Offset of Tax Refund Payments To Collect Past-Due Support

SUMMARY: Federal law authorizes the Federal tax refund of a taxpayer

who owes past-due support to be reduced, or offset, by the amounts owed

by the taxpayer. Past-due support includes delinquent child support or

other obligations for the support of a child. The funds offset from a

taxpayer's tax refund are forwarded to the State enforcing the

collection of the past-due support. Effective January 1, 1999, the

Department of the Treasury will conduct the tax refund offset program

as part of the centralized offset program, known as the Treasury Offset

Program, operated by the Financial Management Service (FMS), a bureau

of the Department of the Treasury. This final rule establishes tax

refund offset procedures that supersede the procedures governing the

tax refund offset program established by the Internal Revenue Service

(IRS) and applicable to the collection of past-due support (codified at

26 CFR 301.6402-5). Differences between this rule and the IRS rule

reflect requirements necessitated by the inclusion of the tax refund

offset program as a part of the Treasury Offset Program.

EFFECTIVE DATE: December 30, 1998.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program

Specialist, at (202) 874-6660; or Ronda Kent or Ellen Neubauer, Senior

Attorneys, at (202) 874-6680. A copy of this rule is being made

available for downloading from the Financial Management Service web

site at the following address: http://www.fms.treas.gov/debt.

SUPPLEMENTARY INFORMATION:

Background

General

Under 26 U.S.C. 6402(c) and 42 U.S.C. 664, Federal tax payments may

be withheld or reduced to collect past-due support on behalf of States.

This process is known as ``offset'' or ``tax refund offset.'' The

Internal Revenue Service (IRS) has been collecting past-due support for

States by tax refund offset since 1982. ``Past-due support'' means the

amount of support, determined under a court order, or an order of an

administrative process established under State law, for support and

maintenance of a child, or of a child and the parent with whom the

child is living, which has not been paid.

The Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-

134, 110 Stat. 1321, 1358 (1996), established a centralized process for

offsetting eligible nontax Federal payments to collect delinquent debt

owed to the United States. In addition, the DCIA authorized offset of

such payments to collect past-due support being enforced by States, as

well as other debts owed to States.

The Financial Management Service (FMS), the disbursing agency of

the Department of the Treasury (Treasury), is responsible for the

implementation of centralized offset in accordance with the provisions

of the DCIA. To meet this responsibility, FMS established the

``Treasury Offset Program.'' To improve the efficiency of Treasury's

collection of debts, including past-due support, operation of the tax

refund offset program will be included as part of the Treasury Offset

Program effective January 1, 1999. The provisions and legislative

history of the DCIA clarified that FMS may conduct tax refund offsets

to collect past-due support (see Secs. 31001(v)(2) of the DCIA,

codified at 42 U.S.C. 664(a); 142 Cong. Rec., 104th Cong. 2d Sess.,

H4087, H4090 (Apr. 25, 1996)).

On August 4, 1998, FMS issued a notice of proposed rulemaking

(NPRM) (63 FR 41688, August 4, 1998) proposing changes to the tax

refund offset procedures for the collection of past-due support after

January 1, 1999. For tax refund payments after January 1, 1999, the

revised procedures, as finalized in this rule, supersede the procedures

governing the tax refund offset program established by the IRS and

applicable to the collection of past-due support (codified at 26 CFR

301.6402-5).

This rule governs only the offset of one type of payment, tax

refunds, to pay one type of delinquent debt, past-due support. FMS has

promulgated separate rules and procedures governing other types of

offset, such as tax refund offset for the collection of debts owed to

the Federal Government (31 CFR 285.2, 63 FR 46139, August 28, 1998) and

the offset of nontax Federal payments for the collection of past-due

child support (31 CFR 285.1, 63 FR 46141, August 28, 1998). See also,

Offset of Federal Benefit Payments (31 CFR 285.4, 63 FR 44985, August

21, 1998) and Salary Offset (31 CFR 285.7, 63 FR 23354, April 28,

1998). FMS will promulgate other rules governing offset of nontax

Federal payments for the collection of debts (other than child support)

owed to Federal agencies and States. FMS anticipates that Part 285 of

this title ultimately will contain all of the provisions relating to

centralized offset by disbursing officials for the collection of debts

owed to the Federal Government and to State governments, including

past-due child support being enforced by States.

