Food Stamp Program: Collecting Food Stamp Recipient Claims From Federal Income Tax Refunds and Federal Salaries

SUMMARY: This rule proposes collecting two types of Food Stamp Program

(FSP) recipient claims from Federal income tax refunds and from Federal

salaries. The two types of recipient claims are inadvertent household

error (IHE) and intentional Program violation (IPV) claims. These

claims represent amounts of benefits which households received but to

which they were not entitled. This rule proposes to collect these types

of claims from individuals who are no longer participating in the FSP.

This rule proposes operating procedures, due-process notices, and

appeal rights and other rights and responsibilities of individuals. The

Department has been testing the Federal income tax refund offset

program (FTROP) since 1992 and is currently testing the Federal salary

offset program (salary offset).

DATES: Comments must be received on or before July 28, 1995 to be

assured of receiving consideration.

ADDRESSES: Comments should be addressed to James I. Porter, Supervisor,

Issuance and Accountability Section, State Administration Branch,

Program Accountability Division, Food Stamp Program, 3101 Park Center

Drive, Room 907, Alexandria, Virginia 22302. Comments can be reviewed

at that address during normal business hours.

FOR FURTHER INFORMATION CONTACT: Mr. Porter at the above address or by

telephone at (703) 305-2385.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed rule has been determined to be significant and was

reviewed by the Office of Management and Budget under Executive Order

12866.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551. For the reasons set forth in the final

rule and related notice to 7 CFR 3015, Subpart V (48 FR 29115), this

Program is excluded from the scope of Executive Order 12372 which

requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

This proposed action has been reviewed with regard to the

requirements of the Regulatory Flexibility Act of 1980 (Pub. L. 96-354,

94 Stat. 1164, September 19, 1980). William E. Ludwig, Administrator of

the Food and Consumer Service, has certified that this rule does not

have a significant economic impact on a substantial number of small

entities. This rule will affect the State and local agencies which

administer the Food Stamp Program and certain individuals who have

received excess food stamp benefits. Half of substantially all State

and local administrative costs for administering the Food Stamp Program

are reimbursed by the Department.

Executive Order 12778

This rulemaking has been reviewed under Executive Order 12778,

Civil Justice Reform. This rule is intended to have preemptive effect

with respect to any State or local laws, regulations or policies which

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect.

Prior to any judicial challenge to the provisions of this rule or the

application of its provisions, all applicable administrative procedures

must be exhausted.

Paperwork Reduction Act

This proposed rule contains information collection requirements

subject to review by the Office of Management and Budget (OMB) under

the Paperwork Reduction Act of 1980 (44 U.S.C. Section 3507).

This is a new public information collection burden. The reporting

and recordkeeping requirements for it were described in a General

Notice titled ``Food Stamp Program: Recipient Claims Collection: Test

of Offsetting Federal Income Tax Refunds,'' published August 20, 1991

at 56 FR 41325. Because State agencies are continuing to join FTROP,

with a resulting increase in the number of individuals subject to

collection, average numbers were used to estimate the information

collection burden. These were: 30 State agencies and 250,000

individuals. Of the total 58,555 hour estimated information collection

burden, 50,330 hours is associated with due-process notices and appeals

under FTROP. The burden is shared between State agencies and

individuals, the two types of respondents. State agencies had 13,122

hours, of which more than 12,000 hours is associated with the

production of due-process notices. Individuals had 37,208 hours, almost

all of which is associated with responding to due process notices.

As mentioned above, collecting food stamp recipient claims from

Federal salaries is currently being tested. If that test indicates that

full implementation of salary offset would result in a measurable

increase in the approved information collection burden, the Department

will submit an adjustment to that estimate and provide the public due

notice and opportunity to comment on that adjustment. An adjustment to

reflect the decreased State agency FTROP reporting as proposed in this

rule will be submitted if warranted.

On September 27, 1993 OMB approved the information collection

requirements through September 30, 1996 (OMB No. 0584-0446). The title

of the information collection is ``Expansion of Test of Offsetting

Federal Income Tax Refunds.'' Comments regarding this estimated

information collection burden, including suggestions for reducing the

burden, should be sent to the Department of Agriculture Clearance

Officer, Office of Information Resources Management, Room 404-W,

Washington, D.C. 20250. Such comments should also be sent to the Office

of Management and Budget, Paperwork Reduction Project (OMB No. 0584-

0446), Washington, D.C. 20503.

Comment Period

The Department believes that a 30-day comment period for this rule

is sufficient because while this is a proposed rule, it addresses

comments the Department received about the General Notices under which

FTROP has been tested. These comments were from a major public interest

group and from several State agencies. The rule clarifies several

matters and proposes changes in FTROP procedures based on those

comments, on numerous State agency questions raised during annual

training sessions and submitted to FCS regional offices during the test

of FTROP.

Background

A. General

Individuals currently owe the Department about $800 million for IHE

and IPV recipient claims. A substantial portion of the $800 million is

not being repaid. The Department is concerned about this situation and

is augmenting its policies and procedures to improve

[[Page 33613]] collections of this debt. FTROP and salary offset are

major initiatives in this effort.

Both collection methods would require that State agencies submit

claims to FCS for referral to the Internal Revenue Service (IRS) for

collection through FTROP. Automated data processing would be conducted

under strict data security procedures and confidentiality restrictions

to assure that information about individual debtors would be used only

for the authorized purposes of the proposed collection methods. Under

the proposed rule, prior to any adverse action (the collection

efforts), notice about the intended collection efforts, including

advice of appeal rights, must be provided individuals identified as

owing FSP recipient claims. Both FTROP and salary offset would only be

used when none of the household members liable for the recipient claims

to be collected are participating in the State which would be

initiating the collection action. FTROP and salary offset would be

applied only to IHE and IPV claims meeting this condition because,

under current food stamp regulations, both IHE and IPV claims owed by

participating households must be collected either by a repayment method

of the household's choice or by allotment reduction.

The IRS requires that Federal agencies participating in FTROP use

all reasonable collection efforts before referring a debt for

collection from Federal income tax refunds. The IRS views salary offset

as such an effort and therefore requires participation in salary offset

or at a minimum, deletion of claims which can be collected from Federal

employees from lists of claims submitted under FTROP. (See 26 CFR

301.6402-6 (b)(1)(iii) and (c)(2) of IRS regulations.)

B. FTROP

1. Authorities for FTROP

The authority for FTROP is Section 2653 of the Deficit Reduction

Act of 1984 (Pub. L. 98-369) as amended by Public Law 101-508 (1990)

and Public Law 102-589 (1992) (DEFRA). The FTROP provisions are

codified at 31 U.S.C. 3720A, 26 U.S.C. 6402 and 26 U.S.C. 6103. As

originally enacted in Public Law 98-369, authority for FTROP had a

sunset clause and would have expired on January 1, 1989. That date was

extended twice, first by Public Law 100-203 and then by Public Law 100-

485. The Emergency Unemployment Act of 1991 (Pub. L. 102-164) made the

authority to conduct FTROP permanent. In addition, section 4(c) of the

Food Stamp Act of 1977 provides broad authority to the Secretary of

Agriculture to issue such regulations as the Secretary deems necessary

or appropriate for effective and efficient administration of the Food

Stamp Program (7 U.S.C. 2013(c)).

The Department began testing FTROP in 1992 pursuant to a General

Notice published August 20, 1991 at 56 FR 41325. That General Notice

described the procedures for operating FTROP, including associated due-

process notices, appeal rights and related responsibilities of

individuals with respect to recipient claims subject to collection

under FTROP. The test of FTROP was conducted in conformance with

applicable IRS regulations. The IRS initially implemented FTROP with

temporary regulations at 26 CFR 301.6402-6T. Final IRS regulations (26

CFR 301.6402-6) were published April 15, 1992 at 57 FR 13035.

The test of FTROP for the FSP was continued and expanded during

1993 and 1994. (See General Notices published August 28, 1992 at 57 FR

39176 and August 12, 1993 at 58 FR 42937.) The policies and procedures

contained in those Notices, modified as a result of the test of FTROP,

are contained in this proposed rule.

The Department notes that a final rule published January 19, 1994

at 59 FR 2725 modified several aspects of FSP recipient claims policy

and corrected two technical errors. Parties interested in this proposed

rule may want to make sure that their version of FSP regulations

incorporates the just cited rule.

2. Overview of FTROP

a. Operations. FTROP is an optional program for State agencies. The

first step for participating State agencies is to develop automated

lists of FSP recipient claims which meet the criteria for claims which

are referable for collection under FTROP. The lists are developed

annually, are discrete from lists for other years and are identified by

offset year. The term ``offset year'' means a calendar year during

which offsets may be made to collect a particular group of recipient

claims from individuals' Federal income tax refunds. The rule proposes

at section 272.2 adding this definition of ``offset year'' to the list

of definitions of terms for the FSP. During the year preceding the

offset year, State agencies submit automated files of recipient claims

to FCS which tests them for compatibility with IRS record

specifications and refers them to the IRS. Through FCS the IRS provides

State agencies with addresses for individuals contained in the IRS

master file of taxpayer addresses. These activities make up the ``pre-

offset'' phase of FTROP. State agencies then use IRS-provided addresses

to send due-process (60-day) notices to individuals. The 60-day notices

advise individuals of the intended collection action and provide

information on how to repay the claim voluntarily and how to appeal the

intended action. State agencies then certify to FCS a final list of FSP

recipient claims for offset from Federal income tax refunds. Once State

agencies submit the certified list to the FCS, claims cannot be added

to the list and amounts of claims on the list cannot be increased.

At this point the offset phase begins. During the offset phase IRS

offsets the certified claims against any tax refunds otherwise payable

to the individual, and notifies the individual and FCS of offsets which

have been made. Also, each week of the offset year beginning in late

January, State agencies must provide data deleting claims and reducing

amounts of claims on the certified file to reflect changes in the

status of the claims due to such actions as voluntary payments from

individuals.

b. Reasons for the Present Rulemaking. Two factors make it

appropriate to add FTROP as a permanent part of the FSP now. First, as

mentioned above, Congress has provided permanent authority for FTROP.

Second, the Department stated in the August 1991 General Notice that if

the test indicated that FTROP was feasible and cost-effective, the

procedures would be incorporated into FSP regulations. The Department

believes that the test has proven FTROP feasible and cost-effective and

a significantly effective method of collecting FSP recipient claims due

to IHE's and IPV's. The number of State agencies participating has

increased from two in 1992 to 21 for 1994. Eleven more State agencies

will begin participating in 1995. With respect to costs, the Department

estimates Federal operational costs for the 1994 calendar year, for

example, will be less than $1 million. The Department concludes that

FTROP has been cost effective for participating State agencies to

operate. About 25 percent of the dollar value of claims which meet the

criteria for collection under FTROP is being collected. For example,

the 21 State agencies participating during offset year 1994 sent out

60-day notices to individuals owing more than $101 million in claims.

Through September 1994 collections totaled more than $30 million, more

than $27.7 million from Federal income tax refunds and an additional

$2.8 million from individuals [[Page 33614]] who paid voluntarily. For

calendar year 1993, based on information from the Department of the

Treasury, 38.4 percent of recipient claims submitted to the IRS were

offset, and 28.1 percent of the dollar value of claims submitted were

collected. Both the percentage of debt collected in whole or in part,

and percentage of dollars collected for the FSP were the highest among

Federal agencies participating in FTROP.

c. Discussion of Comments on the General Notices. The August 1991

General Notice solicited comments from the public. The Department

responded to those comments in the August 1992 General Notice. The

August 1992 General Notice also solicited comments from the public. Two

comment letters were received on the August 1992 General Notice.

One of those letters was from a State agency which suggested that

there should be a priority for offsetting debts from tax refunds and

that the first priority should be delinquent child support collections.

The priorities for tax refund offsets are established by 26 U.S.C.

6402(d)(2), and IRS regulations state them at 26 CFR 301.6402-6(g). The

first priority for FTROP is tax liabilities owed the IRS. The second

priority is childsupport payments assigned to a State under certain

specified provisions of the Social Security Act. The third priority,

which includes FSP recipient claims, is past-due, legally enforceable

debts owed Federal agencies. The fourth priority is for child-support

payments not assigned to a State.

The second comment letter was from a research and action group

concerned with nutrition and related issues. This action group made a

series of comments on the August 1992 General Notice. The Department is

responding to several of the action group's general comments just below

and to comments addressing specific aspects of FTROP in pertinent

sections of this preamble.

The action group stated that the Department should rescind the

August 1991 Notice until the rulemaking process could resolve the

numerous issues which the group raised, especially relating to apparent

inconsistencies between FTROP as tested and the Food Stamp Act of 1977,

as amended (7 U.S.C. 2011) (the Act). The group stated that Section

13(b)(2) of the Act (7 U.S.C 2022(b)(2)) authorizes collection of IHE

claims through recoupment but not through alternative means such as

FTROP, and that such alternative means apply only to IPV claims and

claims due to State agency error. This is incorrect. Section 13 of the

Act provides collection authorities as follows: First, subparagraph

(b)(1)(A) requires that households pay IPV claims by agreeing to an

allotment reduction (recoupment) or a cash repayment schedule, in lieu

of which the claim is collected through allotment reduction. Second,

subparagraph (b)(1)(B) provides, in principal part, that IPV claims not

collected by recoupment or cash, may be collected through ``other means

of collection.'' Third, subparagraph (b)(2)(A) requires that IHE claims

be collected through recoupment. Fourth, subparagraph (b)(2)(B)

provides that State agencies may use ``other means of collection'' for

any claim not collected by the three preceding methods. Consequently,

the Food Stamp Act authorizes ``other means of collection,'' for IPV

and IHE claims.

The group also pointed out that Section 13(b)(2)(A) of the Act sets

a ceiling on the rate of recoupment on IHE claims at 10 percent or $10

per month, whichever would result in a faster collection rate, but that

with FTROP the Department has implemented a 100 percent recoupment

rate. The statutory limitation applies to collecting overpayments by

reducing the monthly allotments of participating households. Since

FTROP is used to collect claims from individuals who are not

participating in the FSP, the statutory limitation on the rate of

recoupment does not apply to collections made under FTROP.

The action group stated that FTROP defeats Congressional intent

because it collects recipient claims from the Earned Income Tax Credit

(EITC). The group pointed out that Congress has repeatedly expressed

its support for EITC by continuing to expand its scope. The Department

does not disagree that Congress has expanded EITC. However, since

Congress has not enacted legislation excluding EITC from such debt

collection through FTROP, the Department does not believe that

collecting food stamp recipient claims from EITC's is inconsistent with

Congressional intent.

