Federal Tax Refund Offset Policy

Information by State  Print version

Purpose and Applicability

This policy establishes the requirement to use tax refund offset to collect debt owed to the Department by individuals and businesses; and to participate in the program in accordance with regulations issued by the Department of Treasury. This policy applies to and is implemented by all offices with responsibility for recovering delinquent and/or defaulted debt owed to the Department.

Background

The Department places a high priority on pursuing its delinquent and defaulted debt. Most successful among the debt collection tools is the Federal Tax Refund Offset (TRO) Program. This program is a collective effort among participating federal agencies, the Internal Revenue Service (IRS) and Treasury's Financial Management Service (FMS). Under the program, the IRS withholds payment of a debtor's income tax refund up to the amount of the debt, and remits that portion to the Department. Additionally, IRS prepares the interagency Memorandum of Understanding (MOU) which defines the requirements and responsibilities of each party, and FMS coordinates all phases of program activities.

Participation in the Federal Tax Refund Offset Program is mandated by Circular A-129 (Revised), "Policies for Federal Credit Programs and Non-Tax Receivables"; the Financial Management Service's Treasury Financial Manual Supplement, "Managing Government Credit"; and the Cash Management Improvement Act Amendments of 1992.

Departmental Tax Refund Offset Policy

All debt owed to the Department, whether individual or business, shall be referred to the IRS for tax refund offset when:

1. The debtor has a valid Social Security or Employer Identification Number;

2. All other available debt collection tools and techniques have been exhausted; (see HUD's Write-off Policy)

3. The total amount of the debt, excluding interest and penalties, is at least $100 for consumer debt and $350 for commercial debt;

4. The debt is at least 90 days past due;

5. The debt is valid and legally enforceable;

6. The debt has been reported to consumer or commercial reporting agencies;

7. The 10 year Statute of Limitations has not expired; and

8. The debtor has been provided with 65 day advanced written notice of the Department's intent to offset and given the opportunity to dispute or resolve the debt. (See Appendix B.)

Debt shall not be referred to the IRS for offset when:

1. The debtor has been legally declared bankrupt;

2. Negotiations to reach a compromise are in progress;

3. The debt can be collected using the Federal Salary Offset program;

4. The debt can be collected through administrative offset;

5. The debt has been referred to the Department of Justice;

6. The debtor is meeting the terms of a repayment agreement;

7. The debtor has disputed the debt by making a timely request for Departmental review and a decision is pending; or

8. The debt has been reported on Form 1099G.

Safeguarding IRS Data

Safeguards shall be taken, by HUD staff as well as any contractors, to prevent unauthorized use of Federal tax return information and to protect the confidentiality of the information. If tax return information becomes a part of the case file regarding a specific taxpayer, the case file must be segregated to the maximum extent possible and safeguarded pursuant to section 6103 of the Internal Revenue Code.

The Department is required to submit an annual written report to the IRS giving current information on the safeguard procedures and authorized access to tax return information, and describing any changes or enhancements to physical and computer security measures used to safeguard Federal tax data.

Roles and Responsibilities

Specific roles and responsibilities are set forth as follows:

The Chief Financial Officer (CFO) coordinates the Memorandum of Understanding with FMS and the IRS and is responsible for Departmental oversight of this policy's implementation. The CFO responsibilities include:

• Reviewing the procedures developed and employed by each program office and by the Departmental Claims Officer for consistency with the policy;

• Reviewing the annual Departmental TRO referral targets;

• Monitoring and reporting to FMS actual TRO referrals versus estimated annual TRO referrals.

The Departmental Claims Officer (DCO) establishes and maintains procedures relating to the collection and coordination of all claims activities in Headquarters and local offices, with the exception of debt referred to the FHA-Debt Management Centers. The FHA Comptroller performs these same functions for debt referred to the FHA Debt Management Centers. For their respective areas, the DCO and FHA Comptroller are responsible for:

• Developing TRO estimated referrals, subject to CFO review;

• Ensuring the timely referral of eligible debts to IRS for offset in coordination with the annual schedule published by FMS and forwarding all information to accounting operations.

• Reporting to the CFO on a quarterly basis, voluntary repayments received as a result of sending the Notices of Intent; and

• Ensuring that adequate due diligence has been performed to comply with IRS, FMS, and OMB referral requirements (See Appendix C).

Assistant Secretaries have the overall responsibility to oversee the implementation of the Department's Tax Refund Offset Policy within their organizations as well as overseeing the development of requisite tax refund offset procedures.