The Treasury Offset Program

The Treasury Offset Program currently works as follows. FMS

maintains a delinquent debtor database. The database contains

delinquent debtor information submitted and updated by Federal agencies

owed debts, and by States collecting debts including any past-due

support being enforced by States. Before a Federal payment is disbursed

to a payee, FMS compares the payee information with debtor information

in the delinquent debtor database operated by FMS. If the payee's name

and taxpayer identifying number (TIN) match the name and TIN of a

debtor, the payment is offset, in whole or part, to satisfy the debt,

to the extent allowed by law. Since FMS issues different payment types

daily, the collection of past-due support can be satisfied by the

offset of a variety of Federal payment types including, but not limited

to, vendor, salary, and retirement payments, as well as tax refund

payments.

FMS transmits amounts collected to the appropriate agencies or

States owed the delinquent debt after deducting a fee charged to cover

the cost of the offset program. Information about a delinquent debt or

past-due support obligation remains in the debtor database for offset

as long as the debt remains past-due and legally collectible by offset,

or until debt collection activity for the debt is terminated because of

full payment, compromise, write-off or other reasons justifying

termination or removal of the debt from the database.

Offset of Tax Refund Payments To Collect Past-Due Child Support Under

the Treasury Offset Program

This rule establishes tax refund offset procedures that supersede

the procedures governing the tax refund offset program established by

the IRS and applicable to the collection of past-due support (codified

at 26 CFR 301.6402-5). Tax refund payments issued after January 1,

1999, will be offset to collect past-due support as part of the

Treasury Offset Program in accordance with the requirements of 26

[[Page 72093]]

U.S.C. 6402(c) and 42 U.S.C. 664. Procedures for processing claims by

non-debtor spouses and for rejecting a taxpayer's election to apply his

or her refund to future tax liabilities remain governed by IRS rules.

In addition, nothing in this rule changes the pre-offset procedures

established by the Department of Health and Human Services (HHS) rules

implementing 42 U.S.C. 664. See 45 CFR 303.72. HHS issued guidance to

all States on July 6, 1998, concerning the procedures for States to

submit past-due support debts for offset purposes, including procedures

pertaining to the debt certification process. See Office of Child

Support Enforcement (OCSE) Action Transmittal No. OCSE-AT-98-17 (OCSE's

AT-98-17).

The preamble to the NPRM explained the proposed process of

offsetting tax refund payments to collect past-due support under the

Treasury Offset Program, as well as the differences between the

proposed procedures and the IRS procedures. The NPRM also contained a

section-by-section analysis of the proposed rule. (See 63 FR 41688-

41691)

FMS developed this final rule in consultation with the IRS and HHS

and appreciates their assistance. As required by 42 U.S.C. 664(b)(1),

HHS has approved this final rule.

Comments to the NPRM

In response to the NPRM, FMS received comments from seven (7) State

child support enforcement agencies which are discussed below.

General Comments

In response to a commenter's request that the regulation clarify

that States cannot submit debts directly to FMS for tax refund offset

purposes unless authorized by HHS rules, Sec. 285.3(c)(3) has been

revised in the final rule by adding the following first sentence:

``States must notify HHS of past-due support in accordance with the

provisions of paragraph (c)(2) of this section unless HHS rules

authorize notification to FMS directly.'' Though this rule provides

States with the flexibility to refer past-due support debts directly to

FMS, current HHS rules governing programs under Chapter 7, Subchapter

IV, Part D, of title 42 of the U.S. Code (Title IV-D of the Social

Security Act), require States to report past-due support debts to HHS

for tax refund offset purposes. This rule does not supersede existing

HHS rules; it merely provides flexibility should HHS decide to amend

its rules in the future to allow States to refer past-due support debts

directly to FMS. States will be notified if HHS amends its rules to

allow direct submission to FMS. At that time, as suggested by one

commenter, HHS and FMS will work with States to review any impact

direct submission may have on the States.