The action group also stated that it believed that FTROP is unduly

punitive and causes severe hardship for poor families. The Department

disagrees. First, recipient claims subject to FTROP were caused by the

households themselves and are uncollected because households did not

pay them in response to demand letters. Second, the 60-day notice (the

due-process notice) offers individuals a second opportunity to pay in

full or negotiate a payment schedule before claims are referred for tax

offset. In addition, food stamp regulations at 7 CFR 273.18(g)(2)(i)

provide that if a claim cannot be paid within three years, the State

agency may reduce the claim to an amount that the household can pay

within three years.

The action group asserted that FTROP would not be cost-effective.

In this regard, the group referred to a comment at a public meeting in

February 1991 by an FCS official who expressed concern that the

priority order for collection from tax refunds might adversely affect

the cost-effectiveness of FTROP. Since the IRS does not provide Federal

agencies information about debts which are uncollected because of a

higher priority debt, the effect of this factor on FSP recipient claims

referred to the IRS under FTROP cannot be determined. The priorities

for offset from tax refunds notwithstanding, as demonstrated above, the

test of FTROP has demonstrated that FTROP is cost-effective.

The action group also commented that the Department lacked criteria

for evaluating FTROP in terms of feasibility and cost-effectiveness.

The Department disagrees. The test has fully demonstrated the

feasibility and cost-effectiveness of the project based on increasing

State agency participation, the large dollar volume of collections and

the increased efficiency of FSP claims collection.

In another general comment, the action group asserted that instead

of focusing on collecting overissued food stamp benefits, the

Department should focus on preventing and correcting underissuances.

Through the Quality Control System the Department has an ongoing

program for identifying and correcting certification and benefit

errors. These errors cause both over and underissuance of food stamp

benefits. In this regard, it should be noted that a certain percentage

of the errors causing such incorrect levels of benefits results from

households failing to accurately report their circumstances. In

addition to the Quality Control System's efforts to reduce

certification and benefit errors, on April 1, 1993 FCS awarded grants

to two State agencies for special error reduction initiatives. One

grant focuses on client-caused error, the other on State agency-caused

error.

3. FTROP--Requirements for State agencies

a. General Requirements. During the testing of FTROP, all

participating State agencies were required to submit an annual

commitment letter in which they stated they would comply with the

requirements of the August 1991 General Notice. This rule proposes at

section 273.18(g)(5)(i)(A) that State agencies which choose to

implement FTROP must submit a one-time [[Page 33615]] amendment to

their Plan of Operation stating that they will comply with the

requirements for FTROP and salary offset. (Section D of this preamble

explains why State agencies which implement FTROP must also implement

salary offset.) Amendments would be due to FCS regional offices twelve

months before the beginning of a State agency's first offset year.

Amendments for State agencies currently participating would be due 90

days after publication of the final rule on FTROP. (See the last

section of this preamble, ``Effective Date.'')

The August 1991 General Notice required State agencies to attend a

training session on FTROP policy and procedures prior to beginning to

test the program. The Department expects to continue to require new

State agencies to attend such a training session but is not proposing

to include the requirement in regulations.

The IRS specifies what information they need for the various tasks

required to match FSP recipient claims to Federal income tax return

information, to effect offsets, and for reporting and accounting

functions. The IRS also sets schedules for submission of data to them

and for the various reports which they produce and distribute. These

instructions and schedules are contained in the annually revised IRS

Revenue Procedure, ``Magnetic Media Reporting for Federal Income Tax

Refund Offset Program (Debtor Master File).'' FCS conducts field edits

to assure that data which State agencies submit conform to IRS formats,

and FCS works with State agencies to correct problems which would

result in data being rejected by the IRS. State agency data and format

problems sometimes require that State agencies resubmit data. For

example, magnetic tapes must be preceded by a specific Job Control

Language (JCL). If the JCL is incorrect, the State agency may have to

produce another tape. On the other hand, FCS is able to correct some

problems without requiring a second submission. For example, if Social

Security Numbers (SSN's) are not correctly justified in the data field,

FCS may be able to shift them to their correct position. The problems

which FCS can correct are limited, however, and State agencies have the

primary responsibility for detecting and correcting data and format

errors prior to submitting recipient claim files to FCS. Since data

submitted to the IRS must be correctly formatted, FCS will not submit

data from a State agency to the IRS until the State agency's data

conforms to IRS format requirements. Consequently, this rule proposes

at section 273.18(g)(5)(i)(B) that State agencies must submit data

according to the record formats specified by FCS and/or the IRS.

This rule also proposes at section 273.18(g)(5)(i)(B) that State

agencies submit data according to schedules provided by FCS. State

agencies need to submit files early enough to allow sufficient time for

transmittal to FCS, for FCS to conduct field edits and to consolidate

State agency submissions, and for FCS to mail files to IRS to meet IRS

deadlines. FCS will provide State agencies each year a schedule for

State agency data submissions to FCS. This schedule will also include

other FTROP due dates so that State agencies have one source as a

reference for meeting the various FTROP deadlines.

IRS currently requires that FCS provide data to IRS on magnetic

tape. During the early testing of FTROP, State agencies submitted their

data to FCS on magnetic tape. Managing tape submissions for the number

of State agencies currently participating has proven inefficient.

Consequently, during January 1994 FCS began implementing electronic

data transmission. To provide for this technology and for future

improvements in this area, this rule proposes at section

273.18(g)(5)(i)(B) that State agencies must submit data by means of

magnetic tape, electronic data transmission or other method specified

by FCS.

b. Claims Referable for Offset. The provisions of DEFRA codified at

31 U.S.C. 3720A(b) and IRS regulations at 26 CFR 301.6402-6(c) specify

criteria for debts which can be referred for offset from Federal income

tax refunds. The August 1991 General Notice included those criteria as

well as additional criteria required for the FSP. This rule proposes at

section 273.18(g)(5)(ii) to include substantially the same criteria,

the most general of which is specified by DEFRA: All claims submitted

for tax offset must be past-due and legally enforceable. The rule then

proposes a number of specific criteria for determining claims past-due

and legally enforceable. Only recipient claims which meet those

criteria may be referred for collection under FTROP.

General Criteria: For purposes of testing FTROP, the Department

chose to limit FTROP to IHE and IPV claims. This rule proposes that

same limitation at section 273.18(g)(5)(ii)(A). The August 1991 General

Notice further specified in paragraph b(1) that these claims had to be

``properly established'' as required by FSP regulations. This rule

expands the statement of that requirement by referencing at section

273.18(g)(5)(ii)(A)(1) current rules on recipient claims and

disqualification hearings for IPV's. The Department also wants to make

clear that State agencies must have documentation that the claims they

submit for collection under FTROP are properly established.

Consequently, this rule proposes at section 273.18(g)(5)(ii)(A)(2) that

State agencies must have such documentation on claims which they refer

under FTROP. Specifically such documentation would include such items

as electronic records and/or paper copies of claim demand letters,

results of fair hearings, advance notices of disqualification hearings,

results of such hearings, and records of payments. In this context an

electronic record would be such items as dates of demand letters and

the formats of such letters.

The Three-Month Delinquency Period: Temporary IRS regulations at 26

CFR 301.6402-6T(b)(2) provided that referable debts must be delinquent

at least three months at the time the offset is made. The August 1991

General Notice in paragraph b(3) provided that for purposes of FTROP

recipient claims must be delinquent at least three months as of the

date the State agency certified its final files to FCS. That date is

usually in early December. Further in this regard, the August 1991

General Notice specified in paragraphs b(3)(i) and (ii) that a claim

could not be considered delinquent for purposes of FTROP if either: (1)

the State agency was responding to a request for a fair hearing which

was made within the 90 days following the initial demand letter; or (2)

the time allowed for responding to the initial demand letter had not

elapsed. Final IRS regulations at 26 CFR 301.6402-6 do not include an

explicit three-month minimum delinquency nor do those regulations use

the term ``delinquency.'' The preamble to the final IRS rule states

that a three month minimum delinquency is ensured because of the

various notices and actions that must occur prior to referring debts

under FTROP.

During the test of FTROP, State agencies raised questions about the

criteria for ``delinquency'' of claims for FTROP purposes. These

questions were answered with specific discussion of such considerations

as whether payments were being regularly made. This rule incorporates

policy developed in response to those questions and does not use the

terms ``delinquent'' or ``delinquency'' with respect to determining

whether a recipient claim may be referred for collection under FTROP.

If a claim meets the criteria for being past due and legally

enforceable as proposed in this rule, the claim would be subject to

FTROP. [[Page 33616]]

The Department wants to make clear that claims may not be

considered past due and legally enforceable until individuals have been

provided the opportunity to respond to demand letters as required in

current food stamp rules. Current FSP regulations at 7 CFR

273.18(d)(4)(iii) state that if any nonparticipating household does not

respond to the first demand letter for repayment of a recipient claim,

additional demand letters must be sent at reasonable intervals, such as

30 days, until: (1) The household repays the claim or agrees to repay

it; (2) collection action can be suspended; or (3) the State agency

initiates other collection actions (emphasis added). Consequently, at

section 273.18(g)(5)(ii)(A)(1) this rule would refer to that FSP

regulation and the requirement to provide additional demand letters

prior to initiating other collection actions. This criterion would

replace the criteria stated in paragraphs b(3)(i) and (ii) of the 1991

General Notice.

The action group several times expressed concern that FTROP

procedures specified in the August 1991 General Notice did not require

that State agencies establish that all other collection had stopped

before acting on a claim under FTROP. In the following paragraphs this

preamble discusses the criteria for determining whether or not a claim

is referable under FTROP and in later sections discusses the content of

the 60-day notice. The Department believes that these discussions and

the corresponding parts of this proposed rule should make clear both to

State agencies and to individuals receiving those 60-day notices that

claims are not referable under FTROP if they are being regularly

repaid. The Department also addresses this concern by proposing

policies on verifying that no liable individual is currently

participating in the FSP in the State and on apportioning claims among

individuals who are jointly and severally liable for the claims.

Section 13(a)(2) of the Act and FSP regulations at 7 CFR 273.18(a)

specify that all adult members of the household are jointly and

severally liable for any overissuance of benefits to the household. In

addition, the regulations require that State agencies establish claims

against any household which contains an adult member who was an adult

member of another household which received an overissuance. The

Department wants State agencies to take steps to collect FSP recipient

claims from households to the maximum extent. On the other hand, as

already discussed, both IHE and IPV claims must be recouped from

monthly allotments of participating households with members who are

liable for recipient claims. Consequently, this rule proposes at

section 273.18(g)(5)(ii)(B) that claims are referable for collection

through FTROP for which the State agency has verified that no

individual participating in the FSP in the State is jointly and

severally liable as specified in section 273.18(a).

The IRS regulations at 26 CFR 301.6402-6(c)(7) set a $25 minimum

for claims which can be referred for tax offset. The August 1991

General Notice applied the $25 minimum during the test of FTROP, and

this rule would apply the same minimum. To avoid the need to change FSP

regulations should the IRS change the minimum dollar amount for claims

which can be referred under FTROP, this rule proposes at section

273.18(g)(5)(ii)(C) that State agencies may submit only claims in

dollar amounts which are at least the minimum dollar amount set by the

IRS. FCS will advise State agencies if that amount changes from $25.

The 10-Year Limit: Temporary IRS regulations at 26 CFR 301.6402-

6T(b)(2) provided, in part, that debts could only be referred if they

were not delinquent for more than 10 years at the time the offset was

made except for judgment debts, which were not subject to this 10-year

limitation. The August 1991 General Notice in paragraph b(3) provided,

in part, that except for claims reduced to final court judgments,

recipient claims could be delinquent for no more than nine years, 11

months as of the date State agencies certified their final file of

claims to FCS. Final IRS regulations at 26 CFR 301.6402-6(c)(1) specify

that except for judgment debts or debts specifically exempt from the

requirement (such as certain debts referred by the Department of

Education), claims may be referred under FTROP if they are referred

within 10 years after the (Federal) agency's right of action accrues

(emphasis added).

In the preamble to their final regulation on FTROP, the IRS states

that only the Federal agency referring the debt for offset is in a

position to determine when its right of action to collect a particular

debt accrues. The Department considers that its right of action to

collect a recipient claim under FTROP accrues on the date of the

initial demand letter. The IRS accepts certified FTROP files no later

than about January 4 of each offset year. This date is the date claims

are considered referred to the IRS and the date from which the 10-year

period is measured in order to determine if the right of action on a

particular recipient claim accrued within that period. To assure that

recipient claims referred for tax offset fall within the IRS 10-year

time frame and to provide State agencies a date which remains unchanged

year to year, this rule proposes at section 273.18(g)(5)(ii)(D) that,

except for claims reduced to final court judgments ordering individuals

to pay the debt, FSP recipient claims may be submitted for tax offset

only if the date of the initial demand letter is within 10 years of

January 31 of the applicable offset year.

The August 1991 General Notice provided in paragraph b(3)(iii) that

a claim was not delinquent if the household was making payments

pursuant to an agreed upon schedule of payments as provided in 7 CFR

273.18(g)(2). This rule proposes at section 273.18(g)(5)(ii)(A)(5) that

claims are past due and legally enforceable if the State agency is

neither receiving voluntary payments pursuant to an agreed upon

schedule of payments as provided in current FSP regulations at 7 CFR

273.18(g)(2) nor is receiving scheduled, involuntary payments such as

wage garnishment. The Department proposes to add the second criterion

because, as in the case of voluntary payment under an agreement with

the State agency, the claim is being repaid regularly. Consequently,

the claim should not be referred for collection under FTROP. The rule

further proposes to specify that claims for which the State agency has

received such payments are considered past-due and legally enforceable

under FTROP 30 days after the due date for a regular payment which is

not received.

Bankruptcy: As a condition of participating in FTROP, the IRS

requires that Federal agencies annually sign a Memorandum of

Understanding (MOU) which specifies the respective rights and

responsibilities of the Department and the IRS. The MOU specifies that

the (Federal) agency must certify to the IRS that collection on claims

referred under FTROP is not limited by a bankruptcy filing. The August

1991 General Notice in paragraph b(5) applied this provision to State

agencies. This rule proposes the same provision at section

273.18(g)(5)(ii)(A)(6). This subject matter is discussed in greater

detail later in this preamble.

Notifications: The August 1991 General Notice specified in

paragraph b(6), that State agencies could refer only those claims for

which they had complied with all of the required FSP notification and

review rights explained therein. This rule proposes the same

requirement at section 273.18(g)(5)(ii)(A)(7). [[Page 33617]]

In addition to these criteria, other criteria must be applied to

determine if other recipient claims are past due and legally

enforceable.

Other Collection Efforts: Many State agencies collect FSP recipient

claims from refunds due individuals from overpayments of State income

tax and other sources. The Department is concerned about over

collections of claims referred for collection from State tax refunds

for the same period they are subject to offset under FTROP. To avoid

such over collections, the consequent temporary loss of funds to

individuals and the need for State agencies to make refunds, this rule

proposes at section 273.18(g)(5)(ii)(B)(1) that claims referred under

FTROP must be reduced by any amounts referred for collection from State

income tax refunds or from other sources which may result in

collections during the offset year.

