Offsets of Federal Payments to FmHA Borrowers

FEDERAL LABOR RELATIONS AUTHORITY

Farmers Home Administration

7 CFR Part 1951

RIN 0575-AB55

Offsets of Federal Payments to FmHA Borrowers

AGENCY: Farmers Home Administration, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farmers Home Administration (FmHA) proposes to amend its

regulations on offsets of Federal payments to FmHA borrowers by

removing repetitious directions and ambiguous guidance used by FmHA

field offices to determine salary offset feasibility. The intended

effect of this action is to add further guidance on salary offset

eligibility criteria and to clarify the language of the regulation.

DATES: Comments must be submitted on or before July 1, 1994.

ADDRESSES: Submit written comments in duplicate to the Office of the

Chief, Regulations Analysis and Control Branch, FmHA, USDA, South

Building, room 6348, 14th and Independence Avenue, SW., Washington, DC

20250. All written comments made pursuant to this notice will be

available for public inspection during regular work hours at the above

address.

FOR FURTHER INFORMATION CONTACT: Jeanne Hudec, Financial Analyst, FmHA,

USDA, Ag Box 0724, Washington, DC 20250-0724, telephone (202) 720-4356.

SUPPLEMENTARY INFORMATION:

Classification

We are issuing this proposed rule in conformance with Executive

Order 12866, and we have determined that it is not a ``significant

regulatory action.'' Based on information compiled by the Department,

we have determined that this proposed rule: (1) Would have an effect on

the economy of less than $100 million; (2) would not adversely affect

in a material way the economy, a sector of the economy, productivity,

competition, jobs, the environment, public health or safety, or State,

local, or tribal governments or communities; (3) would not create a

serious inconsistency or otherwise interfere with an action taken by

another agency; (4) would not alter the budgetary impact of

entitlements, grants, user fees, or loan programs or rights and

obligations of recipients thereof; and (5) would not raise novel legal

or policy issues arising out of legal mandates, the President's

priorities, or principles set forth in Executive Order 12866.

Paperwork Reduction Act

The information collection requirements contained in this

regulation have been approved by the Office of Management and Budget

(OMB) under the provisions of 44 U.S.C. chapter 35 and have been

assigned OMB control number 0575-0119 in accordance with the Paperwork

Reduction Act of 1980 (44 U.S.C. 3507). This proposed rule does not

revise or impose any new information collection or recordkeeping

requirement from those approved by OMB. Please send written comments to

the Office of Information and Regulatory Affairs, OMB, Attention: Desk

Officer for USDA, Washington, DC 20503. Please send a copy of your

comments to Jack Holston, Agency Clearance Officer, USDA, FmHA, Ag Box

0743, Washington, DC 20250.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR Part 1940,

Subpart G, ``Environmental Program.'' FmHA has determined that this

action does not constitute a major Federal action significantly

affecting the quality of the human environment and, in accordance with

the National Environmental Policy Act of 1969, Public Law 91-190, an

Environmental Impact Statement is not required.

Intergovernmental Review

The programs to which this regulation may apply are listed in the

Catalog of Federal Domestic Assistance under the following:

10.404 Emergency Loans

10.405 Farm Labor Housing Loans and Grants

10.406 Farm Operating Loans

10.407 Farm Ownership Loans

10.410 Low Income Housing Loans

(Section 502--Rural Housing Loans)

10.411 Rural Housing Site Loans

(Section 523 and 524 Site Loans)

10.414 Resource Conservation and Development Loans

10.415 Rural Rental Housing Loans

10.416 Soil and Water Loans (SW Loans)

10.418 Water and Waste Disposal Systems for Rural Communities

10.419 Watershed Protection and Flood Prevention Loans

10.420 Rural Self-Help Housing Technical Assistance

(Section 523--Technical Assistance)

10.421 Indian Tribes and Tribal Corporation Loans

10.422 Business and Industrial Loans

10.423 Community Facility Loans

10.428 Economic Emergency Loans

10.433 Housing Preservation Grants

10.434 Nonprofit Corporations Loan and Grant Program

10.435 Agricultural Loan Mediation Program

Programs listed under numbers 10.404, 10.406, 10.407, 10.410,

10.417, 10.421, 10.428, and 10.435 are not subject to the provisions of

Executive Order 12372 which requires intergovernmental consultation

with State and local officials. (7 CFR part 3015, subpart V, 48 FR

29115, June 24, 1983.)

Programs listed under numbers 10.405, 10.411, 10.414, 10.415,

10.416, 10.418, 10.419, 10.420, 10.422, 10.423, 10.427, 10.433, and

10.434 are subject to the provisions of Executive Order 12372 (7 CFR

part 3015, subpart V, 48 FR 29112, June 24, 1983; 49 FR 22675, May 31,

1984; 50 FR 14088, April 10, 1985.)