Another commenter asked whether FMS would require States to use

administrative offset if HHS rules allowed States to submit debts

directly to FMS. FMS has no plans to implement such a requirement. In

response to another commenter's question regarding submission of debts

to FMS, FMS will allow States to increase balances on debts and to

submit debts on an on-going basis throughout the year for debts

submitted through HHS or directly to FMS.

Section 285.3(a)--Definitions

State. The public was specifically invited to comment on the impact

of including or excluding legal subdivisions of States in the

definition of State. Based on two comments received and discussions

with HHS regarding current procedures for county reporting, FMS

determined that the definition of State in the NPRM would not create an

impediment to the collection of past-due support. Counties seeking to

participate in the offset program may do so by reporting through the

State's IV-D program. Therefore, the definition of ``State'' was not

changed to include legal subdivisions.

The public also was invited to comment about whether tribal

governments operating child support enforcement programs should be

treated in the same manner as States for purposes of this rule. One

commenter noted that treating tribal governments operating child

support enforcement programs in the same manner as States is consistent

with the definition of State as defined in section 101, paragraph (19)

of the Uniform Interstate Family Support Act. For the time being, it is

anticipated that States will continue to submit past-due support debts

to the tax refund offset program pursuant to cooperative agreements

with tribal governments. Therefore, the final rule has not been

changed. OCSE is in consultation with the tribes and States and will

formulate policy on this issue as it becomes appropriate. OCSE will

keep the public advised.

Section 285.3(c)--Notification of Past-Due Support

One commenter questioned why the minimum debt referral amount in

Sec. 285.3(c)(1) was different for debts assigned to a State ($25) than

for debts not assigned to a State ($500). Federal law prohibits the use

of tax refund offset for non-assigned past-due support debts less than

$500. See 42 U.S.C. 664(b)(2)(A). There is no similar statutory minimum

dollar threshold for past-due support debts assigned to a State.

Another State questioned whether the $25 minimum for assigned debts

would create confusion since HHS rules currently set a minimum

threshold of $150. FMS has set minimum thresholds as low as possible in

order to maximize the collection of past-due support debts through

offset. Until States are authorized by HHS to submit debts in Title IV-

D cases at a lower threshold, the current minimum threshold set by HHS

is applicable. Section 285.3(c)(1)(i)(A) has been revised to allow

referral of assigned debts not less than $25, or such higher amount as

HHS rules may allow, whichever is greater.

FMS received several comments related to the advance notice

requirements described in paragraphs (c)(4) and (c)(5) of Sec. 285.3.

HHS rules (see 45 CFR 303.72(e) and OCSE's AT-98-17) describe the

requirements pertaining to providing advance notice to the debtors of

the State's intent to submit a debt for offset. Since HHS rules govern

advance notice requirements, the final rule does not incorporate one

commenter's suggestion that the regulation be revised to clarify that a

one-time notice to a debtor, rather than an annual notice, is

sufficient in all cases. HHS' rules allow States to determine

specifically how frequently advance notice will be provided.

Additionally, OCSE's AT-98-17 indicates that because the amount of the

debt may exceed the amount originally indicated in the notice, States

are encouraged to send periodic notices, especially where there are

significant increases in the amount of the debt. In response to other

comments, the first sentence of Sec. 285.3(c)(4) in the final rule has

been changed to clarify that, as authorized by 45 CFR 303.72(e), HHS

may send advance notice to the debtor on behalf of a State. Currently,

FMS has no plans to send advance notices to debtors on behalf of a

State.

With respect to the collection of past-due support enforced by

multiple States as described in Sec. 285.3(c)(6), one commenter

suggested that FMS and/or HHS inform States via reports when multiple

States are enforcing the same debt. When a debt is being enforced by

multiple States, the rule requires notification to the other enforcing

State only if a State has knowledge of such multiple enforcement. HHS

and FMS will work with States to resolve multiple enforcement issues as

they arise. Although at this time there are no plans for providing

systematic

[[Page 72094]]

notification to States to alert them to multiple enforcement issues,

HHS and FMS will review whether such notification is desirable.

