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Collection of Child Support by the IRS through Federal Income Tax Refunds Offset, 1994

AT-94-05

Published: August 23, 1994
Information About:
State/Local Child Support Agencies
Topics:
Federal Systems, Federal Offset Program (FOP)
Types:
Policy, Action Transmittals (AT)

                    ACTION TRANSMITTAL
                    AUGUST 23, 1994
                    OCSE-AT-9405     

TO:                 STATE AGENCIES ADMINISTERING CHILD SUPPORT
     ENFORCEMENT PLANS APPROVED UNDER TITLE IV-D OF THE SOCIAL
     SECURITY ACT AND OTHER INTERESTED INDIVIDUALS.

SUBJECT:            Collection of Child Support by the Internal
                    Revenue Service (IRS) through offsetting Federal
                    income tax refunds.  This Action Transmittal
                    applies to those cases in which the State has an
                    assignment of support rights under section
                    402(a)(26) or 471(a)(17) of the Social Security
                    Act, or cases in which the State is enforcing the
                    support obligation pursuant to section 454(6) of
                    the Social Security Act, or the State has an
                    assignment of medical support rights under
                    section 1912(a)(1)(A) of the Social Security Act.

ATTACHMENT:         Instructions for submitting requests for
                    Collection of Child Support Debts by the IRS
                    through the Federal tax refund offset process.

BACKGROUND:         During 1981, 1982, 1983, 1984, 1985, 1986, 1987,
                    1988, 1989, 1990, 1991, and 1992 the Office of
                    Child Support Enforcement (OCSE) issued
                    instructions to define the procedures States must
                    use for the preparation, submission, and
                    processing of cases for collection by offsetting
                    past-due child support obligations with Federal
                    income tax refunds (OCSE AT-81-19, 81-29, 82-14,
                    83-14, 84-05, 85-07, 86-15, 87-6, 88-12, 89-13,
                    90-06, and 91-05).  This Action Transmittal
                    supersedes these documents and outlines the
                    revised procedure for the submitting and
                    processing of cases.

SUPERSEDED
MATERIAL:           OCSE-AT-92-03 DATED August 6, 1992.

INQUIRIES TO:       OCSE Special Collections Unit, (202) 401-9389

                                   ______________________________
                                        David Gray Ross   
                                        Deputy Director
                                        Office of Child Support
                                           Enforcement