Civil Justice Reform

The proposed regulation has been reviewed in light of Executive

Order 12778 and meets the applicable standards provided in sections

2(a) and 2(b)(2) of that Order. Provisions within this part which are

inconsistent with state law are controlling. All administrative

remedies pursuant to 7 CFR part 1900 subpart B must be exhausted prior

to filing suit.

Regulatory Flexibility Act

The Administrator of Farmers Home Administration has determined

that this action will not have a significant economic impact on a

substantial number of small entities because it contains normal

business recordkeeping requirements and minimal essential reporting

requirements.

Background Information

FmHA has an obligation to protect the Government's interest by

collecting the maximum amount possible within a reasonable period of

time. Therefore, FmHA proposes to weigh the long-term collectibility of

the debt through offset against whether to accept a settlement offer

and release of an existing debt.

The current procedures to establish salary offset in FmHA

Instruction 1951-C, Sec. 1951.111 contain repetitious directions and

ambiguous guidance for FmHA field offices to determine salary offset

feasibility. Therefore, FmHA proposes to amend these instructions by

retaining the Authorities and Definitions paragraphs in Sec. 1951.111

and moving the remainder of this section to Secs. 1951.112 through

1951.117.

The same basic information that was in Sec. 1951.111, paragraphs

(c) through (s) will remain in the new sections. However, some

information will be deleted or reorganized. For example, the current

introduction includes a reference that if a Federal salary was listed

on the Farm and Home Plan for a farmer programs borrower and this

income used for purposes other than payment on the FmHA loan, salary

offset would not be considered. This reference is being deleted because

obtaining a salary offset would protect the Government's interest and

might eventually bring the loan current, thus helping the borrower

retain the farming operation.

List of Subjects in 7 CFR Part 1951

Account servicing, Loan programs--agriculture, Accounting, Credit,

Low and moderate income housing loans--servicing.

Therefore, Chapter XVIII, Title 7, Code of Federal Regulations is

proposed to be amended as follows:

PART 1951--SERVICING AND COLLECTIONS

1. The authority citation for part 1951 continues to read as

follows:

Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR

2.23; 7 CFR 2.70.

Subpart C--Offsets of Federal Payments to FmHA Borrowers

2. Section 1951.101 is amended by adding a new fourth sentence to

read as follows:

Sec. 1951.101 General.

* * * However, offsets may not be sought against full-time active

duty members of the Armed Forces whose FmHA loans are covered by the

Soldiers' and Sailors' Civil Relief Act. * * *

3. Section 1951.103 is amended by revising paragraphs (b) and (d),

by adding new sixth and seventh sentences preceding the last sentence

of paragraph (e), and adding paragraph (i) to read as follows:

Sec. 1951.103 Procedures for FmHA-initiated administrative offset.

(a) * * *

(b) Before requesting offset from another Federal agency, the

debtor must have been given at least 30-days notice using FmHA Form

Letter 1951-C-1 and given the rights set out in this section. Also, to

be eligible for administrative offset, an FmHA borrower of a Farmer

Programs loan (as defined in 7 CFR 1951.906) must have completed all

primary servicing options available at the time of offset processing,

any appeals concerning that servicing have been concluded, and the

borrower's account has been accelerated. For borrowers other than

Farmer Programs borrowers, the debtor's account must have been

accelerated and all appeals concluded. A delinquent amount does not

have to be reduced to judgment or be undisputed before offset can be

used, and the payment does not have to be covered by an FmHA

instrument.

* * * * *

(d) Administrative offset will be used only where it is feasible.

Administrative offset can be determined feasible even though

collections by offset are less than the annual interest accrual.

Administrative offset is not feasible where, for example, the cost to

process the offset exceeds the amount collectible. Administrative

offset will not be requested for delinquent amounts of less than $100.

(e) * * * Federal Crop Insurance Corporation and its associated

insurance companies cannot honor administrative offset requests to

garnish crop insurance claims. Do not initiate administrative offset on

accounts that have been referred to the Department of Justice for

litigation. * * *

* * * * *

(i) The recovery potential from administrative offsets should be

considered when evaluating debt settlement options.

4. Section 1951.104 is amended by revising the reference ``FmHA

Instruction 2018-E'' to ``FmHA Instruction 2018-F'' in paragraph

(a)(1), revising the word ``ask'' to ``request'' and adding the words

``in writing'' after the word ``request'' in the introductory text of

paragraph (b), removing the word ``Request'' and inserting the phrase

``Make a request for'' in its place in paragraph (b)(2), adding the

words ``in writing'' after the word ``responds'' in the first sentence

of paragraph (e), revising the first sentence in the introductory text

of paragraph (a), and adding new sentences before and after the fourth

sentence of paragraph (g), and revising the word ``regulation'' to

``subpart'' in the first sentence and revising the second sentence of

paragraph (j) to read as follows:

Sec. 1951.104 Procedures for FmHA-initiated offset.