Combined Claims: During the test of FTROP, State agencies were

allowed to combine two or more claims against an individual and to

submit them as one claim. This rule at section (g)(5)(ii)(B)(2) would

require that the date of the initial demand letter for each of the

claims so combined be within the 10-year period specified in section

273.18(g)(5)(ii)(A)(4). The IRS requires that debts reduced to judgment

be identified when they are submitted for offset. Consequently,

judgment debts cannot be combined with claims which are not reduced to

judgment. Accordingly, this rule would prohibit such combinations.

Split Claims: As discussed above, 7 CFR 273.18(a) provides that all

adult household members are jointly and severally liable for recipient

claims. In addition, 7 CFR 273.18(f), explicitly authorizes State

agencies to attempt to collect claims from any household which contains

an adult member of a household which received an overissuance. The 1991

General Notice in paragraph b(4) provided that claims could be

submitted under FTROP for only one individual or in cases where more

than one individual was jointly and severally liable for the claim

pursuant to 7 CFR 273.18(a) and (f), the full amount of the claim could

be apportioned between two or more liable individuals as long as the

sum of the amounts submitted for all liable individuals did not exceed

the total amount of the claim. The Department believes that it is

unnecessary to state in the regulation that a claim for one individual

is referable under FTROP. Consequently, this rule provides at section

273.18(g)(5)(ii)(B)(3) that claims may be referred under FTROP which

are apportioned between two or more individuals who are jointly and

severally liable for the claim pursuant to section 273.18(a) and

section 273.18(f) on the condition that the total of the amounts

submitted under FTROP for a particular claim do not exceed the amount

of the claim.

Credit Bureau Reporting: Finally with regard to the criteria for

determining claims referable under FTROP, the IRS at 26 CFR 301.6402-

6(c)(6) specifies that, with certain exceptions, debts may not be

referred unless they have been disclosed to a consumer reporting

agency. In a letter to FCS dated March 25, 1991 the IRS waived this

requirement for the FSP on the basis of the disclosure limitations in

Section 11(e)(8) of the Act (7 U.S.C. 2020(e)(8)). Consequently, food

stamp recipient claims are not referred to consumer reporting agencies

as part of FTROP.

c. 60-Day Notice to Individuals. As codified at 31 U.S.C. 3720A(b),

DEFRA requires that prior to referring a debt to the IRS for collection

from Federal income tax refunds, a Federal agency must notify the

person incurring such debt that the agency proposes to take such action

and give the person at least 60 days to present evidence that all or

part of the debt is not past-due or not legally enforceable. The August

1991 General Notice in paragraph c(1) required State agencies to

provide this notice and required that it contain the information

specified in paragraph d. of the General Notice. Accordingly, this rule

proposes at section 273.18(g)(5)(iii)(A) that, prior to referring

claims for collection under FTROP, the State agency provide individuals

from whom it seeks to collect such claims with a notice, called a 60-

day notice.

Required Information: Because of the importance of complying with

the due process provisions of DEFRA, this rule proposes at section

273.18(g)(5)(iii)(B) that, with the exception of such State-specific

information as names and positions and information required for

contacts, a State agency's 60-day notice shall contain only the

information specified in paragraph 273.18(g)(5)(iv) for the 60-day

notice. Furthermore, the rule proposes that in the certification

letters which must be submitted with final files of claims as stated in

paragraph 273.18(g)(5)(vii), State agencies must include a statement

that their 60-day notices conform to this requirement. State agencies

which need to deviate from the required content of the 60-day notice

would need to obtain FCS approval for a waiver to allow the deviation.

FCS will provide State agencies with a format for the 60-day notice.

The Department believes that this is consistent with Section 11(d) of

the Act which prohibits the Secretary, as part of the approval process

for a plan of operation, from requiring a State agency to submit for

prior approval by the Secretary forms it will use to carry out the FSP.

The action group commented that the 60-day notice is likely to be

confusing because several provisions are in technical language which

many food stamp households may not possess sufficient reading skills to

comprehend. The Department is aware that regulatory language can be

technical, and this awareness was, in large part, why the August 1991

General Notice required State agencies to follow the format for the 60-

day letter which FCS provided and why this rule proposes a similar

requirement. In this regard, the action group also expressed concern

about automated forms or forms printed in small type. The Department

has received no complaints about such matters during the test but will

monitor 60-day notices for legibility and will request State agency

corrective action as necessary.

The August 1991 General Notice required in paragraph c(3) that

State agencies mail 60-day notices no later than the date specified in

operational guidelines issued by FCS for the particular offset year.

October 1 was the specified deadline for mailing 60-day notices during

the test of FTROP. This rule proposes at Sec. 273.18(g)(5)(iii)(C)

that, unless otherwise notified by FCS, the State agency must mail 60-

day notices for claims to be referred for collection through FTROP no

later than October 1 preceding the offset year during which the claims

would be offset.

Addresses for 60-Day Notices: IRS regulations at 26 CFR 301.6402-

6(c)(4) require that agencies participating in FTROP provide the

debtor, or make a reasonable effort to provide the debtor with the

required notice. IRS regulations at 26 CFR 301.6402-6(d)(1) state that

use of the most recent address for the debtor provided by the IRS

constitutes a reasonable effort to notify the individual about the

intended referral for offset. The IRS provides such address information

to State agencies during the annual pre-offset cycle. The last cited

provision of the IRS regulations also states that the IRS-provided

address must be used unless the State agency receives clear and concise

notification from the taxpayer that notices from the agency are to be

sent to an address different from the address obtained from the IRS.

The IRS regulation provides that such clear and concise notification

means that the [[Page 33618]] taxpayer has provided the [State] agency

with written notification including the taxpayer's name and identifying

number (which is generally an SSN), the taxpayer's new address, and the

taxpayer's intent to have agency notices sent to the new address. This

rule proposes at section 273.18(g)(5)(iii)(D) to include requirements

on addresses for 60-day notices which are consistent with these IRS

regulations.

During the test of FTROP several State agencies asked whether

claims for which 60-day notices were returned as undeliverable for such

reasons as ``forwarding address unknown,'' could be referred for

collection. To clarify this matter, this rule proposes at

Sec. 273.18(g)(5)(iii)(D) that claims for which 60-day notices

addressed as required in that paragraph are returned as undeliverable

should be referred for collection.

Finally in regard to addresses for 60-day notices, the August 1991

General Notice provided in paragraph c(4) that the 60-day notice could

also be mailed to addresses from State agency files if the State agency

believed that such addresses in its files were better than ones

provided by the IRS. This policy caused confusion during the test. Some

State agencies thought that if the 60-day notice sent to the IRS-

provided address was returned, the claim could not be submitted under

FTROP unless a second 60-day notice was sent. In view of this problem

and the fact that the final IRS regulation requires the use of the IRS

address unless the debtor has specifically requested that another

address be used, this provision is not included in this proposed rule.

d. Contents of the 60-Day Notice. This rule proposes several

changes in the content of the 60-day notice from that used during the

test of FTROP. Among other things, these changes would provide

individuals with more information about their liability for the claim,

clarify the scope of individuals' right to have the intended collection

action reviewed, and advise individuals about documents for showing

that a claim is not past-due or legally enforceable.

Facts of the Claim; Authority for FTROP: The August 1991 General

Notice required in paragraph d(1) that the 60-day notice first inform

individuals that State agency records document that the individual,

identified with his or her SSN, is liable for a specified, unpaid

balance of a claim for overissued food stamp benefits, that the State

agency previously notified the individual about the claim, made the

required collection efforts, and that the claim is past-due and legally

enforceable. To make clear that the claim was properly established, the

August 1991 Notice also required that the 60-day notice state that

State agency records documented the claim. The individual's SSN was

required to help assure that the 60-day notice was sent to the correct

individual. The information on the amount of the claim was required to

comply with the IRS requirement at 26 CFR 301.6402-6T(b)(5) that the

60-day notice inform the debtor of the amount of the debt and that it

was determined past-due and legally enforceable. The statement about

previous notification and collection efforts was required to comply

with the DEFRA requirement at 31 U.S.C. 3720A(b)(4) that agencies

participating in FTROP satisfy the Secretary of the Treasury that they

have made reasonable efforts to obtain payment of the debt (prior to

referring it for collection through tax offset).

The August 1991 General Notice required in paragraph d(2) that the

60-day notice inform the individual that DEFRA authorizes the IRS to

deduct debts (such as claims for overissued food stamp benefits) from

tax refunds and that the State agency intends to refer the claim for

such deduction unless the individual pays the claim within 60 days or

makes other repayment arrangements acceptable to the State agency. As

noted in the preceding section of this preamble, DEFRA contains these

requirements at 31 U.S.C. 3720A(b).

This rule at Secs. sections 273.18(g)(5)(iv) (A) and (B) would

reorganize these statements and make some minor modifications in

language, in particular to accommodate the proposed requirement that

60-day notices conform to the language specified in this rule. As did

the 60-day notice used during the test of FTROP, the 60-day notice

proposed here would first state that the State agency has records

documenting that the individual, identified by name and SSN, is liable

for the unpaid balance of the recipient claim(s) resulting from

overissued food stamp benefits the State agency intends to refer for

offset.

The 60-day notice would then state that the State agency has

previously mailed or otherwise delivered demand letters notifying the

individual about the claim, including the right to a fair hearing on

the claim, and has made any other required collection efforts. The

clause ``previously mailed or otherwise delivered'' would be used in

the 60-day notice in order to be consistent with the recent revision of

7 CFR 273.18(d)(4) cited at the end of section B(1) of this preamble.

The reference to the notice of the right to a fair hearing on the claim

would serve as a reminder to the individual that the opportunity for a

fair hearing has already been provided. The Department wants to include

that reminder to help individuals understand why, as discussed below,

the 60-day notice offers an opportunity for a review of whether the

claim is referable, not an opportunity for a fair hearing.

This proposed rule would require at section 273.18(g)(5)(iv)(B)

that the 60-day notice state that the Deficit Reduction Act of 1984, as

amended by the Emergency Unemployment Compensation Act of 1991,

authorizes the IRS to deduct such debts from tax refunds if they are

past due and legally enforceable. The 60-day notice would then state

that: (1) The State agency has determined that the debt is past due and

legally enforceable according to the criteria specified by the Deficit

Reduction Act of 1984, the IRS regulations and the Food Stamp Program

(FSP) regulations; and (2) the State agency intends to refer the claim

for deduction from the individual's Federal income tax refund unless

the individual pays the claim within 60 days of the date of the notice

or makes other repayment arrangements acceptable to the State agency.

Offset Fee: During the test of FTROP, the Department of the

Treasury (Treasury) charged Federal agencies participating in FTROP a

fee for each offset to cover Treasury's administrative costs for FTROP

operations. For example, the fee for offset year 1995 is $8.79.

Treasury plans to continue this practice. Treasury assesses the offset

fee whether the offset satisfies all or only part of the debt. During

the test of FTROP (including 1995), these fees were treated as

allowable costs for the State agency. This has meant that State

agencies and FCS each paid for half of each fee. For example, assuming

a $100 claim and an $8 fee, if the IRS offset $100 from a tax return

either because that was the amount of the recipient claim referred or

because that was all the refund available for offset, the IRS would

keep $8 and send FCS $92. FCS would report a $100 offset to the State

agency which would credit that amount against the balance of the

recipient claim. FCS would also report the $8 offset fee to the State

agency which would claim 50 percent of that fee, or $4, as a

reimbursable cost from FCS. The fees are costs which can be avoided if

individuals pay their claims voluntarily in response to 60-day notices.

Consequently, at Sec. 273.18(g)(5)(iv)(C) this rule proposes that the

60-day notice state that if a [[Page 33619]] claim is referred to the

IRS, a charge for the administrative cost of collection will be added

to the amount of the claim and any amount deducted from the tax refund

will first be applied to pay the charge, with the balance applied to

the claim, as explained further.

Under this proposal, in the case of a $100 claim and an $8 offset

fee, a debt of $108 would be referred to the IRS. If that amount were

available for offset, the IRS would keep $8 and send $100 to FCS who

would transfer $100 to the State agency for credit against the claim.

On the other hand, if only $50 were available for offset, the IRS would

keep $8 and $42 would be credited against the claim. A balance of $58

would remain.

The 60-day notice would not cite the exact amount of the charge

because during the test the IRS notified FCS of the amount of the

offset fee during November, too late for the exact amount to be

provided State agencies prior to the October 1 mailing of the 60-day

notices. FCS plans to add the exact amount of the fee to each recipient

claim submitted by State agencies in their certified files in early

December. FCS would advise State agencies of the amount of the fee, but

the fee must not be added to the amount of the claim as maintained in

State agency food stamp case records. The State agency would ultimately

advise the individual of the amount offset, including how much of the

offset was applied to the fee and how much to the claim itself.

Joint and Several Liability: During the test of FTROP it was clear

that the household composition of many individuals liable for claims

subject to FTROP had changed and that some individuals did not

understand that they were liable for the overissuances. Consequently,

this rule proposes to require at Sec. 273.18(g)(5)(iv)(D) that the 60-

day notice advise individuals that all adults who are household members

when excess food stamp benefits are issued to the household are jointly

and severally liable for the value of those benefits, and that

collection of claims for such benefits may be pursued against those

individuals.

Action Group Comments: The action group made two comments which

pertain to these initial statements in the 60-day notice. First, the

group commented that the appeal process is defective because the

individual is not given an opportunity to acknowledge that, while a

debt is owed, it should not be collected through FTROP. The group cited

the example of an individual who has entered into a repayment agreement

with a State agency to repay a debt which the State agency in error

refers under FTROP. The August 1991 Notice stated in paragraph

b(3)(iii) that claims being repaid are not delinquent and so are not

referable. This rule proposes that same information be given to

individuals in the 60-day notice in two places. First, the rule would

require at Sec. 273.18(g)(5)(iv)(D) that the 60-day notice advise

households that State agency records do not show that the debt is being

repaid according to either a voluntary agreement with the State agency

or through scheduled, involuntary payments. Second, as discussed below,

the 60-day notice would state that evidence that a claim is being

repaid is one type of evidence showing that a claim is not past due.

The action group also commented that the individual is never informed

that collection efforts concurrent with FTROP are not permissible and

are grounds for appeal. The Department believes that the just discussed

revisions to the language in the 60-day notice should make that point

clear.