Section 285.3(d)--Priorities for Offset

The public was invited to comment on how a tax refund payment

should be applied to a taxpayer's multiple debts within the same

category. Two commenters suggested that any refund be applied

proportionately to the taxpayer's multiple public assistance debts owed

to two or more States, using the total past-due amount as 100%. Another

commenter requested that the debts be paid in the order in which they

were submitted for offset. OCSE's AT-98-17 indicates that OCSE and FMS

have agreed to continue preexisting processing procedures during the

transition of the tax refund offset program from IRS to FMS, thus

processing and giving priority on a first-in-first-processed basis. In

the future, recommendations for alternate processing procedures will be

reviewed by OCSE and FMS.

The final rule has been changed to reflect recently enacted

legislation (Pub. L. 105-206, July 22, 1998) authorizing Treasury to

offset tax refunds to collect delinquent State income tax obligations.

Section 285.3(d) has been changed to reflect the provisions of the new

law under which such State income tax obligations will be paid from a

taxpayer's tax refund only after the tax refund has been applied to

satisfy the taxpayer's delinquent child support obligations and debts

owed to the Federal Government. See 26 U.S.C. 6402(e).

Section 285.3(e)--Post-Offset Notice

One commenter suggested that Sec. 285.3(e)(2) include a reporting

period regarding FMS' offset report to HHS or the States. As in the

NPRM, the final rule does not include a reporting period because FMS

will establish mutually agreed upon periods with HHS or affected

States.

With respect to Sec. 285.3(e)(4), the commenter questioned whether

FMS' report to HHS regarding States' participation in offset

(submissions of debts and offset collections) would include cases

submitted to FMS directly and those submitted through HHS. Pursuant to

the provisions of Sec. 285.3(e)(4), the details and requirements of

such reports will be developed by HHS and FMS but will not be included

in the rule. It is anticipated that reports will include information

about cases submitted to FMS directly and through HHS. Contrary to the

commenter's concern, if, for some reason, the reporting period is

limited to annually, the provisions of this regulation allowing States

to submit cases on an ongoing, rather than annual, basis will not be

affected.

Section 285.3(h)--Fees

The final rule does not incorporate a commenter's suggestion that

Sec. 285.3(h) specify a time frame within which States would be

notified of fee changes prior to any change. FMS will work with HHS and

States to ensure that States have sufficient advance notification of

any fee changes.

Another commenter recommended that the fee structure be identified

in the regulation and remain at a level that will allow for the offset

program to be successful. Under 42 U.S.C. 664, Treasury is authorized

to charge fees to recover the full cost of applying the offset

procedure. This rule requires that the fee be established annually in

such amount as FMS and HHS agree. The fee will be no more than $25 per

case submitted per year. FMS will work with HHS to ensure that States

are provided with information concerning the fee structure, and that

the amount of the fee does not negatively impact the success of the

program.

Regulatory Analyses

This final rule is not a significant regulatory action as defined

in Executive Order 12866. It is hereby certified that this rule will

not have a significant economic impact on a substantial number of small

entities. The basis for this certification is that this rule impacts

only individuals who receive tax refunds and who owe past-due support.

Therefore, a regulatory flexibility analysis is not required.

FMS has determined that this rule may affect family well-being. It

is hereby certified that this rule has been assessed in accordance with

Section 654 of the Treasury Department Appropriations Act, 1999,

enacted as part of the Omnibus Consolidated and Emergency Supplemental

Appropriations Act, 1999 (Pub. L. 105-277). This rule will not have a

negative impact on family well-being because it strengthens the

financial well-being of families by assisting in the collection of

past-due child support.

Special Analysis

FMS has determined that good cause exists to make this final rule

effective upon publication without providing the 30 day period between

publication and the effective date contemplated by 5 U.S.C. 553(d). The

purpose of a delayed effective date is to afford persons affected by a

rule a reasonable time to prepare for compliance. However, in this

case, Treasury has been collecting past-due support for States by tax

refund offset since 1982. Procedures affecting States submitting

delinquent child support obligations for collection and persons owing

delinquent child support obligations remain substantially unchanged.

Effective January 1, 1999, the tax refund offset program will be part

of the centralized offset program operated by FMS. This final rule

provides important guidance that is expected to facilitate States'

participation in the tax refund offset program. Therefore, FMS believes

that good cause exists to make the rule effective upon publication.

List of Subjects in 31 CFR Part 285

Administrative practice and procedure, Child support, Child

welfare, Claims, Debts, Privacy, Taxes.