(a) The use of administrative offset will be initiated by sending

FmHA Form Letter 1951-C-1 to the debtor. * * *

* * * * *

(g) * * * The farm operating expenses listed in

Sec. 1962.17(b)(2)(ii) of subpart A of part 1962 of this chapter are

not included in this determination of essential family living expenses

for administrative offset purposes. * * * Where available, the County

Supervisor should get documentary evidence such as bills or receipts

from the borrower that support the hardship claim. * * *

* * * * *

(j) * * * The borrower may request a hearing if the borrower

believes the previous offset actions by FmHA are contrary to the

administrative offset procedures found in Secs. 1951.103 through

1951.104 of subpart C of part 1951 of this chapter.

5. Section 1951.105(b)(3) is amended by adding the words ``or

Exhibit L'' after the word ``Exhibit B'' in the second sentence and

adding a sentence at the end of the paragraph to read as follows:

Sec. 1951.105 Procedures for taking funds by administrative offset.

* * * * *

(b) * * *

(3) * * * Prepare FmHA Form Letter 1951-5 to request offset

refunds.

* * * * *

6. Section 1951.111 is amended by revising the introductory text,

paragraph (b)(1), introductory text of paragraph (b)(2)(ii), and

(b)(3), and removing paragraphs (c) through (s) to read as follows:

Sec. 1951.111 Salary offset.

Salary offset may be used by FmHA to collect delinquent debts from

borrowers or debtors who are Federal employees. It may also be used by

other Federal agencies to collect delinquencies or other debts owed to

them by FmHA employees, excluding County Committee members.

Administrative offset rather than salary offset, will be used to

collect money from Federal and military retirement benefits. Decisions

made under the following sections are not appealable under subpart B of

part 1900 of this chapter. This section establishes policies and

procedures to implement salary offset.

* * * * *

(b) Definitions--(1) Certifying Officials--State Directors; the

Assistant Administrator, Finance Office; and the Assistant

Administrator for Budget, Finance and Management, National Office.

(2) * * *

(ii) Other debts--An amount owed to the United States by an

employee for salary overpayments, underwithholding of amounts payable

for life and health insurance, etc. Also included are monetary losses

where the employee has been determined to be liable due to the

employee's negligent, willful, unauthorized or illegal acts, including

but not limited to:

* * * * *

(3) Defalcation account--An account established in the Finance

Office for other debts (see paragraph (b)(2)(ii) of this section) owed

the Federal government by an employee or former employee.

* * * * *

7. Sections 1951.112 through 1951.117 are added to read as follows:

Sec. 1951.112 Standards for initiating salary offset.

Salary offset will not be initiated until after all servicing

options available have been utilized. The debt does not have to be

reduced to judgment or be undisputed, and the payment does not have to

be covered by a security agreement.

(a) Feasibility of salary offset. Certifying Officials must

determine on a case-by-case basis if salary offset is feasible. If an

offset is feasible, review paragraph (b) of this section to determine

if a borrower is ineligible, and follow Sec. 1951.113 of this subpart

to establish the offset. If the Certifying Official determines that

salary offset is not feasible, the reasons supporting this decision

will be documented in the debtor's running case record in the case of

delinquent debt, or in the ``For Official Use Only'' file in cases of

other debt. An offset is feasible when the following situations apply:

(1) The cost to process the offset should not exceed the amount the

Certifying Official believes would be collectible by the use of salary

offset. Salary offset can be determined feasible even though

collections by offset are less than the annual interest accrual. County

Committee members are exempt from salary offset because the amount

collected by offset would be so small as to be impractical.

(2) The debt should be collected by lump-sum when possible.

(3) Payments may be made in installments not to exceed 15 percent

of the debtor's disposable pay, unless the debtor agrees to a larger

amount. If possible, the installment payment will be sufficient in size

and frequency to liquidate the debt in approximately 3 years. The

offset should bear a reasonable relation to the size of the debt and

the debtor's ability to pay.

(4) Installment payments of less than $25 per pay period or $50 per

month will be accepted only in the most unusual of circumstances.

(b) Borrowers ineligible for salary offset. All Federal employee

debtors are eligible for salary offset unless they meet one or more of

the following criteria:

(1) Account has been discharged in bankruptcy or is under the

jurisdiction of a bankruptcy court and the debt has not been

reaffirmed. Existence of a bankruptcy action pending flag is not a

determining factor.

(2) Account has been referred to OGC for foreclosure and, based on

the legal opinion required by Sec. 1951.103(c) of this subpart, a

collection by offset would jeopardize the litigation under State law.

Existence of a foreclosure action pending flag is not a determining

factor.

(3) Account has a delinquency workout agreement in effect and

payments under the agreement are current.

(4) The debtor is a Farmer Programs borrower and has not completed

all primary servicing options available at the time offset is

considered and/or any appeals concerning this servicing have not been

concluded.

(5) Account is under a moratorium.

(6) Account has been paid current, paid in full, or otherwise

satisfied.

(7) Rescheduling is in process.

(8) Borrower is an active duty member of the armed forces whose

FmHA loan is covered by the Soldiers' and Sailors' Civil Relief Act.

(9) Account is past due by less than $100, or if the debtor has

multiple loans, the net amount past due is less than $100.