Also with regard to the initial statements in the 60-day notice,

the action group commented that the 60-day notice as tested does not

provide an opportunity for a hearing before the refund is seized

because the notice does not state a definite intent to seize the

refund. The action group went on to assert that this deficiency means

that the FTROP procedures do not comply with due-process mandates and

that the FTROP procedures should be withdrawn. The 60-day notice does

state an intent to offset the debt against income tax refunds, and the

notice fully complies with the requirements of DEFRA which provides, in

part, that debts may not be referred to the Secretary of the Treasury

for collection from income tax refunds until the Federal agency owed

the debts notifies the debtors that the agency proposes to make such

referral and provides the debtors 60 days to present evidence that all

or part of the debt is not past-due or not legally enforceable

(emphasis added). Of course, as the action group states, at the time of

the 60-day notice it is not known whether or not there will be a tax

refund available for collection. Based on experience during the test of

FTROP, there is no confusion on the part of individuals about this

matter. Immediately after 60-day notices are mailed, State agencies

begin receiving telephone calls about the claims and the intended

referral for offset, and individuals do file appeals.

State Agency Contact: The August 1991 General Notice required in

paragraph d(3) that the 60-day notice include instructions about how to

pay the claim, including the name, address and telephone number of a

State agency contact able to discuss the claim and the intended offset

with the individual. Such information is needed so that individuals

will know how to contact the State agency and where to send payments.

During the test of FTROP several State agencies raised concerns about

personal safety because of the requirement to provide a name of an

individual and/or the street address in the 60-day notice. In view of

this concern, this rule proposes to require at Sec. 273.18(g)(5)(iv)(E)

that the 60-day notice provide the name of an office, administrative

unit and/or individual, street address or post office box, and

telephone number for the contact. The 1991 General Notice did not

specify that the telephone number for the State agency contact must be

toll-free or collect. In its publication ``Guidelines for the Federal

Tax Refunds Offset Program'' (August 1992), Treasury requires such a

telephone number on the 60-day notice. Accordingly, this rule would

specify that requirement (at Sec. 273.18(g)(5)(iv)(E)).

Requests for Review: The August 1991 General Notice required in

paragraph d(4) that the 60-day notice inform the individual of six

factors about appealing the intended collection action. Most of these

factors are based on the requirements of DEFRA. This rule proposes to

require that the 60-day notice address the same factors, modifying them

based on experience during the test of FTROP.

The first such modification is the replacement of the term

``appeal'' with the phrase ``request a review'' or ``review request.''

The rule proposes this change for two reasons. First, State agencies

observed that the use of the word ``appeal'' in the 60-day notice gave

individuals the impression that they were being offered the right to a

full-fledged review of all aspects of the claim. Second, during the

test of FTROP, several State agencies requested approval of 60-day

notices which would offer debtors an opportunity for a fair hearing on

the claim itself even though such an opportunity was provided with the

initial demand letter. A second opportunity for a fair hearing may be

appropriate in certain circumstances, but the Department does not

believe that collection of a recipient claim through FTROP is such a

circumstance. FTROP is one of several types of ``other means of

collection'' for which 7 CFR 273.18(d)(4)(iv) provides authority, and

State agencies do not offer a second fair hearing opportunity before

initiating other collection actions such as small claims court

proceedings or referral to a collection agency. The proposed

[[Page 33620]] rephrasing should help clarify that an individual's

``appeal'' right is limited. For additional clarity, the rule proposes

using the word ``collection'' instead of ``offset.'' Accordingly,

Sec. 273.18(g)(5)(iv)(F) would require that the 60-day notice advise

individuals that they have a right to request a review of the intended

collection action.

The August 1991 General Notice required in paragraphs d(4)(iii) and

(iv) that the 60-day notice state that claims that have been appealed

(for which timely reviews have been requested) will not be referred for

offset while under review, and that individuals must provide their

SSN's with their appeals (review requests). The rule would make these

same requirements at Sec. 273.18(g)(5)(iv)(F). At that same place the

rule would require that the review request be written because during

the test of FTROP State agencies asked whether they had to review

claims based on telephone inquiries. The Department wants to make clear

to debtors and State agencies that an oral request, such as an inquiry

made over the telephone, does not constitute a review request.

In this regard, the action group commented that the opportunity to

appeal provided by the 60-day notice was not meaningful because,

whereas recipients are accustomed to working with food stamp offices,

the opposing party in this instance is the IRS. Requests for review are

made to State agencies and FCS, not the IRS. Only requests to protect

the tax refund of a non- liable spouse should be directed to the IRS,

as discussed in detail below. During the test there were few reports

from the IRS that individuals were contacting IRS offices instead of

State agencies about appealing the intended collection from tax

refunds. Nonetheless, to help make clear that appeals are directed to

the State agency, this rule proposes at Sec. 273.18(g)(5)(iv)(F) that

the 60-day notice specify that requests for review be submitted to the

State agency address provided in the notice. Requests for review will

generally be submitted by mail, but the rule does not propose to

require this. Individuals could provide the written requests in person.

DEFRA provides that individuals must be given 60 days to show a

debt is not subject to FTROP. The August 1991 General Notice required

in paragraph d(4)(ii) that the 60-day notice state that the State

agency will not review appeals which it receives later than 60 days

after the date of the 60-day notice. The provision was intended: (1) To

make as clear as possible to individuals that the 60-day appeal period

would be strictly adhered to; and (2) to relieve State agencies of the

responsibility for reviewing appeals received after that period

expires. This rule proposes at Sec. 273.18(g)(5)(iv)(F) that the 60-day

notice advise individuals that their request for review must be

received with 60 days of the date of the 60-day notice. During the test

of FTROP, after the 60-day period State agencies sometimes received

documentation, for example, that the claim was paid. In such

circumstances, as required by current food stamp regulations when an

over collection is discovered, the State agencies were required to

refund the over collection. Consistent with current food stamp

regulations on refunding over collections of recipient claims, if after

the 60-day notice an individual documents or otherwise demonstrates

that the claim is not past due or legally enforceable, and the claim

has already been collected from the individual's tax refund, the amount

collected on the claim will be refunded.

Bankruptcy: The August 1991 General Notice required in paragraph

d(5) that the 60-day notice advise individuals that they should inform

the State agency if they believed that a bankruptcy prevents collection

of the claim. During the test of FTROP several State agencies asked

what documentation of bankruptcy was required. Bankruptcy law forbids

requiring documentation of bankruptcy. This rule proposes at

Sec. 273.18(g)(5)(iv)(G) to restate the requirement that a claim is not

legally enforceable if the individual indicates that a bankruptcy

prevents collection of the claim.

Tax Refunds of Non-liable Spouses: The August 1991 General Notice

required in paragraph d(6) that 60-day notices state that married

individuals may want to contact the IRS in order to protect the refund

in cases where spouses are not liable for the claim. This rule proposes

this same requirement at Sec. 273.18(g)(5)(iv)(H). That section would

also inform the individual that his or her own liability for this

claim, including any charge for administrative costs, may be collected

from his or her share of a joint refund. The Department wants to make

clear that the protection for a non-liable spouse's share of a tax

refund against collection by tax refund offset does not extend to the

liable spouse's share of the tax refund.

Documenting a Claim is ``Not Referable'': The August 1991 General

Notice stated in paragraph d(4)(iv) that an appeal must provide

evidence or documentation why the individual believes that the claim is

not past-due or is not legally enforceable, and in paragraph d(4)(v)

that an appeal is not considered received until the State agency

receives such evidence or documentation. During the test of FTROP,

State agencies asked whether they were required to review requests

which did not contain any pertinent documentation. The Department

believes that all timely, written review requests warrant consideration

and a written response, as discussed later in connection with State

agency action on review requests. The Department also wants to make

clear to individuals that certain documentation is necessary to show

that a claim is not subject to FTROP. Accordingly, this rule proposes

at Sec. 273.18(g)(5)(iv)(I) that 60-day notices inform individuals that

if they request a review of the intent to collect the claim from their

income tax refund, they should provide documentation showing at least

one reason why the claim is not subject to FTROP and that if they

cannot, for example, provide a cancelled check, they should explain in

detail why they believe that the claim is not collectible under FTROP.

This should allow individuals wide latitude to explain the particular

circumstances of the claim and still require that they show some basis

for why the claim is not past due and legally enforceable. The 60-day

notice would be required at Secs. 273.18(g)(5)(iv)(J) and (K) to list

the reasons the claim is subject to collection under FTROP.

In the first two weeks after mailing out 60-day notices, State

agencies typically receive a large number of telephone calls from

individuals asking questions about the recipient claims and the

intended collection action described in the notices. Many of these

callers assert that they are not liable for the claim. The Department

believes that providing individuals information in the 60-day notice

about why their claims are subject to collection under FTROP will allow

informal inquiries to be handled quickly and may reduce the number of

such inquiries. This information should also help individuals decide

what information they need to provide in order to substantiate that,

for example, they have paid the claim or that the claim has been

discharged in bankruptcy.

The action group made several comments concerning the requirements

for documenting that a claim is not past due or is not legally

enforceable. The group stated that the 10-year time limit for

delinquent claims to be referable for tax offset results in an undue

burden for documentation on low-income households and recommended that

the Department shorten that period. On this matter the action group

also commented that some households may have [[Page 33621]] difficulty

documenting that no debt is owed. To the same effect, the action group

commented that recipients may not have evidence to rebut the intended

collection action or the claim itself. They cited the example of a

household member alleged to have had unreported earnings (which would

have resulted in an overissuance) who is unavailable when the 60-day

notice is received. The Department recognizes that recordkeeping for

low-income households may be relatively difficult, especially perhaps,

as the action group remarks, because low-income households may move

relatively often and may have relatively limited resources to devote to

household recordkeeping. The Department does not believe that

shortening the 10-year period would address this difficulty. The

Department believes that it must require a minimum level of

documentation that a claim is not past due or is not legally

enforceable and that the proposed rule states that minimum level. With

respect to rebutting the claim itself, since only IHE and IPV claims

which are properly established are subject to FTROP, the household has

already been offered an opportunity to rebut the claim itself in fair

hearings or administrative disqualification hearings.

The action group also commented that in other contexts households

present evidence and the State agency has the burden of defending its

actions. The Department understands that by ``other contexts'' the

action group is referring to fair hearing and disqualification hearing

procedures. As just discussed, those procedures are part of the process

of establishing a claim. Once a claim is established, due process

requires permitting the individual an opportunity to establish that the

claim is not past due or legally enforceable (is not subject to

collection under FTROP). Due process does not require permitting a

second opportunity to challenge the substantive basis for the claim.

e. State Agency Action on Requests for Review. DEFRA requires at 31

U.S.C. 3720A(b)(3) that any evidence presented by debtors must be

considered and a determination made whether the debt is past-due and

legally enforceable. The IRS requires at 26 CFR 301.6402-6(d)(2) that

the participating agency notify the debtor of its decision. The August

1991 General Notice required in paragraph e(1) that when a State agency

examines documents or evidence submitted with a review request, it

determine whether the claim is past due and legally enforceable and

notify the individual of its decision in writing. Consistent with the

requirements concerning State agency action on review requests already

discussed, this rule proposes at Sec. 273.18(g)(5)(v)(A) that State

agencies act on all written requests for reviews received within the

60-day period for timely review requests, determine whether or not such

claims are past due and legally enforceable, and notify individuals in

writing of the result of such determinations.

Section 273.18(g)(5)(v)(B) of this rule proposes that the State

agency determine whether or not claims are past-due and legally

enforceable based on a review of its records and of documentation, and

evidence or other information the individual may submit. The provision

in the August 1991 General Notice at paragraph e(2) which contained

examples of types of documentation or evidence has been eliminated as

unnecessary.

During the test of FTROP State agencies indicated confusion about

whether they were required to respond to review requests which

contained inadequate or no documentation. To address this concern, this

rule proposes to add at Sec. 273.18(g)(5)(v)(C)(1) the requirement that

the decision letter advise the individual of the reason for the State

agency's decision, including the failure to provide adequate evidence

or documentation that the claim was not past due and legally

enforceable.

The August 1991 General Notice required in paragraph (e)(3)(i) that

if the State agency decides a claim is past-due and legally

enforceable, the State agency must inform the individual in its written

decision that it intends to refer the claim for offset. This rule would

make the same requirement at Sec. 273.18(g)(5)(v)(C)(2).

Information About FCS Reviews of State Agency Decisions: The IRS

regulations at 7 CFR 301.6402-6(d)(2) provide that if the review is

conducted by an agent of the Federal agency, in this case the State

agency, the individual must be accorded at least 30 days from the

agent's determination to request a review by the Federal agency. The

August 1991 General Notice required in paragraph e(3)(ii) that the

State agency's notice of decision inform the individual that he or she

is entitled to ask FCS to review the State agency's decision but that

FCS would not review such decisions if it received a request to do so

later than 30 days after the date of the State agency decision notice.

Consistent with the August 1991 General Notice, this rule proposes

to require at Sec. 273.18(g)(5)(v)(C)(3) that the State agency decision

advise that the individual has 30 days from the date of the State

agency decision to request that FCS review the State agency's decision.

If FCS review is timely requested, FCS will provide the individual a

written response stating its decision and the reasons for its decision.

Consistent with the IRS regulation cited just above, this rule also

proposes at Sec. 273.18(g)(5)(v)(C)(3) that individuals be advised that

the claim will not be referred for offset pending FCS review of the

State agency's decision.

The 1991 General Notice required in paragraph e(iii) that the State

agency decision: (1) advise the individual that a request for an FCS

review must include his or her SSN; (2) be sent to an FCS regional

office; and (3) provide the address of that office including a line

reading ``Tax Offset Review.'' The purpose of this requirement was to

help FCS obtain the correct records from the State agency, to provide

individuals the address to which to send their requests for FCS reviews

and to identify those requests to regional offices so that action could

be taken promptly. This rule would make that same requirement at

Sec. 273.18(g)(5)(v)(C)(4).

The August 1991 General Notice specified in paragraph e(4) that if

the State agency determines that the claim is not past-due or is not

legally enforceable, in addition to notifying the individual that the

claim will not be referred for offset, the State agency must take any

actions required by food stamp regulations with respect to establishing

claims and/or holding appropriate hearings, or other required recipient

claim actions. The purpose of this requirement was to make sure that

State agencies: (1) Corrected any errors in their processing of claims

in question; and (2) took actions to properly establish claims and to

initiate collection action. Aside from some editorial changes, this

rule proposes the same requirement at Sec. 273.18(g)(5)(v)(D).

The August 1991 General Notice specified in paragraph e(5) three

groupings for timely appealed claims which could not be referred for

offset. Guidance on treatment of the first group, claims which a State

agency determines are not past-due or are not legally enforceable, has

just been discussed. The third group is claims which FCS either

determines are not past due or not legally enforceable, or for which

FCS does not complete its review before State agency final files were

due. State agency action on these claims is discussed later in this

preamble in connection with the certification letter to FCS.