Program Comptrollers responsibilities include verifying that program policies and procedures are in effect and ensuring proper identification and recording of all valid transactions. Comptrollers' responsibilities consist of:

• Overseeing the implementation of the Departmental TRO policy within their respective offices;

• Providing for timely identification of assets to be referred for offset;

• Reviewing the annual MOU before acceptance by the Department;

• Evaluating program office TRO procedures for compliance with Departmental TRO policy;

• Developing TRO estimated referrals for program debt, jointly with Program Managers, subject to CFO review;

• Ensuring that adequate due diligence has been performed to comply with IRS, FMS, and OMB referral requirements (See Appendix C);

• Reporting to the CFO on a quarterly basis, voluntary repayments received as a result of sending the Notices of Intent; and

• Ensuring that contractor agreements are in compliance with IRS privacy law requirements.

Program Managers shall administer and evaluate program policies and procedures jointly with Comptrollers to ensure they meet the requirements of this policy. Specifically included among their responsibilities are:

• Implementing Departmental TRO policy within their respective organizations;

• Developing detailed procedures, jointly with Comptrollers, for the timely identification of assets to be referred for offset;

• Where applicable, evaluating, at least quarterly, outstanding delinquent debt for TRO eligibility;

• Ensuring that adequate efforts have been taken to recover assets identified for offset;

• Establishing and maintaining adequate documentation in program records for due diligence (See Appendix C);

• Quarterly reporting amounts identified as eligible for TRO to the respective Comptroller for review and approval; and

• Providing input to respective Comptrollers in the development of annual TRO referral estimates.

Accounting Operations responsibilities include establishing appropriate controls which provide reasonable assurance that all transactions are properly recorded and accounted for, to permit preparation of reliable financial reports. These responsibilities include:

• Updating accounting records and preparing financial reports based on information provided by the DCO and program comptrollers.

• Tracking the TRO referrals from the program areas, including follow-up after the referral has been made to IRS;

• Providing adequate documentation for the due diligence (See Appendix C)

An Administrative Judge from the HUD Board of Contract Appeals is which disputes that all or part of the debt is past due or legally enforceable. The Administrative Judge issues a written decision based upon a thorough review of all information and it is HUD's policy to abide by these decisions.

General Counsel shall provide guidance to program offices if a legal determination must be made concerning the enforceability of a debt.

Legislative and Other Authorities

The following statutes, regulations, and government policies are the basis for the Department's Tax Refund Offset Policy:

• 24 CFR 17.150 through 17.161; tax refund offset regulations issued by the Department of Housing and Urban Development.

• "Managing Government Credit", A Supplement to the Treasury Financial Manual, January 1989.

• "Guidelines for the Federal Tax Refund Offset Program", A Companion to the Treasury Financial Manual Credit Supplement, August, 1992.

• "Policies for Federal Credit Programs and Non-Tax Receivables", Circular A-129, January, 1993.

• 31 USC 3701, et. seq.; Debt Collection Act of 1982.

• Deficit Reduction Act of 1984, Public Law 98-369.

• 31 USC 3720A, Deficit Reduction Act of 1984.

• Cash Management Improvement Act Amendments of 1992, Public Law 102-589.

• 26 CFR 301.6402-6T et. seq.; tax refund offset regulations issued by the Internal Revenue Service.

• 31 CFR 5.23 et. seq.; tax refund offset regulations issued by the Department of Treasury.

• 26 USC 6103(p)(4), Internal Revenue Code.

Appendix A

Accounting Operations - Departmental units that execute and process accounting transactions; as of September 30, 1994, the Office of Finance and Accounting, the Field Accounting Divisions, the Office of Mortgage Insurance Accounting Systems, and the Office of Finance in the Government National Mortgage Association.

Collection - Receipt of cash, check, money orders, wire transfer, etc., either as partial payment or payment in full of the debt. All negotiable instruments are accepted by HUD, subject to collection. Checks returned to HUD as a result of insufficient funds are not considered collections.

Compromise - A signed agreement between HUD and the debtor stipulating that HUD will accept less than the full amount of the debt owed from the debtor in satisfaction of the debt.

Debt - An amount of money or property which has been determined by an appropriate official to be owed to the Department from any person, organization, or entity other than another Federal agency.

Default - Failure to meet financial obligations according to the terms and conditions of a legal agreement.

Delinquent Debt - A debt that has not been repaid by the due date specified in the repayment agreement.

Memorandum of Understanding - A written agreement between FMS, IRS, and HUD documenting the requirements and responsibilities involved in participating in the Federal Tax Refund Offset Program.