(10) Account has a suspend code.

(11) Account is current under an SAA.

(12) Account has been referred to the Department of Justice for

litigation.

Sec. 1951.113 Procedures for initiating offset.

(a) Notice to debtor. After the Certifying Official determines that

salary offset is feasible, FmHA Form Letter 1951-C-4 will be sent

within 15 calendar days after that determination. This form letter will

notify the debtor of intended salary offset at least 30 days before the

salary offset begins. Personally deliver FmHA Form Letter 1951-C-4 to

the debtor or send by certified mail, return receipt requested. Also

send a copy by regular mail on the same day. If the certified mail

receipt is returned as being refused, the date the debtor received the

letter will be established and the time limits set out in FmHA Form

Letter 1951-C-4 will run from that date. If delivery by certified mail

is not accomplished, FmHA will assume that the debtor received the

letter by regular mail on the day the certified mail was refused or was

unable to be delivered. If both the certified and regular mail letters

are returned as undeliverable, contact the Financial and Management

Analysis Division (FMAD) at the National Office for guidance.

(b) Debtor's response to the notice.

(1) Review records. If a debtor responds to FmHA Form Letter 1951-

C-4 by asking to review and copy FmHA's records relating to the debt,

the Certifying Official will promptly respond by sending a letter which

tells the debtor the location of the debtor's FmHA files and that the

files may be reviewed and copied within the next 30 days. Copying costs

(see FmHA Instruction 2018-F available in any FmHA office) will be set

out in the letter, as well as the hours the files will be available

each day. If a debtor asks to have FmHA copy the records, a copy will

be made within 30 days of the request.

(2) Repay debt. If a debtor responds to FmHA Form Letter 1951-C-4

by offering to repay the debt, the offer may be accepted by the

Certifying Official, if it would be in the best interest of the

Government. FmHA Form Letter 1951-C-8 will be used if a repayment offer

for an FmHA loan or grant is accepted. Upon receipt of an offer to

repay, the Certifying Official will delay instituting salary offset

until a decision is made on the repayment offer. Within 60 days after

the initial offer to repay was made, the Certifying Official must

decide whether to accept or reject the offer. This decision will be

documented in the running case record or the ``For Official Use Only''

file, as appropriate, and the debtor will be sent a letter which sets

out the decision to accept or reject the offer to repay. If the offer

is rejected, it should be based upon a realistic budget or Farm and

Home Plan and according to the servicing regulations for the type of

loan(s) involved.

(3) Request hearing. If a debtor responds within 15 days from

receipt of FmHA Form Letter 1951-C-4 by asking for a hearing on FmHA's

determination that a debt exists and/or is due, or on the percentage of

net pay to be deducted each pay period, the Certifying Official will

notify the debtor in accordance with this subpart and request the

debtor's case file or the ``For Official Use Only'' file.

(4) Change offset payment amount. If a debtor wants to have more or

less than 15 percent of the disposable pay sent to FmHA, FmHA Form

Letter 1951-C-8 must be prepared and signed by the debtor, approved by

the Certifying Official, and a copy placed in the debtor's case file or

the ``For Official Use Only'' file. The original form letter will be

forwarded with FmHA Form Letter 1951-C-10 when requesting the salary

offset. (See Sec. 1951.115 (a) of this subpart.)

(5) Request debt settlement. A debtor who is an FmHA borrower may

request debt settlement at any time (the account does not have to be in

collection-only status or be an inactive account for which there is no

security). The Certifying Official must inform the borrower of how to

apply for debt settlement. Any application will be considered

independently of the salary offset. A salary offset should not be

delayed because the borrower applied for debt settlement.

(6) Time limits. The time limits set in FmHA Form Letter 1951-C-4

and in paragraphs (b)(1), (2), and (3) of this section run

concurrently. For example, if a debtor asks to review the FmHA file and

offers to repay the debt, the debtor cannot take 30 days to ask to

review the file and then take another 30 days to offer to repay. The

request to review the file and the offer to repay must both be made

within 30 days of the date the debtor receives the notification letter.

(7) Negotiated grievance procedure. If an employee is included in a

bargaining unit which has a negotiated grievance procedure that does

not specifically exclude salary offset proceedings, the employee must

grieve the matter in accordance with the negotiated procedure in lieu

of a hearing as set forth in Sec. 1951.114 of this subpart. Employees

who are not covered by a negotiated procedure must use the salary

offset proceedings as outlined in FmHA Form Letter 1951-C-4. The

employee must be informed, in writing, which procedure to follow and,

as appropriate, reference should be made to the appropriate sections of

the negotiated agreement.

Sec. 1951.114 Salary offset hearings.

(a) Debtor's request for a hearing. The debtor must file a written

petition requesting a hearing. This petition must have the original

signature of the debtor, be sent to the Certifying Official who issued

FmHA Form Letter 1951-C-4, and be received and date stamped at the

Certifying Official's office no later than 15 days after the debtor

received the form letter. Petitions received from debtors after the 15-

day time limitation expires will be accepted only if the debtor can

show the delay was caused by circumstances beyond his/her control.

