claimed immunity from 
State taxation by reason of being an enrolled member of an Indian tribe 
who lives on a reservation and derives all of his or her income from 
that reservation unless such claim has been adjudicated de novo on its 
merits in accordance with paragraph (c)(3). FMS may reject a 
notification that does not comply with the requirements of this 
section. Upon notification of the rejection and the reason for 
rejection, the State may resubmit a corrected notification.
* * * * *
    (3)(i) Advance notification to the debtor of the State's intent to 
collect by Federal tax refund offset. The State is required to provide 
a written notification to the debtor informing the debtor that the 
State intends to refer the debt for collection by tax refund offset. 
The notice must give the debtor at least 60 days to present evidence, 
in accordance with procedures established by the State, that all or 
part of the debt is not past due or not legally enforceable, or, in the 
case of a covered unemployment compensation debt, the debt is not due 
to fraud or the debtor's failure to report earnings. In the case of a 
State income tax obligation, the notice must be sent certified mail, 
return receipt requested.
    (ii) Determination. The State must, in accordance with procedures 
established by the State, consider any evidence presented by a debtor 
in response to the notice described in paragraph (c)(3)(i) of this 
section and determine whether an amount of such debt is past due and 
legally enforceable and, in the case of a covered unemployment 
compensation debt, the debt is due to fraud or the debtor's failure to 
report earnings. With respect to State income tax obligations only, 
where the debtor claims that he or she is immune from State taxation by 
reason of being an enrolled member of an Indian tribe who lives on a 
reservation and derives all of his or her income from that reservation, 
State procedures shall include de novo review on the merits, unless 
such claims have been previously adjudicated by a court of competent 
jurisdiction. States shall, upon request from the Secretary of the 
Treasury, make such procedures available to the Secretary of the 
Treasury for review.
* * * * *
    (i) * * * In accordance with 26 U.S.C. 6402(g), any reduction of a 
taxpayer's refund made pursuant to 26 U.S.C. 6402(e) or (f) shall not 
be subject to review by any court of the United States or by the 
Secretary of the Treasury, FMS or IRS in an administrative proceeding. 
* * *

    Dated: January 20, 2011.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2011-1697 Filed 1-27-11; 8:45 am]
BILLING CODE 4810-35-M