Authority and Issuance

For the reasons set forth in the preamble, 31 CFR Part 285 is

amended as follows:

PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION

IMPROVEMENT ACT OF 1996

1. The authority citation for part 285 is revised to read as

follows:

Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 3711, 3716,

3720A, 3720B, 3720D; 42 U.S.C. 664; E.O. 13019; 3 CFR, 1996 Comp.,

p. 216.

2. Section 285.3 is added to subpart A to read as follows:

Sec. 285.3 Offset of tax refund payments to collect past-due support.

(a) Definitions. For purposes of this section:

Debt as used in this section is synonymous with the term past-due

support unless otherwise indicated.

Debtor as used in this section means a person who owes past-due

support.

FMS means the Financial Management Service, a bureau of the

Department of the Treasury.

HHS means the Department of Health and Human Services, Office of

Child Support Enforcement.

IRS means the Internal Revenue Service, a bureau of the Department

of the Treasury.

Past-due support means the amount of support, determined under a

court order, or an order of an administrative process established under

State law, for support and maintenance of a child, or of a child and

the parent with whom the child is living, which has not been paid, as

defined in 42 U.S.C. 664(c).

[[Page 72095]]

Qualified child means a child:

(i) Who is a minor, or

(ii) Who, while a minor, was determined to be disabled under

subchapters II or XVI, Chapter 7, Title 42, United States Code, and for

whom an order of support is in force.

State means the several States of the United States. The term

``State'' also includes the District of Columbia, American Samoa, Guam,

the United States Virgin Islands, the Commonwealth of the Northern

Mariana Islands, and the Commonwealth of Puerto Rico.

Tax refund offset means withholding or reducing a tax refund

payment by an amount necessary to satisfy a debt owed by the payee(s)

of a tax refund payment.

Tax refund payment means any overpayment of Federal taxes to be

refunded to the person making the overpayment after the IRS makes the

appropriate credits as provided in 26 U.S.C. 6402(a) and 26 CFR 6402-

3(a)(6)(i) for any liabilities for any Federal tax on the part of the

person who made the overpayment.

(b) General rule. (1) Past-due support will be collected by tax

refund offset upon notification to FMS in accordance with 26 U.S.C.

6402(c), 42 U.S.C. 664 and this section. Collection by offset under 26

U.S.C. 6402(c) is a collection procedure separate from the collection

procedures provided by 26 U.S.C. 6305 and 26 CFR 301.6305-1, relating

to the assessment and collection of certain child and spousal support

liabilities. Tax refund offset may be used separately or in conjunction

with the collection procedures provided in 26 U.S.C. 6305, as well as

other collection procedures.

(2) FMS will compare tax refund payment records, as certified by

the IRS, with records of debts submitted to FMS. A match will occur

when the taxpayer identifying number (as that term is used in 26 U.S.C.

6109) and name of a payment certification record are the same as the

taxpayer identifying number and name of a delinquent debtor record.

When a match occurs and all other requirements for tax refund offset

have been met, FMS will reduce the amount of any tax refund payment

payable to a debtor by the amount of any past-due support debt owed by

the debtor. Any amounts not offset will be paid to the payee(s) listed

in the payment certification record.

(c) Notification of past-due support. (1) Past-due support eligible

for tax refund offset. Past-due support qualifies for tax refund offset

if:

(i)(A) There has been an assignment of the support obligation to a

State and the amount of past-due support is not less than $25.00, or

such higher amount as HHS rules may allow, whichever is greater; or

(B) A State agency is providing support collection services under

42 U.S.C. 654(4), the amount of past-due support is not less than

$500.00, and the past-due support is owed to or on behalf of a

qualified child (or a qualified child and the parent with whom the

child is living if the same support order includes support for the

child and the parent); and

(ii) A notification of liability for past-due support has been

received by FMS as prescribed by paragraphs (c)(2) or (c)(3) of this

section.