(1) Valid reasons for a hearing. The debtor's petition must fully

identify and explain all the information and evidence that supports

his/her position. If the request is not valid, a hearing should not

occur. The debtor's request for a hearing must be based on the

following reasons only:

(i) The debtor challenges the existence of the debt;

(ii) The debtor challenges the amount of the debt; and/or

(iii) The debtor challenges the percentage of his/her disposable

pay to be deducted each pay period.

(2) Debtor notification. Certifying Officials are responsible for

determining if the debtor's petition for a hearing has been submitted

in a timely fashion and lists valid reasons for a hearing. Certifying

Officials are required to provide written notification to the debtor of

the acceptance or non-acceptance of the debtor's petition for a

hearing. An acceptance notice will state that the debtor's case file

has been forwarded to the National Office to be given to the hearing

officer and that acceptance of the petition for hearing will put a hold

on any offset collections until the results of the hearing are known.

Any payments collected in error due to untimely or delayed filing

beyond the debtor's control will be refunded unless there are

applicable contractual or statutory provisions to the contrary.

(3) Send hearing request to the National Office. If the Certifying

Official has accepted the debtor's petition for a hearing and has

notified the debtor of this acceptance, send a copy of the debtor's

case file, including the acceptance letter and the original letter

requesting the hearing to the National Office, FMAD.

(b) Hearing officers. The hearing must be conducted by a hearing

officer who is either an ALJ or someone who is not an employee of the

USDA. An ALJ is normally unavailable to handle salary offset hearings

in a timely manner. Therefore, FMAD will arrange for a hearing officer

when the debtor's case file is received. The hearing officer will

contact the debtor as to when and where the hearing will take place and

whether or not the hearing will be a documentary review of the case

file or in person.

(c) Hearings. (1) The hearing will be based on written submissions

and documentation provided by the debtor and FmHA unless:

(i) The debtor requests reconsideration of the debt and the hearing

officer determines that the question of the indebtedness cannot be

resolved by a review of the documentary evidence; for example, when the

validity of the debt turns on an issue of credibility or truth.

(ii) The hearing officer determines that an oral hearing is

appropriate.

(2) Oral hearings may be conducted by conference call at the

request of the debtor or at the discretion of the hearing officer. The

hearing officer's determination that the offset hearing is on the

written record is final and is not subject to review.

(3) The hearing officer will issue a written decision not later

than 60 days after the filing of the petition requesting the hearing,

unless the debtor requests and the Certifying Official grants a delay

in the proceedings. The written decision will state the facts

supporting the nature and origin of the debt, the hearing officer's

analysis, findings and conclusions as to the amount and validity of the

debt, and repayment schedule. Both the debtor and FmHA will be provided

with a copy of the hearing officer's written decision on the debt.

Sec. 1951.115 Procedures for requesting offset from an employing

agency.

(a) Offset request letter. FmHA Form Letter 1951-C-10 will be

prepared, signed and submitted by the Certifying Official to the

National Office, FMAD, for coordination and forwarding to the debtor's

employing agency if:

(1) The borrower does not respond to FmHA Form Letter 1951-C-4

within 30 days.

(2) The borrower responds to FmHA Form Letter 1951-C-4 and:

(i) Has had an opportunity to review the file, if requested within

30 days of receipt;,

(ii) Has received a hearing, if requested within 15 days of

receipt; and

(iii) A decision has been made by the hearing officer to uphold the

offset.

(b) Finance Office copy. A copy of FmHA Form Letter 1951-C-10 will

be sent to the Finance Office, St. Louis, MO 63103, Attn: Accounts

Settlement Unit.

(c) Monthly report. State Offices shall prepare a monthly report

showing salary offset activity. The report should list State, month,

debtor name, case number, date FmHA Form Letter 1951-C-4 was sent, date

a hearing was requested (if any), date FmHA Form Letter 1951-C-10 was

sent, date the offset started, and the average amount collected through

salary offset per month. The latter two items can be found on the on-

line history screen. After requesting an offset, periodically check to

see if the offset has started. Send the report by the 10th of the month

for the preceding month to the National Office, FMAD.

(d) Offset percentage. If the debtor and FmHA have agreed to have

more or less than 15 percent of the disposable pay sent to FmHA, a copy

of the debtor's letter (FmHA Form Letter 1951-C-8) authorizing this

must be attached to FmHA Form Letter 1951-C-10.

(e) Offset deductions. Deductions will be made only from basic pay,

incentive pay, retainer pay, or in the case of an employee not entitled

to basic pay, other authorized pay. If there is more than one salary

offset, the maximum deduction for all salary offsets against an

employee's disposable pay is 15 percent unless the employee has agreed

in writing to a greater amount.

(f) Payment notification. Field offices will be notified of

payments received from salary offset by referring to the on-line

history screen for that debtor.

(g) Application of payments, refunds and overpayments.