Notice of Intent - Written notification to the debtor of the Department's intent to refer past-due debt to the IRS for offset against any overpayment of tax. The notice provides the debtor the right to appeal the offset if the debtor feels the debt is neither past-due nor legally enforceable.

Program Managers - For the purposes of this Policy, these are Program Branch Managers, Office or Division Directors in Headquarters or the Field, and FHA-Debt Management Center Directors.

Referral - The submission to IRS of those delinquent debts that are to be matched against IRS income tax refund records. Whenever a match occurs, IRS will withhold the debtor's refund and transfer the funds to the Department.

Statute of Limitations - As provided by 31 USC 3716, no offset may be initiated more than 10 years after the Secretary's right to collect first accrued, unless facts material to the right to collect were not known (and could not reasonably have been known) by the HUD collection officials responsible for discovering and collecting such debt.

Tax Refund Offset - The act of satisfying a debt by applying Federal tax refunds that would have gone to the debtor, to liquidate the debt owed to the Department.

Appendix B

The Notice of Intent provides the debtor with 65 calendar days written notice of the Department's intent to request that IRS withhold payment of the debtor's income tax refund. To be considered a reasonable attempt to notify the debtor, written notice must be sent to the debtors address obtained from IRS, unless there are specific instructions from the debtor to use a different address. The Department must have obtained the address not more than 1 year preceding the mailing of this notice.

The Notice of Intent shall include:

1. The nature and amount of the debt;

2. HUD's intention to collect the debt through tax refund offset unless the debt is repaid within 65 days from the date of the Notice;

3. The debtor's right to present evidence that all or part of the debt is neither past-due nor legally enforceable and to inspect and/or copy the delinquent debt file;

4. Instructions for the debtor's spouse, who may have no legal responsibility for the debt, to receive their portion of the refund if they are filing a joint tax return; and

5. A mailing address for forwarding any written correspondence and a contact name and phone number for any questions.

The Department may receive voluntary repayments from debtors. The Department is required to report these payments to FMS on a quarterly basis.

Appendix C

Prior to referring a delinquent debt to IRS for offset, documentation is required detailing what efforts have been taken to recover the debt. The scope of these efforts should reflect the relative size/importance of the debt. Discretion is given to organizations to evaluate the costs and benefits of engaging in the various actions available to collect the debt. Minimum requirements should be specified in an organization's tax refund offset procedures.

In order to evaluate whether adequate "due diligence" has been performed to recover delinquent debts prior to recommending them for offset, detail documentation for the due diligence should include, as applicable:

1. The number, nature (personal and/or letter), date and content of contacts made with the debtor, as well as a record of any follow-up action required by the contact, including copies of correspondence.

2. Date and means (letter and/or personal contact) of notifying debtor of Departmental policy regarding accrual of late interest, penalties, and administrative costs, the debtor's rights, the amount and basis of the receivable, and collection actions available to the Government.

3. Basis of accrual/assessment of late charges. Date and amount/rate assessed. Reasons for not accruing/assessing late charges.

4. Date receivable, compromised, voluntarily repaid, or repayment agreement established. Copies of signed, revised repayment agreements. Amounts repaid and/or terms of repayment agreement. Application of payment. Reasons for not accepting compromise/repayment proposal.

5. Copy of notification letter for credit bureau reporting. Date of initial report, information reported, name and address of credit bureau(s) used. Reasons for non-referral.

6. Documentation of ineligibility for Federal Salary Offset Program.

7. Documentation of ineligibility for administrative offset against former Federal employee's Civil Service benefits.

8. Documentation of ineligibility for other forms of administrative offset.

9. Actions taken by the Department to suspend or revoke licenses, contracts, etc. Date of actions. Reasons for not taking actions identified. Provide documentation that no licenses, etc. exist to be suspended, revoked.

10. Date of referral and amount referred to collection agency. Name of collection agency, amounts collected, and dates of collections. Actions taken by collection agency, including recommendations for further action. Date Department acted on recommendations of collection agency. Reasons for non-referral.

11. Availability of security/collateral for liquidation. Date actions initiated to liquidate and actions taken to date. Amount recovered and date of recovery. Reasons for non-liquidation.

12. Date of referral and amount referred for litigation. Actions taken to follow-up on litigation status. Result of litigation. Amount recovered and date of recovery. Reasons for non-referral for litigation.

13. Date of suspension of collection action and amount suspended. Reason for suspension. Length of suspension. Date of resumption of collection action or redetermination of status and date decision made.