                         TABLE OF CONTENTS

                                                            PAGE
I.  Submitting Certified Requests....................        1

     A.   Eligible Cases..............................        1

     B.   Criteria For Submittal......................        2

          1.   AFDC and Foster Care Cases.............        2

          2.   Non-AFDC and Medicaid-only Cases.......        3

     C.   Submitting Interstate Cases.................        4

     D.   Interstate Transmittal Form.................        5

     E.   Case Submittals.............................        5

     F.   Edit Validation.............................        6

     G.   Submission Date.............................        6

     H.   Submitting Test Cases To OCSE...............        7

II.  Pre-Offset Notice and Complaint Procedures.......        8

     A.   Pre-Offset Notice...........................        8

     B.   Complaint Procedures........................       10

          1.   Procedures for Contesting in Intrastate Cases 11

          2.   Procedures for Contesting in Interstate Cases 11

          3.   Guidelines for Social Security Number (SSN)
               Error Problems.........................       13















                                                            PAGE
III.      Updates To Case Submissions.................        14

          A.   Deletions and Modifications............        15

          B.   Update Reporting By Transfer State.....        17

          C.   State Payments (Refunds)...............        17

IV.      Processing Offsets..........................        18

          A.   Offset Processing By IRS...............        18

          B.   Processing Monies That Have Been Offset        21

          C.   Distribution Of Collections From Offsets       21

          D.   Processing Offsets For Cases Submitted By
               Two or More States.....................        22

          E.   Adjustments To Collections.............        23

          F.   Rapid Refunds..........................        24
 
  V.      IRS Service Fee Statement and Adjustment Billing    25

VI.      Inquiries To OCSE...........................        25

VII.      Inquiries To States.........................        26

VIII      Reporting...................................        26

IX.      Security and Safeguarding Requirements......        26

  X.      Quality Control.............................        26

XI.      Data Transmission Methods...................        27

          Schedule For 1993 Processing Year...........        29

          Narrative Description of Major Reports......        32

          Exhibit Directory...........................        35

          Exhibits....................................        37







               FEDERAL TAX REFUND OFFSET PROGRAM

On August 13, 1981 the Federal Tax Refund Offset Program was enacted
by Congress (see section 2331, P.L. 97-35).  This unique use of a
Federal collections mechanism to recover delinquent child support
debts involves the interaction of all State IV-D agencies and two
Federal agencies (OCSE and IRS).  This cooperative effort has
resulted in total collections of over $4.9 billion since the Program
began.  As of April 1994, over 8.5 million tax refunds were
intercepted since the Program started offsetting refunds in 1982.

In November 1990, the President signed into law the Omnibus Budget
Reconciliation Act of 1990 (P.L. 101-508), which made changes to the
Federal Tax Refund Offset Program for non-AFDC cases.  Section
5011(b) authorizes the use of the Federal Income Tax Refund Offset
process in non-AFDC cases for the collection of past-due spousal
support when the parent is living with the child and spousal support
and child support are included in the same order.  In addition, cases
may be submitted where there is past-due support due on behalf of
adult disabled children for whom there is a support order in effect. 
These changes took effect January 1, 1991.

I.   SUBMITTING CERTIFIED REQUESTS

     A.   ELIGIBLE CASES

Only IV-D cases are eligible for tax refund offset.  In other words,
only cases in which the State has an assignment of support rights
under section 402(a)(26) or 471(a)(17) of the Act, or cases in which
the State is enforcing the support obligation pursuant to section
454(6) of the Act, or the State has an assignment of medical support
rights under Section 1912(a)(1)(A) of the Social Security Act, can be
submitted for tax refund offset.  All States must have and use
procedures for tax refund offset in non-AFDC as well as AFDC and
foster care cases. Under Section 303.72 of the Program Standards
Regulations which became effective in October 1990, all cases which
meet the criteria for submittal must be submitted for offset.  A
custodial parent who has applied for IV-D services (and paid the
application fee) may be charged an additional fee, not to exceed $25,
for this service.  Some States which recover costs of services
directly from the custodial parent, pursuant to 45 CFR 302.33(d)(ii),
deduct this fee from the tax refund when it is intercepted.  It is
not necessary to obtain the consent of the non-AFDC custodial parent
before submitting the case.  Custodial parents seeking tax refund
offset services should be advised that their application for IV-D
services will necessitate other enforcement action by the IV-D
Agency.  For example, if the arrearage equals or exceeds the amount
of support payable for 1 month, and if the noncustodial parent's
place of employment is known, wage withholding is mandatory.  To
assist IV-D agencies in collecting sufficient background information
and properly informing applicants for IV-D services concerning the
Tax Refund Offset Program, OCSE has developed a Non-AFDC Federal Tax
Refund Offset Information Form (see EXHIBIT T).  Whether or not this
form is used, the IV-D Agency should ensure that applicants for
non-AFDC services understand:

          o    what the applicant must pay for tax refund offset;
          o    how long it may be before an offset is distributed
               (including the possibility of a 6-month delay in
               joint return cases);
          o    that any State submitting an assigned arrearage for
               offset must receive its share of the refund before IRS
               is permitted to offset an unassigned arrearage; and
          o    that any payment the family receives may have to be
               returned to the IV-D Agency if there is an adjustment
               within 6 years following the end of the tax year. 
               (The Tax Reform Act of 1986 extended the Injured
               Spouse Claim and Allocation Form 8379 filing period
               from 3 years to 6 years.)