(1) If a debtor is delinquent or indebted on more than one FmHA

loan or debt, amounts collected by offset will be applied as determined

by FmHA. The check date will be used as the date of credit in applying

payments to the borrower's accounts.

(2) If a court or agency orders FmHA to refund the amount obtained

by salary offset, a refund will be requested promptly by the Certifying

Official in accordance with the order by sending FmHA Form Letter 1951-

5 to the Finance Office. Processing FmHA Form Letter 1951-5 in the

Finance Office will cause a refund to be sent to the debtor through the

County Office or other appropriate FmHA office. Unless required by law,

refunds shall not bear any interest.

(3) If a debtor does not request a hearing within the required time

and it is later determined that the delay was due to circumstances

beyond the debtor's control, any amount collected before the hearing

decision is made will be refunded promptly by the Certifying Official

in accordance with paragraph (g)(2) of this section.

(4) If FmHA receives money through an offset but the debtor is not

delinquent or indebted at the time or the amount received is in excess

of the delinquency or indebtedness, the entire amount or the amount in

excess of the delinquency or indebtedness will be refunded promptly to

the debtor by the Certifying Official in accordance with paragraphs (g)

(1) and (2) of this section.

(h) Adjustment in rate of repayment. (1) When an employee who is

indebted receives a reduction in basic pay that would cause the current

deductions to exceed 15 percent of disposable pay, and the employee has

not consented in writing to a greater amount, the offset will be

reduced to 15 percent of the new amount of disposable pay. Upon an

increase in basic pay which results in the current deductions to be

less than the specified percentage, the offset will be increased

accordingly. In either case, when a change is made the employee should

be notified in writing by the employing agency.

(2) When an employee is being offset and has an existing reduced

repayment schedule because of financial hardship, the creditor agency

may arrange for a new repayment schedule, taking into account the

offset amount.

(i) Interest, penalties and administrative costs. Additional

interest, penalties, and administrative costs will be assessed on

delinquent loans only in accordance with FmHA regulations permitting

such charges.

(j) Cancellation of offset. If a debtor's name has been submitted

to another agency for offset and the debtor's account is brought

current or otherwise satisfied, the Certifying Official will notify the

National Office, FMAD, that the offset is being canceled. The

Certifying Official will write a letter to the employer, at the address

confirmed by FMAD, identifying the debtor by name and social security

number and state that salary offset should be canceled. A copy of the

cancellation document will be sent to the debtor, the Finance Office,

Attn: Account Settlement Unit, and to FMAD.

(k) Liquidation from final checks. Upon the determination that an

employee owing a debt to FmHA is to retire, resign, or employment

otherwise ends, the Certifying Official should immediately telephone

FMAD with the appropriate employee identification and amount of the

debt. FMAD will request the debt be collected from final salary/lump

sum leave or other funds due the employee, and, if necessary, to put a

hold on the retirement funds. Collection from retirement funds will be

in accordance with the Administrative Offset procedures in

Secs. 1951.103 through 1951.105 of subpart C of part 1951 of this

chapter.

(l) Non-waiver of rights. An employee's involuntary payment of all

or any portion of the debt collected under 5 U.S.C. 5514 will not be

construed as a waiver of any rights which the employee may have under 5

U.S.C. 5514 or any other provision of contract or law, unless there are

statutory or contractual provisions to the contrary.

Sec. 1951.116 Establishing offsets for other debts of FmHA employees/

former employees.

(a) Agency/National Finance Center (NFC) responsibility for other

debts. (1) FmHA will inform NFC about other indebtedness by

transmitting to NFC FmHA Form Letter 1951-C-10. The NFC will process

the documents through the Payroll/Personnel System, calculate the net

amount of the adjustment and generate a salary offset notice. This

notice will be sent to the employee's employing office along with a

duplicate copy for the FmHA's records. The FmHA is responsible for

completing the necessary information and forwarding the employee's

notice to the employee.

(2) Other indebtedness falls into two categories:

(i) An agency-initiated indebtedness (i.e. improper personal

telephone calls, property damages, etc.).

(ii) An NFC-initiated indebtedness (i.e. duplicate salary payments,

etc.). The NFC will send the salary offset notice to the employing

office.

(b) Establishing employee or former employee defalcation accounts

and non-cash credits to borrower accounts. In cases where a borrower

made a payment on an FmHA account(s) and, due to theft, embezzlement,

fraud, negligence, or some other action on the part of an FmHA employee

or employees, the payment is not transmitted to the Finance Office for

application to the borrower's account(s), certain accounting actions

must be taken by the Finance Office to establish non-cash credits to

the borrower's account and an employee defalcation account.

(1) The Certifying Official will advise the Assistant

Administrator, Finance Office by memorandum to establish a defalcation

account. The memorandum must state the following information:

(i) Employee's name (or former),

(ii) Social Security Number (SSN),

(iii) Present or last known address,

(iv) Date of payment, and

(v) Amount of the defalcation account.