State Agency Reviews not Complete by October 31: The second of the

three groups is those claims for which the State agency does not

complete its review and notification to the [[Page 33622]] individual

at least 30 days prior to the deadline for the State agency to certify

its final file of claims for offset to FCS. The deadline for this final

file is in early December. During the test State agencies indicated

that they did not understand that if, for example, a review request was

received in mid-November, even if the State agency review determined

that the claim was past due and legally enforceable, it could not be

referred. These claims are not referable because there is not a 30-day

opportunity for the individual to appeal to FCS before the deadline for

the State agency to refer its final files to FCS. As explained above,

IRS regulations at 26 CFR 301.6402-6(d)(2) state that if the review is

conducted by an agent of the Federal agency (in this case, the State

agency), the individual must be accorded at least 30 days from the

agent's determination to request a review by the Federal agency.

To accommodate the schedule for State agency final files and the

30-day opportunity which must be provided individuals to request a

Federal-level review, this rule proposes at Sec. 273.18(g)(5)(v)(E)

that State agencies cannot refer for offset any claim for which a

review request is received unless, by October 31 preceding the offset

year, the State agency has completed its review of the claim,

determined that the claim is past due and legally enforceable, and

provided the individual with its decision. The Department believes that

this proposal will not have a major impact on the number of claims

referred for FTROP. During the test of FTROP most review requests were

received relatively early in the 60-day period provided for those

requests.

Some review requests will be received too late for the October 31

deadline but within the 60 days provided for timely review requests. As

during the test, such claims are not referable for offset in the

immediately upcoming offset year. In such situations State agencies

should review the request and provide individuals their decisions on

whether the claim is past due and legally enforceable and subject to

collection by tax refund offset. Such claims could then be included in

the processing cycles for the succeeding offset year.

f. FCS action on Appeals of State Agency Reviews. The August 1991

General Notice provided in paragraph f(1) that FCS would not review

State agency decisions on review requests when it received such

requests later than 30 days after the date of the State agency decision

on the original review. This rule proposes at Sec. 273.18(g)(5)(vi)(A)

that FCS act on all timely requests for FCS review of State agency

review decisions, and that such a request is timely if it is received

by FCS within 30 days of the date of the State agency review decision.

The August 1991 General Notice stated in paragraph f(2) that when

FCS received timely requests for reviews of State agency decisions, FCS

would either: (1) Complete the requested review and notify the State

agency and individual of its determination; or (2) notify the State

agency that FCS had not completed its review and that the State agency

must delete the claim from its final files certified to FCS for

referral for offset. This rule proposes the same actions at

Sec. 273.18(g)(5)(vi)(B). In addition, this rule proposes at

Sec. 273.18(g)(5)(vi)(B) that FCS provide funds to refund the charge

for the offset fee if FCS is late in notifying the State agency to

delete a claim, where FCS finds that the claim is not referable and the

claim is offset because of the late notification. For timely requests

for review received by FCS, where the State agency's decision is dated

after October 31 prior to the offset year, FCS will complete its review

and notification of the results of its review, but the claim shall not

be referred for offset in the immediately upcoming offset year, as

specified above. This proposal is found at Sec. 273.18(g)(5)(v)(E) and

Sec. 273.18(g)(5)(vi)(C).

The August 1991 General Notice stated in paragraph f(3) the

components of FCS reviews of State agency decisions on review requests.

Those components were: (1) Requesting documentation from the State

agency about the appeal; (2) determining the correctness of the State

agency decision; and (3) notifying the individual and State agency of

this determination. The August 1991 General Notice stated in paragraph

f(3)(iii)(A) that if FCS determined that the State agency was correct

(the claim was past due and legally enforceable), FCS would also notify

the individual that any further appeals must be made through the

courts. The August 1991 General Notice stated in paragraph f(3)(iii)(B)

that if FCS determined that the State agency determination that the

claim was past due and legally enforceable was incorrect, FCS would

request that the State agency take appropriate corrective action. This

rule would include these provisions, slightly modified, at

Sec. 273.18(g)(5)(vi)(D), (E) and (F). The rule proposes to specify the

types of documentation FCS would request from State agencies. These

items are consistent with the documentation State agencies would be

required to have in order for a claim to be considered referable for

collection through FTROP. The types of documentation are: printouts of

electronic records and/or copies of claim demand letters, results of

fair hearings, advance notices of disqualification hearings, results of

such hearings, records of payments, 60-day notices, the review requests

and documentation, decision letters, and pertinent records of such

things as telephone conversations.

g. Referral of Claims for Offset. The August 1991 General Notice

required in paragraph g(1) that State agencies comply with FCS

operating guidelines when submitting certified files of claims for tax

offset. As discussed earlier in this preamble, this rule proposes

replacing the requirement for compliance with operating guidelines with

the requirement that State agencies submit data in the format and

schedules provided by FCS. Accordingly, this rule at

Sec. 273.18(g)(5)(vii)(A) would require that State agencies submit

certified files by the date specified by FCS. The August 1991 General

Notice required in paragraph g(2) that, by the date specified in the

FCS guidelines, State agencies certify in writing to FCS that all

claims in the final files of claims meet the requirements for referral

under FTROP, including the issuance of all due-process notifications to

individuals. This rule proposes at Sec. 273.18(g)(5)(vii)(A) to require

this certification letter and statement. The letter and statement are

necessary because the IRS requires that Federal agencies provide the

IRS such letters and statements with their certified files. In

addition, this rule proposes at Sec. 273.18(g)(5)(vii)(A) to require

that the certification letter also state that the State agency has not

included in the certified file of claims any claim which, as provided

in paragraph (g)(5)(vi) of this section, FCS notified the State agency

is not past due or is not legally enforceable, or any claim for which

FCS notified the State agency that it has not completed its review.

As discussed earlier, the rule proposes to require that State

agencies state in the certification letter that their 60-day notice

complies with IRS and FCS requirements. State agencies must provide FCS

copies of the formats for these letters as required by current food

stamp regulations requiring submittal to FCS of State agency operating

guidelines and forms. (See 7 CFR 272.3(b)(2).)

The August 1991 General Notice required in paragraph g(3) that

State agencies provide the name, address and telephone number of State

agency contacts to be included in the notices of offset which IRS sends

taxpayers whose [[Page 33623]] refunds have been offset, and also

required that State agencies update that information if and when it

changed. This information is the ``Agency Address File.'' The IRS is

especially concerned that this information be accurate and requires

Federal agencies to specify how they determined that the information

provided for contacts is accurate. This rule proposes at section

273.18(g)(5)(vii)(B) that State agencies provide the contact

information, state in the certification letter how they determined that

the contact information was accurate and update the information as

necessary. The IRS also wants the contact telephone number to be toll-

free or collect, and the rule would make this a requirement.

h. State Agency Actions on Offsets Made. The August 1991 General

Notice required in paragraph h(1) that promptly after receiving notices

of offset from the IRS, State agencies were required to notify

individuals about offsets made and the resulting status of the claim.

The Department required this so that individuals would know the status

of the claim against them. State agencies were also required to

promptly refund any erroneous offsets made and to do so as close in

time as possible to the notice of offset. This rule proposes these same

requirements at Sec. 273.18(g)(5)(viii). In addition, that section

would require that State agencies inform individuals of the amount of

the offset collected to pay the offset fee.

The action group complained that the Department has not offered

procedures to compel a State agency to return funds that have been

wrongfully offset by the IRS. This is incorrect. Current food stamp

regulations at 7 CFR 273.18(i)(4) require that State agencies return

overpayments of claims as soon as possible after such overpayments

become known. To help clarify that the refund procedure for claim

overpayments under FTROP is the same as for other overpayments, the

proposed rule would cite that provision at Sec. 273.18(g)(5)(vii)(B).

In this regard, the action group cited the example of a debtor who has

successfully appealed the referral of a claim which is then erroneously

referred and offset. Should this happen, since the debtor would have

been notified about both the State agency decision and the offset, a

telephone call should be sufficient to bring the error to the State

agency's attention and to obtain a refund of the over collection.

Responsibility for Offset Fees for Erroneous Offsets: In the case

discussed in the preceding paragraph, the claim was referred and offset

because of a State agency error. In such cases, the Department believes

that the offset fee should be refunded to the individual and that the

cost of the fee should be considered an allowable administrative

expense of the State agency. Accordingly, this rule proposes at

Sec. 273.18(g)(5)(viii)(C) that if an over collection from an

individual's Federal income tax refund is due to the State agency

including in the certified file of claims required by

Sec. 273.18(g)(5)(vii)(A) a claim which does not meet the criteria

specified in Sec. 273.18(g)(5)(ii), such refund shall include any

amounts collected to pay for the offset fee charged by the IRS. The

section would further specify that the State agency may claim any such

amount as an allowable administrative cost under Part 277 of this

chapter. As a consequence of this provision, State agencies and FCS

would each pay fifty percent of the cost of these offset fees.

Further in regard to refunds of offset fees, under this proposed

rule the 60-day notice would advise individuals that spouses who are

not liable for recipient claims can prevent offsets against their share

of a tax refund by filing the appropriate form with the IRS when they

file their tax return. If they do so and the entire tax refund is

theirs, no offset will occur, and no administrative charge will be

incurred. If the appropriate IRS form is submitted after the tax return

is filed, an offset may occur. If it does, the IRS will refund the

collection to the non-liable spouse, including the administrative

charge. The IRS may refund offsets, including offset fees, to taxpayers

for reasons other than a non-liable spouse. In all cases of such IRS

refunds, the Department will pay the administrative charge, and the

amount of the claim will be charged to the State agency. Consequently,

this rule also proposes at Sec. 273.18(g)(5)(viii)(C) that State

agencies will not be responsible for refunding the charges for offset

fees incurred for IRS reversals of offsets when, for example, the IRS

refunds amounts offset, including offset fees, to taxpayers who

properly notified the IRS that they are not liable for claims which

were collected in whole or part from their share of a joint Federal

income tax refund. In cases where part of the tax refund due on a joint

tax return is attributable to an individual who is liable for the food

stamp claim, the liable individual's portion would be subject to offset

and the offset fee could be collected from the individual.

i. Monitoring and Reporting Offset Activities. The August 1991

General Notice required in paragraph i. that State agencies monitor

offset activities to accomplish the various requirements of the tax

offset program. Particular emphasis was given to the need for State

agencies to update IRS files by reducing the amounts of claims and

deleting claims to reflect voluntary payments and other events so that

IRS records would reflect the current status of the claim. This rule

proposes to make this a requirement at Sec. 273.18(g)(5)(ix)(A). This

rule also proposes at Sec. 273.18(g)(5)(ix)(B) that State agencies

monitor FTROP activities to assure that refunds of over collections are

made promptly.

During the test of FTROP State agencies were required to submit a

``management report'' with their certified files. The report provided

data to FCS on such things as numbers of 60-day notices sent and the

volume of informal inquiries. This rule proposes at

Sec. 273.18(g)(5)(ix)(C) to eliminate this report and instead require

that by the tenth of October of the year prior to the offset year State

agencies report in writing to the FCS regional office the number of 60-

day notices mailed and the total dollar value of associated claims. The

Department wants this information as a basis for measuring collections

through both voluntary repayments and offsets.

The rule proposes at Sec. 273.18(g)(5)(ix)(D) that State agencies

report on two matters as required by the IRS. State agencies

participating in the test of FTROP were required to make these reports,

and the information collection burdens associated with both were

included in the burden estimate discussed earlier in this preamble. One

reporting requirement relates to data security as required by the IRS

in its publication Tax Information Security Guidelines for Federal,

State and Local Agencies. Currently two reports are required. One is

the Safeguard Procedures Report, which State agencies are required to

submit in the initial year of their participation. The second is the

Safeguard Activity Report, which all State agencies are required to

submit annually. FCS provides State agencies copies of the IRS

publication just cited and guidance on annual due dates and related

matters. The IRS also requires quarterly reports of voluntary

collections. The rule would require that State agencies provide that

information as required by FCS. FCS provides State agencies the format

for this report.

During the test State agencies were required to report collections

under FTROP, both voluntary and by actual offset from tax refunds, on

the appropriate Form FCS-209, Status of Claims Against Households. This

rule would include that requirement at Sec. 273.18(g)(5)(ix)(E).

[[Page 33624]]

C. Federal Salary Offset

1. Authorities for Salary Offset

The Debt Collection Act of 1982 (Public Law 97-365), amended 5

U.S.C. 5514 to authorize Federal agencies to offset the salaries of

Federal employees who are delinquent on debts owed to the Federal

government. The Office of Personnel Management (OPM) implemented 5

U.S.C. 5514 by promulgating regulations at 5 CFR 550.1101-1108

(Collection by Offset from Indebted Government Employees). Pursuant to

5 U.S.C. 5514(b)(1), the Department promulgated regulations at 7 CFR

3.51 through 3.68 implementing salary offset. Departmental regulations

at 7 CFR 3.68 delegate to individual USDA agencies the authority to act

for the Secretary under those regulations and to issue regulations or

policies not inconsistent with the Departmental regulations and with

the OPM regulations. Section 13941 of the Omnibus Budget Reconciliation

Act of 1993 (Public Law 103-66, signed August 10, 1993) authorizes

disclosure of food stamp casefile information to Federal agencies for

purposes of collecting recipient claims (except those caused by State

agency errors) from Federal salaries.

A test of salary offset is currently being conducted under a

General Notice published August 29, 1994 at 59 FR 44400. Section

17(b)(1) of the Act (7 U.S.C. 2026(b)(1)) authorizes the Secretary to

conduct such projects to test program changes that might increase the

efficiency of the FSP. The provisions of this proposed rule relative to

salary offset are substantially the same as the provisions of the

August 1994 General Notice on salary offset. The Department intends to

use experience from the test of salary offset as well as comments on

this proposed rule in developing the final salary offset regulations.

Pursuant to Section 13 of the Act (7 U.S.C. 2022), and subject to

the standards of FSP regulations at 7 CFR 273.18, the authority to

settle claims against households has been delegated to State agencies

at 7 CFR 271.4(b). Food stamp coupons issued pursuant to the Act are

deemed to be obligations of the United States (7 U.S.C. 2024(d)). Under

these statutes and regulations, State agencies establish FSP recipient

claims, and collect and maintain records of those claims. State

agencies return amounts collected to the Federal government, less a

statutory ``retention amount'' established to encourage collection of

recipient claims (7 U.S.C. 2025(a)).

This rule proposes to incorporate the requirements of Departmental

regulations on salary offset (7 U.S.C. 3.51 et seq.), and to supplement

and modify these procedures to the extent necessary to accommodate the

position of State agencies as primarily responsible for establishing,

collecting and maintaining records on recipient claims. These additions

and modifications are consistent with OPM regulations on salary offset.