In addition, the custodial parent, in all tax refund offset cases,
may be required to sign an affidavit attesting to the amount of the
child support arrears if the agency cannot verify the amount owed
using its records.


     B.   CRITERIA FOR SUBMITTAL

States must certify (see EXHIBIT A: TRANSMITTAL CERTIFICATION) that
cases meet the following requirements to be eligible for the Federal
Tax Refund Offset Program.  Requirements for eligibility for
AFDC/foster care and non-AFDC/Medicaid-only cases are quite similar. 
However, for the sake of clarity and since the cases must be
submitted separately, the requisite criteria are listed individually
for each classification.

     1.   AFDC AND FOSTER CARE CASES

          o    The support obligation must have been established
               under a court order or an order of an administrative
               process established under State law and must have been
               assigned to the State pursuant to section 402(a)(26)
               or                       471(a)(17) of the Act.
          o    The amount past-due must not be less than $150.00.
          o    The amount owed must have been delinquent for 3 months
               or longer.  The requirement  that past-due support
               must be at least 3 months in arrears is met if the
               past-due support is 3 months over-due as of January 1.
          o    The delinquency is for support and maintenance of a
               child, or of a child and the parent with whom the
               child     is living (maintenance includes medical
               support, but only if a specific dollar amount is
               included in the order).
          o    The State IV-D Agency has verified the accuracy of the
               arrears, has a copy of the order and any modifications
               and has a copy of the payment record or an affidavit
               signed by the custodial parent
               attesting to the amount of support owed.  The State
               IV-D Agency has verified the accuracy of the
               noncustodial parent's name and Social Security   
               Number (SSN).  In interstate cases the request may be
               made only by a State which has taken an          
               assignment under section 402(a)(26) or 471(a)(17) of
               the Act.

     2.   NON-AFDC AND MEDICAID-ONLY CASES

          o    The support obligation must have been established
               under a court order or an order of an administrative
               process established under State law and the State must
               be enforcing the order under section 454(6) of the
               Act.  Medicaid-only cases, required to be enforced
               under section 454(5)(B) of the Act, are treated as
               section 454(6) cases, and are subject to the following
               requirements.
          o    The amount of past-due support must not be less
               than$500.00.
          o    At State option, amounts certified in non-AFDC cases
               may be limited to past-due support which accrued since
               the State IV-D Agency began to enforce the support
               order.
          o    The support must be owed to or on behalf of a minor
               child.  Past-due support due adult handicapped
               children may be collected through the Federal income
               tax refund offset process if there is a support order
               in effect for the child and the child, while a minor,
               was determined to be disabled under Title II (Federal
               Old-Age, Survivors, and Disability Insurance Benefits
               Program) or Title XVI (Supplemental Security Income
               for the Aged, Blind, and Disabled program) of the
               Social Security Act.
          o    Non-AFDC and Medicaid-only cases may be submitted on
               behalf of a parent when the parent is living with the
               child and spousal support and child support are
               included in the same support order.
          o    The State has verified the accuracy of the arrears,
               has a copy of the order and any modifications, and has
               a copy of the payment record or an affidavit signed by
               the custodial parent attesting to the amount of
               support owed.
          o    The State has checked its records to see if there are
               AFDC or foster care arrearages.
          o    The State IV-D Agency has verified the accuracy of the
               noncustodial parent's name and SSN.
          o    The State IV-D Agency must have the custodial parent's
               current address.

Past-due support may not include fees or court costs or any other
nonchild support debts owed to the State or to the family.  Past-due
support may include medical support, but only if a
specific dollar amount is included in the order.  Interest may be
included in the amount certified for offset only if it is considered
support under State law.  Certifications for offset in AFDC and
foster care cases may include an amount for support and maintenance
of a child, or of a child and the parent with whom the child is
living.  Spousal support is eligible for certification in non-AFDC
and Medicaid-only cases in which the parent is living with the child
and spousal support and child support are included in the same
support order.  Non-AFDC and Medicaid-only referrals on behalf of an
individual who is no longer a minor even if the arrearage accrued
while the person was a minor child may not be submitted for offset,
except in cases in which past-due support is due on behalf of adult
disabled children for whom there is a support order in effect and the
child, while a minor was determined to be disabled under Title II or
XVI.  In other words, the child must be a minor as of December 31 of
the year in which that case is submitted to OCSE for offset.