(2) If a non-cash credit to a borrower's account(s) is required,

the letter to the Finance Office will include:

(i) Borrower's name and case number,

(ii) Fund code and loan code,

(iii) Date and amount of missing payment,

(iv) Copy of receipt issued for the missing payment, and

(v) Name of employee who last had custody of the missing funds.

(3) To assist and assure proper accounting for defalcation accounts

and non-cash credits, the request should be made at the same time.

Should requests be made separately, be sure to identify appropriately.

(4) The Certifying Official shall furnish a copy of the memorandum

and supporting documentation for paragraphs (b)(1) and (2) of this

section to the Deputy Administrator for Management for distribution to

the FMAD and Employee Relations Branch, Personnel Division.

Sec. 1951.117 Procedures for salary offset against FmHA employees who

owe other Federal agencies.

(a)Coordination with other agencies. When an employee of FmHA owes

a debt to another Federal agency, salary offset may be used only when

the Federal agency certifies that the person owes the debt and that the

Federal agency has complied with its regulations. The request must

include the creditor agency's certification as to the indebtedness,

including the amount, and that the agency has satisfied the

requirements of 5 U.S.C. 5514 with regard to the employee. When a

request for offset is received, FmHA will notify the employee and NFC

and arrange for offset.

(b) Deductions by the NFC. The NFC will automatically deduct the

full amount of the delinquency or indebtedness if less than 15 percent

of disposable pay or 15 percent of disposable pay if the delinquency or

indebtedness exceeds 15 percent, unless the creditor agency advises

otherwise. Deductions will begin the second pay period after the 30-day

notification period has expired unless FmHA issues the notice. If FmHA

issues the notice, the NFC will begin deductions on the first pay

period after receipt of the Form AD-343, ``Payroll Action Request.''

8. Section 1951.121 is amended by revising the heading from

``Internal Revenue Service (IRS) offset'' to ``IRS offset.''

9. Section 1951.122 is amended by revising the reference ``FmHA

Instruction 1950-C'' to ``subpart C of part 1950 of this chapter'' in

paragraph (a)(7), adding a new second sentence in the introductory

text, removing paragraph (d), adding paragraphs (a)(9), (a)(10),

(c)(3), (c)(4), and revising paragraph (a)(8), introductory text of

paragraph (b), paragraph (b)(4), introductory text of paragraph (c),

and paragraph (c)(2) to read as follows:

Sec. 1951.122 Finance Office screening.

* * * Individuals owing other debts as described in Sec. 1951.111

(b)(2)(ii) of this subpart will be included. * * *

(a) * * *

* * * * *

(8) Account is current under an SAA.

(9) Account is current, paid in full, or otherwise satisfied.

(10) Account has been referred to the Department of Justice for

litigation.

(b) Single Family Housing borrowers. In addition to the criteria

set forth in Sec. 1951.122 (a), accounts of delinquent SFH borrowers

which meet the following criteria are not eligible for IRS offset:

* * * * *

(4) Account has a delinquency workout agreement in effect and the

borrower is current under the agreement.

(c) Farmer Programs borrowers. In addition to the criteria set

forth in Sec. 1951.122(a) of this subpart, accounts of delinquent FP

borrowers which meet the following criteria are not eligible for IRS

offset:

* * * * *

(2) Account is less than 180 days past due.

(3) Borrower has not completed all servicing options available

(including appeals) at the time of final offset screening by the field

and the borrower's account has not been accelerated.

(4) If the account was accelerated prior to instituting servicing

in 1987 in accordance with subpart S of part 1951 of this chapter, the

borrower's loans are being serviced under subpart S of part 1951, the

borrower requested an appeal under subpart S of part 1951 and the

appeal has not been concluded.

Sec. 1951.124 [Amended]

10. Section 1951.124 is amended in the first sentence by revising

the words ``FmHA Form Letter 1951-C-6'' to ``a due process notice.''

11. Section 1951.125 is amended in the first sentence by revising

the words ``FmHA Form Letter 1951-C-6'' to ``the due process notice,''

and adding a sentence at the end of the paragraph to read as follows:

Sec. 1951.125 Processing borrower's requests not to exercise IRS

offset.

* * * The County Supervisor's review decision is not appealable

under FmHA Instruction 1900-B.

Sec. 1951.134 [Amended]

12. Section 1951.134 is amended in the first sentence by revising

the words ``refund was'' to ``refunds were.''

13. Sections 1951.136 is added to read as follows:

Sec. 1951.136 Protection of IRS tax information.

This section explains the policies and procedures for the

protection of IRS tax information received from the IRS offset program.

The procedures contained in this section are in accordance with and

mandated by the Internal Revenue Code (IRC) and IRS Publication 1075,

Tax Information Security Guidelines. The FmHA will establish the

appropriate safeguards for the protection of IRS tax information

received under the IRS offset program. The FmHA must protect this

information from unauthorized disclosure and unauthorized use. The

procedures outlined in this section apply to all Federal tax

information regardless of the media on which it is recorded.