2. Overview of Salary Offset Procedures for the FSP

Under this proposed rule, salary offset would have three phases and

be operated on an annual cycle. In the first phase, FSP recipient

claims would be matched against records of all active Federal civilian

and military employees, including United States Postal Service (USPS)

employees. The recipient claims so matched would be compiled from lists

of recipient claims provided by State agencies as part of FTROP

procedures. The Federal employee records are maintained by the

Department of Defense (DoD) and the USPS. The match would identify

Federal employees and their employing agencies, and would provide

employee and employing agency addresses to FCS. This match would be

conducted in accordance with the Privacy Act of 1974, as amended (5

U.S.C. 552a). As required by that statute, the public has been advised

of this matching program by the publication of three General Notices. A

General Notice was published September 17, 1993 at 58 FR 48633 advising

the public of the systems of records involved. A second General Notice

was published March 1, 1994 at 59 FR 9733 advising the public of the

match with DoD. A third General Notice was published August 17, 1994 at

59 FR 42205 advising the public about the match with the USPS.

Recipient claims which these matches identify as obligations of Federal

employees will not be referred to the IRS for collection through FTROP.

During the second phase of food stamp salary offset procedures,

recipient claims identified in the match would be referred to State

agencies. After a review of their records to determine if those

recipient claims are still owed and if so their correct amounts, State

agencies would send the identified Federal employees advance notices of

salary offset (advance notices). The advance notice would provide these

individuals 30 days to voluntarily pay the claim or provide

documentation that all or part of the claim is not legally collectible.

Claims which are not paid, or for which replies are late or do not

provide adequate documentation, would be referred to the FCS National

Office for collection by salary offset.

In the third phase of salary offset, by means of a notice of

intent, FCS would notify Federal employees owing recipient claims

referred by State agencies that FCS intends to collect the debt from

the employees' salaries. The notice of intent would include information

about appeal rights, pertinent time frames and other information which

is required for that notice by Departmental regulations on salary

offset. Subject to the responses to notices of intent, FCS would

proceed with action to collect the debts. FCS would follow the

collection procedures in the Departmental rule on salary offset as

those procedures would be modified by this rule.

3. Discussion of Proposed Regulatory Provisions for Salary Offset

a. Claims Subject to Salary Offset. This rule proposes at

Sec. 273.18(g)(6)(i) that all claims submitted by State agencies

participating in FTROP would first be subject to the matching

procedures proposed in this rule. Those procedures would identify which

of those claims are owed by Federal employees. Individuals so

identified would be subject to the salary offset procedures proposed in

this rule in lieu of having their claims referred for collection under

FTROP. Consequently, all State agencies participating in FTROP would

also be required to participate in salary offset.

b. Identification of Recipient Claims Owed by Federal Employees.

The rule at Sec. 273.18(g)(6)(ii)(A) would specify the steps of phase

one of salary offset.

The Department wants to ensure that State agencies protect

information they receive from DoD and USPS from the time they receive

it. Consequently, at Sec. 273.18(g)(6)(ii)(B) this rule would provide

that when FCS receives Federal employment information for a particular

State agency, it would first notify the State agency in writing

accompanied by a data security and confidentiality agreement for the

State agency to sign and return. When that agreement is returned, FCS

would then provide the information to the State agency. Concurrently

with publication of this rule, FCS is providing State agencies a sample

notification letter with the language of the data security and

confidentiality agreement.

The matching of State agency recipient claims with DoD and USPS

data files would be conducted under the terms of Memorandums of

Agreement (Agreements) between USDA and DoD, and between USDA and the

USPS. The [[Page 33625]] Agreements require that if the records

obtained from DoD and the USPS are disclosed to a State or local

agency, those entities must agree in writing to abide by the data

security and confidentiality protection measures specified in the

Agreements. This rule at Sec. 273.18(g)(6)(ii)(C) would specify those

protection measures and require that State agencies extend them to any

contractors or other non-State agency entities to which the records may

be disclosed. The requirements are typical data security and usage

controls, and should require minimal State agency resources.

This rule would require at Sec. 273.18(g)(6)(ii)(D) that, prior to

taking additional action to collect claims from Federal employees,

State agencies must review those claims to verify the amount of the

recipient claim owed, and to remove any claims which have been paid,

are being paid or which for other reasons are not collectible through

salary offset. The rule would require this review to verify that the

individual identified in the match owes an FSP recipient claim and that

the amount of the claim is correct.

c. State Agency Advance Notice of Salary Offset. This rule proposes

to require at Sec. 273.18(g)(6)(iii)(A) that, following the review just

described, State agencies provide each Federal employee verified as

owing a recipient claim (debtor) with an advance notice of salary

offset (advance notice). This advance notice would provide the debtor

certain information about the recipient claim and would offer the

debtor an opportunity to pay the claim voluntarily. Although the debtor

would have been offered an opportunity to pay the claim voluntarily in

the initial claim demand letter required by food stamp regulations at 7

CFR 272.18(d)(3), the Department is proposing to provide a second

voluntary payment opportunity for several reasons. This opportunity

would offer debtors a way to repay recipient claims without involving

their employing agencies. It would provide State agencies a way to

collect such claims without the delay which salary offset entails.

Furthermore, recipient claims paid voluntarily to State agencies would

save the Federal government the administrative cost of the actual

salary offset.

The Department wants State agency collection efforts to proceed

promptly. Consequently, this rule proposes at Sec. 273.18(g)(6)(iii)(A)

that advance notices must be mailed or otherwise provided to debtors at

the addresses provided by FCS within 60 days of State agency receipt

from FCS of the list of recipient claims owed by Federal employees. The

addresses would be those which DoD and USPS would provide through the

matching program. The 60-day period should allow State agencies

sufficient time to integrate this task into related administrative

processes with the addition of minimal resources.

The rule proposes that recipient claims owed by Federal employees

who do not voluntarily pay them directly to the State agency in

response to the advance notice would be collected through salary

offset. Consequently, it proposes at Sec. 273.18(g)(6)(iii)(B) that

within 90 days of the date of the advance notice State agencies refer

to FCS all claims for which the State agency does not receive timely

and adequate response. The advance notice would allow debtors 30 days

to respond to State agencies. The 90-day period would give State

agencies 60 days beyond that time frame to refer claims to FCS. This

rule proposes that the referral from State agencies would consist of a

copy of the advance notice and copies of records relating to the claim.

This rule would specify that copies of records relating to the claim

would consist of copies of printouts of electronic records and/or

copies of claim demand letters, results of fair hearings, advance

notices of disqualification hearings, the results of such hearings,

records of payments, review requests and documentation, decision

letters, and pertinent records of such things as telephone

conversations. (This is substantially the same requirement which is

proposed for the documents State agencies must submit to FCS for

requests for FCS reviews of State agency decisions on referrals of

claims under FTROP.)

This rule specifies at Sec. 273.18(g)(6)(iii)(C) the proposed

content of the advance notice. (Concurrently with publication of this

rule, FCS is providing State agencies a sample format for the advance

notice.) First, at Sec. 273.18(g)(6)(iii)(C)(1) this rule proposes to

require that the advance notice state that, according to State agency

records, the debtor is liable for a recipient claim for a specified

dollar amount due to receiving excess food stamp benefits. State

agencies would be encouraged to include as much other information about

the claim as possible, including such things as whether the claim was

caused by household error or intentional Program violation, the date of

the initial demand letter, any hearings or court actions which related

to the claim and what, if any, payments have reduced the amount of the

original claim.

This rule proposes at Sec. 273.18(g)(6)(iii)(C)(2) that the advance

notice state that the debtor was found through a computer match to be

employed by a Federal agency and state the name and address of the

employing agency. The advance notice would also state that the computer

match was conducted according to procedures required by the Privacy Act

of 1974, as amended. This information would be required so that debtors

know the source of the information about their employment and that it

was obtained under authority of law.

This rule proposes at Sec. 273.18(g)(6)(iii)(C)(3) that the advance

notice further advise debtors that the authority to collect debts such

as food stamp recipient claims from Federal salaries is the Debt

Collection Act of 1982. The advance notice would also state that the

subject claim will be referred to FCS for such collection action

unless, within 30 days of the date of the advance notice, the State

agency receives payment in full or an acceptable installment payment on

the claim. With respect to payments, this rule proposes that the

advance notice state several things. First, claims of $50 or less must

be paid in full within 30 days or they will be referred to FCS for

collection from the debtor's Federal salary. Second, claims of more

than $50, if not paid in full within 30 days, must be paid in

installments of at least $50 a month, and debtors may pay more than $50

in any installment payment. Third, the advance notice must state the

monthly due date of installment payments for the claim and that if a

monthly installment payment of at least $50 is not received by the

monthly due date, the claim will be referred to FCS for salary offset

with no further opportunity to enter a voluntary repayment agreement.

(See sections 273.18(g)(6)(iii)(C)(3)(i), (ii) and (iii).)

This rule proposes at section 273.18(g)(6)(C)(4) that the advance

notice must also provide the name, address and a toll-free or collect

telephone number of a State agency contact (an individual or unit) for

payment and/or discussion of the claim. The 1994 General Notice on

salary offset did not require a toll-free or collect telephone number,

but the Department believes that such a number is necessary because

individuals owing recipient claims may live outside the State which

established the claim. State agencies could use the same number

provided individuals in the 60-day notice for FTROP.

The advance notice would also advise debtors that they may submit

documentation to State agencies [[Page 33626]] showing such things as

payment of all or part of the claim, or other circumstances which would

prevent collection. Second, unless the State agency receives such

documentation within 30 calendar days of the date of the advance notice

and the documentation clearly shows that the claim has been paid or is

not legally collectible, the State agency would refer the claim to FCS

for collection from the debtor's salary. Third, State agencies would

notify debtors in writing when claims will not be referred for

collection from salaries. Fourth, the advance notice would state that

debtors have the right to a formal appeal to FCS, and that notification

about how to make such an appeal is required and will be provided to

debtors before any collection action from salaries is taken. (See

Sec. 273.18(g)(6)(iii)(C)(5).)

d. State agency retention and reporting of collections. For

purposes of calculating amounts of collections which State agencies

retain, this rule proposes at Sec. 273.18(g)(6)(iv)(A) that all claims

collected under the salary offset provisions of this rule would be

treated as if they were collected by the State agency. Specifically,

this rule would provide that, for recipient claims paid voluntarily and

through salary offsets, State agencies would retain collections at the

rates specified at 7 CFR 273.18(h) for the appropriate reporting period

for Form FCS-209, Status of Claims Against Households. The rule would

also provide at Sec. 273.18(g)(6)(iv)(A) that from time to time as

volume warrants, FCS will provide reports and also transfer amounts

collected from salaries to State agencies. State agencies would include

the collections on the appropriate FCS-209 report. This rule would not

require that collections on salary offset claims be identified

separately on the FCS-209 from other collections of recipient claims.

The Department can determine the levels of such collections based on

the number and dollar values of claims which FCS refers to State

agencies and the number and dollar values of claims which State

agencies refer back to FCS because debtors do not respond or respond

inadequately to advance notices.

In this regard, the rule proposes at Sec. 273.18(g)(6)(iv)(B) that

if a debtor fails to make an installment payment, within 60 days of the

date the payment was due, State agencies would refer the claim to FCS,

reporting the default, the dollar amount collected and the balance due.

In the August 1994 General Notice initiating the test of salary offset,

this period is 90 days. The Department believes that 60 days should be

adequate for State agencies to refer claims to FCS when Federal

employees default on payments of them.

e. FCS Actions on Claims Referred by State Agencies. This rule

proposes at Sec. 273.18(g)(6)(v) that, subject to certain modifications

described below, Departmental procedures at 7 CFR 3.51-3.68 will apply

to claims referred by State agencies to FCS for salary offset.

Three additions would be made to the definitions set forth at 7 CFR

3.52. The term ``debts'' would be further defined to include recipient

claims established according to 7 CFR 273.18, and the terms ``State

agency'' and ``FCS'' would be defined as set forth in 7 CFR 271.2. (See

section 273.18(g)(6)(v)(A).)

The Departmental rules require that, using the Notice of Intent to

Offset Salary (notice of intent) set forth at 7 CFR 3.55, the

Department provide notice to the debtor 30 days prior to offsetting the

debtor's salary. This rule proposes at Sec. 273.18(g)(6)(v)(E) that

this procedure and the notice of intent specified at 7 CFR 3.55 be used

for FSP recipient claims as described below.

The provisions of the notice of intent are largely self-

explanatory. The notice of intent sets forth the amount of the debt and

the facts which gave rise to it, and describes how the actual offset

will be conducted, including the frequency and amount of salary

deductions. The notice of intent advises the debtor about the method

and time period for requesting a hearing and that a timely hearing

request will stay the collection proceedings. The notice of intent also

advises how the hearing will be conducted and the time frame for

issuance of decisions. It also advises the debtor of the penalties for

making or submitting any knowingly false or frivolous statements,

representations or evidence.

The rule proposes at Sec. 273.18(g)(6)(v) (B), (C), and (D) to

modify three sections of the notice of intent in order to apply that

notice to FSP recipient claims. First, 7 CFR 3.55(d) requires that the

notice of intent explain the Department's requirements regarding

payments of interest, penalties and administrative costs, unless such

payments are waived in accordance with 31 U.S.C. 3717 and 7 CFR 3.34.

These charges would be waived as explained in detail below.

Accordingly, the notice of intent for FSP recipient claims would not

include an explanation of these charges. Second, 7 CFR 3.55(e) requires

that the notice of intent explain the debtor's right to inspect and

copy Department records relating to the debt. As explained below, for

FSP recipient claims, the notice of intent would also include an

explanation of the right to request and receive copies of the records

from the Department, and a statement of the time for making such a

request which is established under 7 CFR 3.60(a). Third, 7 CFR 3.55(f)

requires that the Department's notice of intent advise the debtor of

the procedures for proposing a repayment agreement in lieu of salary

offset. As explained below, this explanation and procedure would not be

included in the FSP notice of intent.

Departmental regulations at 7 CFR 3.65 and 3.55(d) set forth the

procedures for charging interest, penalties, and administrative costs

for salary offset. As discussed above, this rule proposes at

Sec. 273.18(g)(5)(iv)(C) that the offset fee assessed by the IRS for

collections under FTROP be paid by the debtor out of funds collected

through FTROP. Other than in this proposed regulation, FSP regulations

do not authorize collection of interest, penalties or administrative

costs for FSP recipient claims. Accordingly, there are no

administrative mechanisms in place for the assessment and notice of

such charges. The Department believes that it would not be

administratively cost effective or feasible to establish such

mechanisms at this time but may consider them at some future date.

Therefore, pursuant to 7 CFR 3.34(c)(4), the Secretary has determined

that collection of such charges is not in the best interests of the

United States, and the rule proposes to waive collection of such

charges. Accordingly, as noted above, the FSP notice of intent would

not include an explanation of interest and related charges.