(2) Notification of liability for past-due support and transmission

of information to FMS by HHS. States notifying HHS of past-due support

shall do so in the manner and format prescribed by HHS. The

notification of liability shall be accompanied by a certification that

the State has complied with the requirements contained in paragraph

(c)(4) of this section and with any requirements applicable to the

offset of Federal tax refunds to collect past-due support imposed by

State law or procedures. HHS shall consolidate and transmit to FMS the

information contained in the notifications of liability for past-due

support submitted by the States provided that the State has certified

that the requirements of paragraph (c)(4) of this section have been

met.

(3) Notification of liability for past-due support transmitted

directly to FMS by States. States must notify HHS of past-due support

in accordance with the provisions of paragraph (c)(2) of this section

unless HHS rules authorize notification to FMS directly. If authorized

by HHS rules, States may notify FMS directly of past-due support.

States notifying FMS directly of past-due support shall do so in the

manner and format prescribed by FMS. The notification of liability

shall be accompanied by a certification that the State has complied

with the requirements contained in paragraph (c)(4) of this section and

with any requirements applicable to the offset of Federal tax refunds

to collect past-due support imposed by State law or procedures. FMS may

reject a notification of past-due support which does not comply with

the requirements of this section. Upon notification of the rejection

and the reason for rejection, the State may resubmit a corrected

notification.

(4) Advance notification to debtor of intent to collect by tax

refund offset. The State, or HHS if the State requests and HHS agrees,

is required to provide a written notification to the debtor, pursuant

to the provisions of 42 U.S.C. 664(a)(3) and 45 CFR 303.72(e),

informing the debtor that the State intends to refer the debt for

collection by tax refund offset. The notice also shall:

(i) Instruct the debtor of the steps which may be taken to contest

the State's determination that past-due support is owed or the amount

of the past-due support;

(ii) Advise any non-debtor who may file a joint tax return with the

debtor of the steps which a non-debtor spouse may take in order to

secure his or her proper share of the tax refund; and

(iii) In cases when a debt is being enforced by more than one

State, advise the debtor of his or her opportunities to request a

review with the State enforcing collection or the State issuing the

support order as prescribed by the provisions of 45 CFR 303.72(g).

(5) Correcting and updating notification. The State shall, in the

manner and in the time frames provided by FMS or HHS, notify FMS or HHS

of any deletion or net decrease in the amount of past-due support

referred to FMS, or HHS as the case may be, for collection by tax

refund offset. The State may notify FMS or HHS of any increases in the

amount of the debt referred to FMS for collection by tax refund offset

provided that the State has complied with the requirements of paragraph

(c)(4) of this section with regard to those debts.

(6) Collection of past-due support enforced by multiple States.

When a State has knowledge that the debt is being enforced by more than

one State, the State notifying FMS, or HHS as the case may be, of the

debt shall inform any such other State involved in enforcing the debt

when it receives the offset amount.

(d) Priorities for offset. (1) As provided in 26 U.S.C. 6402 as

amended, a tax refund payment shall be reduced in the following order

of priority:

(i) First by the amount of any past-due support assigned to a State

(welfare cases) which is to be offset under 26 U.S.C. 6402(c), 42

U.S.C. 664 and this section;

(ii) Second, by the amount of any past-due, legally enforceable

debt owed to a Federal agency which is to be offset under 26 U.S.C.

6402(d), 31 U.S.C. 3720A and Sec. 285.2 of this part;

(iii) Third, by the amount of any qualifying past-due support not

assigned to a State (non-welfare cases) which is to be offset under 26

U.S.C. 6402(c), 42 U.S.C. 664 and this section; and

[[Page 72096]]

(iv) Fourth, by the amount of any past-due, legally enforceable

State income tax obligation which is to be offset under 26 U.S.C.

6402(e).

(2) Reduction of the tax refund payment pursuant to 26 U.S.C.

6402(a), (c), (d), and (e) shall occur prior to crediting the

overpayment to any future liability for an internal revenue tax. Any

amount remaining after tax refund offset under 26 U.S.C. 6402(a), (c),

(d), and (e) shall be refunded to the taxpayer, or applied to estimated

tax, if elected by the taxpayer pursuant to IRS regulations.

(e) Post-offset notice. (1) (i) FMS shall notify the debtor in

writing of:

(A) The amount and date of the offset to satisfy past-due support;

(B) The State to which this amount has been paid or credited; and

(C) A contact point within the State that will handle concerns or

questions regarding the offset.