(a) Employee awareness. (1) All FmHA employees who have access to

IRS tax information must be briefed annually on the security procedures

outlined in this section.

(2) Each employee must be advised of the provisions of IRC, section

7213(a), which makes unauthorized disclosure of Federal returns or

return information a crime that may be punishable by a $5,000 fine, 5

years imprisonment, or both. The awareness program requires that copies

of the law must be provided to each employee.

(3) All FmHA employees who have access to Federal tax information

must also be advised annually of the provisions of the IRC, section

7431, which permits a taxpayer to bring suit for civil damages in the

U.S. District Court for unauthorized disclosure of returns and return

information. This section allows for punitive damages in case of

willful disclosure or gross negligence, as well as the cost of the

action. A copy of this law must also be given to each employee.

(4) The immediate supervisor is responsible for ensuring that all

FmHA employees who have access to Federal tax information receive

annual training. A certification of training must be maintained in the

office. Training materials and lesson plans can be obtained from the

Operational Security Staff, mail code FC-35B, in the Finance Office.

(b) Recordkeeping requirements. The FmHA is authorized under the

IRC, section 6103, to receive Federal tax information. This section

requires FmHA to establish a permanent system of standardized records

of requests made by or to FmHA for disclosure of Federal tax returns or

return information. These records must be maintained for 5 years. Each

FmHA office which receives Federal tax information will establish a

record that includes the following:

(1) The date the request was made.

(2) Who made the request.

(3) The reason for the request.

(4) What tax information was requested.

(5) Was a disclosure made.

(c) Minimizing access to Federal tax information. (1) To avoid

inadvertent disclosures to unauthorized persons, Federal tax

information must be kept separate from other information.

(2) Each FmHA office will maintain a separate file(s) for Federal

tax information. The file(s) will be clearly labeled to indicate that

the file(s) contains Federal tax information. All files containing

Federal tax information must be stored in a locked cabinet or safe.

(d) Magnetic media. After it has served its purpose, magnetic media

containing Federal tax data must not be made available for reuse by

other offices or released for destruction without first being subjected

to electromagnetic erasing. The FmHA will completely overwrite all data

tracks. If reuse is not intended, the tape should be destroyed by

cutting into lengths of 18 inches or less, or by burning to effect

complete incineration. The FmHA will ensure that all magnetic media

used for storage of Federal tax information will comply with the above

requirements when the information is no longer needed.

(e) Use of contractors. Disclosure of tax returns or return

information to contractors is prohibited by tax laws. Federal tax

information in identifiable form will not be released to contractors by

FmHA. All FmHA offices which use contractors will ensure that contract

employees do not have access to files containing Federal tax

information or the area/cabinet in which the files are stored.

(f) [Reserved]

(g) Physical protection of field offices. All field office

locations which receive Federal tax information must be structured so

public and non-public areas of the office are well defined as follows:

(1) Signs must be posted which state ``FmHA Authorized Personnel

Only.''

(2) Visitors to the office must be escorted while in the non-public

areas.

(3) All new leasing agreements must incorporate and implement the

following excerpts from the Finance Office, Solicitation for Offers for

Small Lease Packages. These should also be implemented under the

present leasing agreements, to the extent practical.

(i) All exterior walls and walls which border public access or

other agency space must be slab-to-slab construction.

(ii) All doors which border public access or exterior of the

building or other agency space shall, at a minimum, be constructed of

solid core wood. They shall have the hinges installed or modified so

that the pins of the hinges cannot be removed when the door is in the

closed position.

(iii) All locking devices on doors shall, at a minimum, be a five-

pin tumbler lockset with a deadlatch or deadbolt feature. Doors must

have an auxiliary deadbolt locking device which is capable of a 1-inch

throw of the bolt into a fully encased strike box. All wood doors must

be reinforced around the locking device.

(h) Need and use. The FmHA receives Federal tax information for use

in the IRS offset program as stated in Sec. 1951.121 of this subpart.

The FmHA will not use the information received for any purposes outside

of the offset program.

(i) Disposal of tax information upon completion of use. Federal tax

information must never be released to private contractors for

unsupervised destruction. Destruction of the information must be

witnessed by an FmHA employee in a manner to safeguard the information

from unauthorized disclosure. All FmHA offices will mail Federal tax

information which is no longer needed to the Operational Security

Staff, Finance Office, mail code FC-35B, for destruction. Label the

package ``Open By Addressee Only,'' but do not label that it contains

IRS information.

(j) Identification of Federal tax information. The following

reports contain Federal tax information and must be afforded the

protections outlined in this section.

(1) Form FmHA 389-764, ``Weekly Offset Report (Cash Collections)

IRS Offset,'' Report Code: 222-C.

(2) Form FmHA 389-763, ``Weekly Claims Report IRS Offset,'' Report

Code: 222-D.

Dated: November 20 1993

Bob J. Nash.

Under Secretary, Small Community and Rural Development.

[FR Doc. 94-10219 Filed 4-29-94; 8:45 am]

BILLING CODE 3410-07-U