Departmental regulations at 7 CFR 3.60 set forth procedures for the

review of Departmental records relating to debts to be collected by

salary offset and provide that, upon a timely request, the Department

will permit debtors to inspect and copy those records. This rule

proposes at Sec. 273.18(g)(6)(v)(E)(1) that, for purposes of FSP salary

offset, the debtor may also request that the Department provide copies

of the records. The Department believes that this offer is appropriate

because these records will be located at the FCS National Office while

debtors are located throughout the country. The rule proposes that, for

their requests to be considered timely as provided in 7 CFR 3.60(a),

FCS must receive a letter requesting copies of the records (or

requesting an opportunity to inspect or copy the records) within 30

calendar days of the date of the FSP notice of intent. As stated above,

the notice of intent would advise debtors of these procedures and

deadlines.

Departmental salary offset regulations at 7 CFR 3.61 provide

debtors the [[Page 33627]] opportunity to propose a written repayment

agreement in lieu of salary offset, subject to approval by the

Secretary. OPM regulations at 5 CFR 550.1104(d)(6) provide that this

opportunity is not required if the debtor was previously provided such

an opportunity. Current FSP regulations at 7 CFR 273.18(g)(2) provide

that opportunity at the time of the initial demand letter on the

recipient claim. The State agency advance notice of salary offset would

offer a second such opportunity. Accordingly, this rule proposes at

Sec. 273.18(g)(6)(v)(E)(2) that the FSP notice of intent not offer

debtors an opportunity to enter into a written agreement to repay the

debt.

The remaining FSP salary offset procedures relate primarily to

hearings which debtors may request and to the procedures for the actual

offsets from salaries. These procedures would operate as set forth in

the Departmental regulations, and they are briefly described below.

The Departmental regulation at 7 CFR 3.56 provides that debtors

have 30 days to request a hearing on the existence or amount of the

claim, or on the proposed offset schedule (rate and frequency of

offset). The notice of intent advises the debtor what information

should be included in the request for a hearing, and states the basis

for accepting a late request. Section 3.57 provides that a hearing will

not be granted if the employee fails to request one as prescribed or

fails to appear at the hearing. Section 3.58 describes how hearings

will be conducted, and Section 3.59 specifies the format of written

hearing decisions.

The Departmental regulation at 7 CFR 3.62 provides that deductions

will begin either: (1) As stated in the notice of intent; (2) if a

hearing is requested, after a decision in favor of the Secretary; or

(3) through administrative offset upon the employee's retirement or

resignation as provided by 7 CFR 3.21 through 3.36. Section 3.63

provides that collections will be made in a lump sum or installments,

and will be by installments if the debtor cannot repay the debt in one

payment or the debt exceeds 15 percent of disposable pay for a pay

period. Section 3.64 provides that installments will be at established

pay intervals, bear a reasonable relationship to the size of the debt,

up to a maximum of 15 percent of disposable pay, and specifies the

types of pay (basic pay, incentive pay, etc.) which can be offset.

Section 3.66 provides that payment by salary offset will not be

interpreted as a waiver of any rights the debtor may have under 5

U.S.C. 5514. Section 3.67 provides for the refund of amounts

erroneously offset from salaries under certain conditions such as an

administrative or judicial order.

Effective Date

It is proposed that this rule would become effective 30 days after

publication of the final rule except that State agencies currently

participating in FTROP would be required to submit the amendment to the

Plan of Operation required at 7 CFR 272.2(d)(1)(xii) no later than 90

days after publication of that rule.

List of Subjects

7 CFR Part 271

Administrative practice and procedures, Food stamps, Grant

programs--social programs.

7 CFR Part 272

Alaska, Civil rights, Food stamps, Grant programs--social programs,

Reporting and recordkeeping requirements.

7 CFR Part 273

Administrative practice and procedure, Aliens, Claims, Food stamps,

Fraud, Grant programs--social programs, Penalties, Records, Reporting

and recordkeeping requirements, Social Security, Students.

Accordingly, 7 CFR parts 271, 272 and 273 are proposed to be

amended as follows:

PART 271--GENERAL INFORMATION AND DEFINITIONS

1. The authority citation for parts 271, 272 and 273 continues to

read as follows:

Authority: 7 U.S.C. 2011-2032.

2. In Sec. 271.2, the definition of Offset year is added in

alphabetical order to read as follows:

Sec. 271.2 Definitions

* * * * *

Offset year means the calendar year during which offsets may be

made to collect certain recipient claims from individuals' Federal

income tax refunds.

* * * * *

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

3. In Sec. 272.2, a new sentence is added to the end of paragraph

(a)(2) and a new paragraph (d)(1)(xii) is added to read as follows:

Sec. 272.2 Plan of operation.

(a) General Purpose and Content * * *

(2) Content. * * * The Plan's amendments shall also include the

commitment to conduct the optional Federal income tax refund offset

program and Federal salary offset program.

* * * * *

(d) Planning Documents.

(1) * * *

(xii) If the State agency chooses to implement the Federal income

tax refund offset program and the Federal salary offset program, the

Plan's attachments shall include a statement in which the State agency

states that it will comply with the provisions of Sec. 273.18 (g)(5)

and (g)(6) of this chapter.

* * * * *

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

4. In Sec. 273.18 new paragraphs (g)(5) and (g)(6) are added to

read as follows:

Sec. 273.18 Claims against households.

* * * * *

(g) Method of collecting payments. * * *

(5) Federal income tax refund offset program.

(i) General requirements. State agencies which choose to implement

the Federal income tax refund offset program (FTROP) shall:

(A) Submit an amendment to their Plan of Operation as specified in

Sec. 272.2(d)(1)(xii) of this chapter stating that they will comply

with the requirements for FTROP and with the requirements for the

Federal salary offset program (salary offset). Such amendments shall be

submitted to the appropriate FCS regional office no later than twelve

months before the beginning of a State agency's first offset year.

(B) Submit data for FTROP to FCS in the record formats specified by

FCS and/or the Internal Revenue Service (IRS), and according to

schedules and by means of magnetic tape, electronic data transmission

or other method specified by FCS.

(ii) Claims referable for offset. State agencies may submit for

collection from Federal income tax refunds recipient claims which are

past due and legally enforceable.

(A) Such claims must be:

(1) Only inadvertent household error claims or intentional Program

violation claims. These claims shall be properly established according

to the requirements of this section (which pertains to claims against

households), including the requirement that additional demand letters

be provided prior to initiating other collection actions as required by

paragraph (d)(4)(iii) of this section, and the

[[Page 33628]] requirements of section 273.16 (which pertains to

disqualification for intentional Program violations). In addition,

these claims shall be properly established no later than the date the

State transmits its final request for IRS addresses for the particular

offset year. Furthermore, the State agency shall have electronic

records and/or paper documents showing that the claim was properly

established. These records and documents include such items as claim

demand letters, results of fair hearings, advance notices of

disqualification hearings, results of such hearings, and records of

payments.

(2) Claims for which the State agency has verified that no

individual who is jointly and severally liable as specified in

paragraph (a) of this section is also currently participating in the

FSP in the State.

(3) Claims which meet at least the minimum dollar amount

established by the IRS.

(4) Claims for which the date of the initial demand letter is

within 10 years of January 31 of the offset year, except that claims

reduced to final court judgments ordering individuals to pay the debt

are not subject to this 10-year limitation.

(5) Claims for which the State agency is neither receiving

voluntary payments pursuant to an agreed upon schedule of payments as

provided in paragraph (g)(2) of this section nor is receiving

scheduled, involuntary payments such as wage garnishment. Claims for

which the State agency has received such payments are considered past

due and legally enforceable 30 days after the due date for a regular

payment which is not received.

(6) Claims for which collection is not barred by a bankruptcy.

(7) Claims for which the State agency has provided the individual

with all of the notification and opportunities for review as specified

in paragraphs (g)(5)(iii), (g)(5)(iv), (g)(5)(v) and (g)(5)(vi) of this

section.

(B) In addition:

(1) All claims to be submitted for collection under FTROP shall be

reduced by any amounts subject to collection from State income tax

refunds or from other sources which may result in collections during

the offset year.

(2) If a claim to be submitted for collection under FTROP is a

combination of two or more recipient claims, the date of the initial

demand letter for each claim combined shall be within the 10-year range

specified in paragraph (g)(5)(ii)(A)(4) of this section. Claims reduced

to judgment shall not be combined with claims which are not reduced to

judgment.

(3) If a claim to be submitted under FTROP is apportioned between

two or more individuals who are jointly and severally liable for the

claim pursuant to paragraphs (a) and (f) of this section, the sum of

the amounts submitted shall not exceed the total amount of the claim.

(iii) 60-Day notice to individuals. (A) Prior to referring claims

for collection under FTROP, the State agency shall provide individuals

from whom it seeks to collect such claims with a notice, called a 60-

day notice.

(B) With the exception of such State-specific information as names

and job titles and information required for State agency contacts, a

State agency's 60-day notice shall contain only the information

specified in paragraph (g)(5)(iv) of this section. In the certification

letter required in paragraph (g)(5)(vii) of this section, the State

agency shall include a statement that its 60-day notice conforms to

this requirement.

(C) Unless otherwise notified by FCS, the State agency shall mail

60-day notices for claims to be referred for collection through FTROP

no later than October 1 preceding the offset year during which the

claims would be offset.

(D) The State agency shall mail 60-day notices using the address

information provided by the IRS unless the State agency receives clear

and concise notification from the taxpayer that notices from the State

agency are to be sent to an address different from the address obtained

from the IRS. Such clear and concise notification shall mean that the

taxpayer has provided the State agency with written notification

including the taxpayer's name and identifying number (which is

generally the taxpayer's SSN), the taxpayer's new address, and the

taxpayer's intent to have notices from the State agency sent to the new

address. Claims for which 60-day notices addressed as required in this

paragraph are returned as undeliverable may be referred for collection

under FTROP.

(iv) Contents of the 60-day notice. The State agency's 60-day

notice shall state that:

(A) [Name of the State agency or an equivalent phrase] has records

documenting that you, [the name of the individual], Social Security

Number: [the individual's Social Security Number] are liable for [the

unpaid balance of the recipient claim(s) the State agency intends to

refer] resulting from overissued food stamp benefits. [The name of the

State agency or equivalent phrase] has previously mailed or otherwise

delivered demand letters notifying you about the claim, including the

right to a fair hearing on the claim, and has made any other required

collection efforts.

(B) The Deficit Reduction Act of 1984, as amended, authorizes the

Internal Revenue Service (IRS) to deduct such debts from tax refunds if

they are past due and legally enforceable. [Name of the State agency or

an equivalent phrase] has determined that your debt is past due and

legally enforceable as specified by the Deficit Reduction Act of 1984,

the IRS regulations, and Food Stamp Program (FSP) regulations. We

intend to refer the claim for deduction from your Federal income tax

refund unless you pay the claim within 60 days of the date of the

notice or make other repayment arrangements acceptable to us.

(C) If we refer your claim to the IRS, a charge for the

administrative cost of collection will be added to your claim and that

amount will also be deducted if the claim, or any portion of the claim,

is deducted from your tax refund.

(D) All adults who were household members when excess food stamp

benefits were issued to the household are jointly and severally liable

for the value of those benefits, and collection of claims for such

benefits may be pursued against all such individuals. Our records do

not show that the claim is being paid according to either a voluntary

agreement with us or through scheduled, involuntary payments.

(E) To pay the claim voluntarily or to discuss it, you should

contact: [an office, administrative unit and/or individual, the

contact's street address or post office box, and a toll-free or collect

telephone number].

(F) You are entitled to request a review of the intended collection

action. We must receive your request for review within 60 days of the

date of this notice. Such a request must be written, must be submitted

to the address provided in this notice and must contain your Social

Security Number. We will not refer your claim for offset while our

review is pending.

(G) The claim is not legally enforceable if a bankruptcy prevents

collection of the claim.

(H) You may want to contact your local office of the IRS before

filing your Federal income tax return. This is true where you are

filing a joint return, and your spouse is not liable for the food stamp

claim and has income and withholding and/or estimated Federal income

tax payments. In such circumstances your spouse may be entitled to

receive his or her portion of any joint refund. Your own liability for

this claim, including any charge for administrative costs, may still be

[[Page 33629]] collected from your share of such a joint refund.

(I) If you request a review of our intent to collect the claim from

your income tax refund, you should provide documentation showing that

at least one of the items listed below is incorrect for the claim cited

in this notice. If you do not have such documentation, for example a

cancelled check, you should explain in detail why you believe that the

claim is not collectible under FTROP.

(J) The claim cited in this notice is subject to collection from

your tax refund for the following reasons:

(1) The claim was properly established according to Food Stamp

Program regulations and was caused by an inadvertent household error or

an intentional Program violation;

(2) No individual who is jointly and severally liable for the claim

is also currently participating in the Food Stamp Program in [the name

of State initiating the collection action];

(3) The claim is for at least [the minimum dollar amount required

by the IRS];

(4) The date of the initial demand letter for the claim is within

10 years of January 31, [the offset year]. If the claim was reduced to

a final court judgment ordering you to pay the debt, this 10-year

period does not apply, and the date of the initial demand letter may be

older than 10 years; and

(5) We are neither receiving voluntary payments pursuant to an

agreed upon schedule of payments as provided in current Food Stamp

Program regulations nor are we receiving scheduled, involuntary

payments such as wage garnishment. Claims are considered past due and

legally enforceable for collection from Federal income tax refunds 30

days after the due date for such a regular payment which is not

received.

(K) In addition, collection of the claim is not barred by

bankruptcy.

(v) State agency action on requests for review. (A) For all written

requests for review received within 60 days of the date of the 60-day

notice, the State agency shall determine whether or not the subject

claims are past due and legally enforceable, and shall notify

individuals in writing of the result of such determinations.

(B) The State agency shall determine whether or not claims are past

due and legally enforceable based on a review of its records, and of

documentation, evidence or other information the individual may submit.

(C) If the State agency decides that a claim for which a review

request is received is past due and legally enforceable, it shall

notify the individual that:

(1) The claim was determined past due and legally enforceable, and

the reason for that determination. Acceptable reasons for such a

determination include the individual's failure to provide adequate

documentation that the claim is not past due or legally enforceable;

(2) The State agency intends to refer the claim to the IRS for

offset;

(3) The individual may ask FCS to review the State agency decision.

FCS must receive the request for review within 30 days of the date of

the State agency decision. FCS will provide the individual a written

response to such a request stating its decision and the reasons for its

decision. The claim will not be referred to the IRS for offset pending

the FCS decision; and

(4) A request for an FCS review must include the individual's SSN

and must be sent to the appropriate FCS regional office. The State

agency decision shall provide the address of that regional office,

including in that address the phrase ``Tax Offset Review.''