(ii) The notice in paragraph (e)(1)(i) of this section also will

advise any non-debtor who may have filed a joint tax return with the

debtor of the steps which a non-debtor spouse may take in order to

secure his or her proper share of the tax refund. See paragraph (f) of

this section.

(2) FMS will advise HHS of the names, mailing addresses, and

identifying numbers of the debtors from whom amounts of past-due

support were collected, of the amounts collected from each debtor

through tax refund offset, the names of any non-debtor spouses who may

have filed a joint return with the debtor, and of the State on whose

behalf each collection was made. Alternatively, FMS will provide such

information to each State that refers debts directly to FMS. FMS will

inform HHS and each State that the payment source is a tax refund

payment.

(3) At least weekly, FMS will notify the IRS of the names and

taxpayer identifying numbers of the debtors from whom amounts owed for

past-due support were collected from tax refund offsets and the amounts

collected from each debtor.

(4) At such time and in such manner as FMS and HHS agree, but no

less than annually, FMS will advise HHS of the States which have

furnished notices of past-due support, the number of cases in each

State with respect to which such notices have been furnished, the

amount of past-due support sought to be collected by each State, and

the amount of such tax refund offset collections actually made in the

case of each State. As FMS and HHS may agree, FMS may provide

additional offset-related information about States which have furnished

notices of past-due support.

(f) Offset made with regard to a tax refund payment based upon

joint return. If the person filing a joint return with a debtor owing

the past-due support takes appropriate action to secure his or her

proper share of a tax refund from which an offset was made, the IRS

will pay the person his or her share of the refund and request that FMS

deduct that amount from amounts payable to HHS or the State, as the

case may be. FMS and HHS, or the appropriate State, will adjust their

debtor records accordingly.

(g) Disposition of amounts collected. FMS will transmit amounts

collected for debts, less fees charged under paragraph (h) of this

section, to HHS or to the appropriate State. If FMS learns that an

erroneous offset payment is made to HHS or any State, FMS will notify

HHS or the appropriate State that an erroneous offset payment has been

made. FMS may deduct the amount of the erroneous offset payment from

amounts payable to HHS or the State, as the case may be. Alternatively,

upon FMS' request, the State shall return promptly to the affected

taxpayer or FMS an amount equal to the amount of the erroneous payment

(unless the State previously has paid such amounts, or any portion of

such amounts, to the affected taxpayer). HHS and States shall notify

FMS any time HHS or a State returns an erroneous offset payment to an

affected taxpayer. FMS and HHS, or the appropriate State, will adjust

their debtor records accordingly.

(h) Fees. The State will pay a fee to FMS for the full cost of

administering the tax refund offset program. The fee (not to exceed $25

per case submitted) will be established annually in such amount as FMS

and HHS agree to be sufficient to reimburse FMS for the full cost of

the offset procedure. FMS will deduct the fees from amounts collected

prior to disposition and transmit a portion of the fees deducted to

reimburse the IRS for its share of the cost of administering the tax

refund offset program. Fees will be charged only for actual tax refund

offsets completed.

(i) Review of tax refund offsets. In accordance with 26 U.S.C.

6402(f), any reduction of a taxpayer's refund made pursuant to 26

U.S.C. 6402(c), (d), or (e) shall not be subject to review by any court

of the United States or by the Secretary of the Treasury, FMS or IRS in

an administrative proceeding. No action brought against the United

States to recover the amount of this reduction shall be considered to

be a suit for refund of tax.

(j) Access to and use of confidential tax information. Access to

and use of confidential tax information in connection with the tax

refund offset program is permitted to the extent necessary in

establishing appropriate agency records, locating any person with

respect to whom a reduction under 26 U.S.C. 6402(c) is sought for

purposes of collecting the debt, and in the defense of any litigation

or administrative procedure ensuing from a reduction made under section

6402(c).

(k) Effective date. This section applies to tax refund payments

payable under 26 U.S.C. 6402 after January 1, 1999.

Dated: December 16, 1998.

Richard L. Gregg,

Commissioner.

[FR Doc. 98-34431 Filed 12-30-98; 8:45 am]

BILLING CODE 4810-35-P