(D) If the State agency determines that the claim is not past due

or legally enforceable, in addition to notifying the individual that

the claim will not be referred for offset, the State agency shall take

any actions required by food stamp regulations with respect to

establishing the claim, including holding appropriate hearings and

initiating collection action.

(E) The State agency shall not refer for offset a claim for which a

timely State agency review request is received unless by October 31

preceding the offset year the State agency determines the claim past

due and legally enforceable, and notifies the individual of that

decision as specified in paragraphs (g)(5)(v)(C)(1), (g)(5)(v)(C)(2)

and (g)(5)(v)(C)(3) of this section.

(vi) FCS action on appeals of State agency reviews.

(A) FCS shall act on all timely requests for FCS reviews of State

agency review decisions as specified in paragraph (g)(5)(v)(C) of this

section. A request for FCS review is timely if it is received by FCS

within 30 days of the date of the State agency's review decision.

(B) If a timely request for FCS review is received, and the State

agency's decision is dated on or before October 31 of the year prior to

the offset year, FCS shall:

(1) Complete a review and notification as specified in paragraphs

(g)(5)(vi)(D), (g)(5)(vi)(E), and (g)(5)(vi)(F) of this section,

including providing State agencies and individuals the required

notification of its decision; or

(2) Notify the State agency that it has not completed its review

and that the State agency must delete the claims in question from files

to be certified to FCS according to paragraph (g)(5)(vii) of this

section. If FCS fails to timely notify the State agency and because of

that failure a claim is offset which FCS later finds does not meet the

criteria specified in paragraph (g)(5)(ii) of this section, FCS will

provide funds to the State agency for refunding the charge for the

offset fee.

(C) If a timely request for FCS review is received, and the State

agency's decision is dated after October 1 of the year prior to the

offset year, FCS shall complete a review as specified in paragraphs

(g)(5)(vi)(D), (g)(5)(vi)(E) and (g)(5)(vi)(F) of this section, but the

claim shall not be referred for offset as specified in paragraph

(g)(5)(v)(E) of this section.

(D) When FCS receives an individual's request to review a State

agency decision, FCS shall:

(1) Request pertinent documentation from the State agency about the

claim. Such documentation shall include such things as printouts of

electronic records and/or copies of claim demand letters, results of

fair hearings, advance notices of disqualification hearings, the

results of such hearings, records of payments, 60-day notices, review

requests and documentation, decision letters, and pertinent records of

such things as telephone conversations; and

(2) Decide whether the State agency correctly determined the claim

in question is past due and legally enforceable.

(E) If FCS finds that the State agency correctly determined that

the claim is past due and legally enforceable, FCS will notify the

State agency and individual of its decision, and the reason(s) for that

decision, including notice to the individual that any further appeal

must be made through the courts.

(F) If FCS finds that the State agency incorrectly determined that

the claim is past due and legally enforceable, FCS will notify the

State agency and individual of its decision, and the reason(s) for that

decision. FCS will also notify the State agency about any corrective

action the State agency must take with respect to the claim and related

procedures.

(vii) Referral of claims for offset. (A) State agencies shall

submit to FCS a certified file of claims for collection through FTROP

by the date specified by FCS in schedules which FCS will provide as

stated in paragraph (g)(5)(i) [[Page 33630]] of this section. At the

same time State agencies shall also provide to their FCS regional

office a letter which specifically certifies that all claims contained

in that certified file meet the criteria for claims referable for FTROP

as specified in paragraph (g)(5)(ii) of this section, and that for all

such claims a notice and opportunity to request a review as required in

paragraphs (g)(5)(iii), (g)(5)(iv), (g)(5)(v) and (g)(5)(vi) of this

section have been provided. The certification letter shall also state

that the State agency has not included in the certified file of claims

any claim which, as provided in paragraph (g)(5)(vi) of this section,

FCS notified the State agency is not past due or is not legally

enforceable, or any claim for which FCS notified the State agency that

it has not completed a timely requested review, or for which the State

agency has not completed a timely requested review. Finally, the

certification letter shall also state that with the exception of State-

specific information such as names and positions and State-specific

information required for State agency contacts, the State agency's 60-

day notice contains only the information specified in paragraph

(g)(5)(iv) of this section.

(B) The State agency shall provide to FCS the name, address and

toll-free or collect telephone numbers of State agency contacts to be

included in IRS notices of offset. State agencies shall state in the

letter required in paragraph (g)(5)(vii)(A) of this section how they

determined that such information is accurate and shall provide FCS

updates of that information if and when that information changes.

(viii) State agency actions on offsets made. (A) Promptly after

receiving notice from FCS that offsets have been made, the State agency

shall notify affected individuals of offsets made, including the amount

charged for offset fees, and the status of the claims in question.

(B) As close in time as possible to the notice of offset required

in paragraph (g)(5)(viii)(A) of this section, the State agency shall

refund to the individual (as required by paragraph (i)(4) of this

section) any over collection which resulted from the offset of the

individual's Federal income tax refund.

(C) If an offset results from a State agency including in the

certified file of claims required by paragraph (g)(5)(vii)(A) of this

section a claim which does not meet the criteria specified in paragraph

(g)(5)(ii) of this section, the State agency shall refund the amount

offset to the individual, including any amounts collected to pay for

the offset fee charged by the IRS. The State agency may claim any such

latter amount as an allowable administrative cost under Part 277 of

this chapter. The State agency shall not be responsible for refunding

any portion of the charges for offset fees incurred for IRS reversals

of offsets when, for example, the IRS refunds amounts offset, including

offset fees, to taxpayers who properly notified the IRS that they are

not liable for claims which were collected in whole or part from their

share of a joint Federal income tax refund.

(ix) Monitoring and reporting offset activities. State agencies

shall monitor FTROP activities and shall take all necessary steps to:

(A) Update IRS files, reducing the amounts of or deleting claims

from those files to reflect payments made after referral to FCS, or

deleting claims which for other reasons no longer meet the criteria for

being collectible under FTROP.

(B) Promptly refund to the individual any over collection of claims

as required in paragraph (g)(5)(viii)(B) of this section.

(C) Annually and no later than the tenth of October of the year

prior to the offset year report in writing to the FCS regional office

the number of 60-day notices mailed and the total dollar value of the

claims associated with those notices.

(D) Submit data security and voluntary payment reports as required

by FCS and the IRS.

(E) Report collections of all recipient claims collected under the

procedures of paragraph (g)(5) of this section on the appropriate Form

FCS-209, Status of Claims Against Households, as required by paragraph

(i)(2) of this section.

(6) Federal salary offset program.

(i) Claims subject to salary offset. All recipient claims submitted

by State agencies participating in the Federal income tax refund offset

program (FTROP) shall be subject to the matching procedures specified

in this paragraph. Individuals identified by the match shall be subject

to the salary offset procedures specified in this paragraph.

(ii) Identification of recipient claims owed by Federal employees.

(A) FCS will match all recipient claims submitted by State agencies

participating in FTROP against Federal employment records maintained by

the Department of Defense (DoD) and the United States Postal Service

(USPS). FCS will remove recipient claims matched during this procedure

from the list of recipient claims to be referred to the Internal

Revenue Service (IRS) for collection through FTROP.

(B) When FCS receives a list of Federal employees matched against

recipient claims for a particular State agency, it will notify the

State agency in writing accompanied by a data security and

confidentiality agreement containing the requirements specified in

paragraph (g)(6)(ii)(C) of this section for the State agency to sign

and return. When that agreement is returned, signed by an appropriate

official of the State agency, FCS will provide the list of matched

Federal employees to the State agency.

(C) State agencies which receive lists of matched employees shall

take the actions specified in this paragraph to ensure the security and

confidentiality of information about those employees and their apparent

debts, and shall ensure that any contractors or other non-State agency

entities to which the records may be disclosed also take these actions:

(1) By such means as card keys, identification badges and security

personnel, limit access to computer facilities handling the data to

persons who need to perform official duties related to the salary

offset procedures. By means of a security package, limit access to the

computer system itself to such persons;

(2) During off-duty hours, keep magnetic tapes and other hard copy

records of data in locked cabinets in locked rooms. During on-duty

hours, maintain those records under conditions that restrict access to

persons who need them in connection with official duties related to

salary offset procedures;

(3) Use the data solely for salary offset purposes as specified in

paragraph (g)(6) of this section, including not extracting, duplicating

or disseminating the data except for salary offset purposes;

(4) Retain the data only as long as needed for salary offset

purposes as specified in paragraph (g)(6) of this section, or as

otherwise required by FCS;

(5) Destroy the data by shredding, burning or electronic erasure;

and

(6) Advise all personnel having access to the data about the

confidential nature of the data and their responsibility to abide by

the security and confidentiality provisions stated in paragraph

(g)(6)(ii)(C) of this section.

(D) Prior to taking any action to collect recipient claims as

specified in paragraph (g)(6)(iii) of this section, State agencies

shall review the claims records of matched Federal employees to verify

the amount of the recipient claim owed, and to remove from the list of

claims any recipient claims which have been paid, which are being paid

according to [[Page 33631]] an agreed to schedule, or which for other

reasons are not collectible.

(iii) State agency advance notice of salary offset. (A) Following

the review specified in paragraph (g)(6)(ii)(D) of this section, State

agencies shall provide each Federal employee verified as owing a

recipient claim (debtor) with an advance notice of salary offset

(advance notice). This advance notice shall be mailed to the debtor at

the address provided by FCS, or shall be otherwise provided, within 60

days of State agency receipt of the list specified in paragraph

(g)(6)(ii)(B) of this section.

(B) Within 90 days of the date of the advance notice, the State

agency shall refer to FCS all claims for which the State agency does

not receive timely and adequate response as specified in the advance

notice. Such referrals shall consist of a copy of the advance notice

sent to the debtor and copies of records relating to the recipient

claim. Records relating to the recipient claims include such things as

copies of printouts of electronic records and/or copies of claim demand

letters, results of fair hearings, advance notices of disqualification

hearings, the results of such hearings, records of payments, review

requests and documentation, decision letters, and pertinent records of

such things as telephone conversations.

(C) The advance notice shall state that:

(1) According to State agency records the debtor is liable for a

claim for a specified dollar amount due to receiving excess food stamp

benefits. State agencies are encouraged to include as much other

information about the claim as possible, including such things as

whether it was caused by household error or intentional Program

violation, the date of the initial demand letter, any hearings or court

actions which relate to the claim, and what, if any, payments have

reduced the amount of the original claim;

(2) Through a computer match the debtor was found to be employed by

[the name and address of the employing agency of the debtor]. The

computer match was conducted under the authority of and according to

procedures required by the Privacy Act of 1974, as amended;

(3) Collection from the wages of Federal and USPS employees for

debts such as food stamp recipient claims is authorized by the Debt

Collection Act of 1982. The claim will be referred to FCS for such

collection action unless within 30 days of the date of the advance

notice the State agency receives either:

(i) Payment of the claim in full. Claims of $50 or less shall be

paid in full within 30 days or they will be referred to FCS for

collection from the individual's Federal salary; or

(ii) The first installment payment for the claim. Claims of more

than $50, if not paid in full within 30 days, must be paid in

installments of at least $50 a month. Debtors may pay more than $50 on

any installment payment. The advance notice shall state the monthly due

date of installment payments and that if a monthly installment payment

of at least $50 is not received by the due date, the claim will be

referred to FCS for offset from the individual's Federal salary with no

further opportunity to enter a voluntary repayment agreement;

(4) The name, address and a toll-free or collect telephone number

of a State agency contact (an individual or unit) for repayment and/or

discussion of the claim; and

(5) Debtors may submit documentation to State agencies showing such

things as payments of claims or other circumstances which would prevent

collection of claims. Unless the State agency receives such

documentation within 30 calendar days of the date of the advance notice

and the documentation clearly shows that the claim has been paid or is

not legally collectible, the State agency shall refer the claim to FCS

for collection from the debtor's salary. The State agency shall notify

debtors in writing when claims for which an advance notice was issued

will not be referred for collection from salaries. Debtors have the

right to a formal appeal to FCS. Notification about how to make such

appeals is required and will be provided to debtors before any

collection action from salaries is taken.

(iv) State agency retention and reporting of collections. (A) State

agencies shall retain collections of recipient claims paid voluntarily

to State agencies and to FCS through salary offsets at the rates

specified in paragraph (h) of this section for the appropriate

reporting period for Form FCS-209, Status of Claims Against Households.

From time to time as volume warrants, FCS will report and transfer

amounts collected from salaries to State agencies. Collections by State

agencies and by FCS on all such claims shall be included on the

appropriate FCS-209.

(B) If a debtor fails to make an installment payment, within 60

days of the date the payment was due, State agencies shall refer the

claim to FCS, reporting the default, the dollar amount collected and

the balance due.

(v) FCS actions on claims referred by State agencies. Departmental

procedures at 7 CFR 3.51-3.68 shall apply to claims referred by State

agencies to FCS as required by paragraphs (g)(6)(iii)(B) and

(g)(6)(iv)(B) of this section subject to the following modifications:

(A) In addition to the definitions set forth at 7 CFR 3.52, the

term ``debts'' shall further be defined to include recipient claims

established according to this section; and the terms ``State agency''

and ``FCS'' shall be defined as set forth in section 271.2 of this

chapter.

(B) Pursuant to 7 CFR 3.34(c)(4) and 7 CFR 3.55(d), the Secretary

has determined that collection of interest, penalties and

administrative costs provided at 7 CFR 3.65 is not in the best

interests of the United States and hereby waives collection of such

charges.

(C) In addition to providing the right to inspect and copy

Departmental records as specified at 7 CFR 3.60(a), the Secretary shall

provide copies of records relating to the debt in response to timely

requests. For a request to be timely, FCS must receive it within 30

calendar days of the date of the notice of intent.

(D) Pursuant to 5 CFR 550.1104(d)(6), an opportunity to establish a

written repayment agreement provided at 7 CFR 3.61 shall not be

provided.

(E) The notice of intent for FSP salary offset shall comply with

the requirements of the Departmental notice of intent which are set

forth at 7 CFR 3.55, subject to the following modifications:

(1) In addition to the statement that the debtor has the right to

inspect and copy Departmental records relating to the debt, the notice

of intent shall state that if timely requested by the debtor, the

Secretary shall provide the debtor copies of such records. It shall

further advise, as required by 7 CFR 3.60(a), that to be timely such

requests must be received within 30 days of the date of the notice of

intent; and

(2) The statement of the right to enter a written repayment

agreement provided by 7 CFR 3.55(f) shall not be included.

* * * * *

Dated: June 23, 1995.

Ellen Haas,

Under Secretary for Food, Nutrition and Consumer Services.

[FR Doc. 95-15887 Filed 6-27-95; 8:45 am]

BILLING CODE 3410-30-U