The State may not submit a case in which the noncustodial parent or
his or her spouse has filed for bankruptcy under Chapters VII, XI,
XII, & XIII of Title 11 of the United States Code.  The State may not
submit such cases "unless the automatic stay under section 362 of the
Bankruptcy Code has been lifted or is no longer in effect with
respect to the individual owing the obligation... and the obligation
was not discharged by the bankruptcy proceeding." If the State does
submit a case in this category, IRS will not offset any refund, or in
the event of an offset will reverse the offset.

     C.   SUBMITTING INTERSTATE CASES

The State submitting past-due support for offset must inform any
other State involved in enforcing the support order when it submits
an interstate case for offset and when it receives the offset amount
from IRS.  If the debt submitted is based upon another State's
support order, the submitting State may find it necessary to
communicate with the other State for purposes of verification of
arrears or to obtain a copy of the order or the payment record prior
to submittal for refund offset. 

In a non-AFDC interstate case, the State in which an application for
IV-D services has been filed pursuant to section 302.33 (i.e., the
initiating State), must submit the past-due support for offset.  It
is necessary to specify which State must submit past-due support owed
in non-AFDC cases for offset to avoid both States submitting the same
arrearage.  The initiating State is in the best position to pay the
custodial parent any amount offset quickly and to handle any
necessary adjustments to the amount of offset based on an amended tax
return.

If a State submits a case for refund offset on the basis of another
State's child support order, the submitting State should comply with
the other State's laws regarding refund offset.  Several States have
been involved in litigation which has resulted in the imposition of
specific safeguards to prevent the wrongful interception of
taxpayers' refunds.  These requirements for an expanded notice and
hearing procedures may affect the enforcement of any child support
order issued within the State.  The regulations providing for
administrative review in either the submitting State or the State
which issued the order (upon request by the taxpayer) appear to have
eliminated most problems in this area.  States conducting
administrative reviews should not delete cases submitted by another
State simply because they would not have been submitted, for policy
reasons, by the State with the order.

     D.   INTERSTATE TRANSMITTAL FORM

OCSE has developed an interstate transmittal form to facilitate
communication and coordination between States regarding child support
enforcement efforts, especially wage withholding and tax refund
offset.  It has been designed for use in obtaining and/or verifying
information for the purpose of submitting a case for offset when the
order and/or pay record for the noncustodial parent are in another
State.  It can also be used as a transfer document when the case is
being referred to the State with the order for the purpose of
conducting an administrative review.  In such cases the submitting
State should provide the certified arrearage, not the current
arrearage; and, if there are
cumulative orders, which serve as the basis for the submittal, it
should be clearly indicated that the forum State need only verify a
portion of the amount submitted for offset.  Likewise, the State with
the order can use the form for reporting the results of the
administrative review to the State that submitted the case for
offset.  (See EXHIBIT U for the Child Support Enforcement Interstate
Transmittal.)

     E.   CASE SUBMITTALS

It is important that all submittals be as accurate as possible, both
at the time of issuing the pre-offset notice and when the tape is
sent to IRS.  In order to ensure that States include all case updates
prior to issuance of the pre-offset notice, tapes received by OCSE
prior to the designated date will be returned to the State for
further processing and no priority for collection will be granted
until such date.

Since the expansion of the Offset Program to non-AFDC families, it is
possible for a State to submit the same SSN twice, once for assigned
arrears and once for non-AFDC and Medicaid-only.  When submitting
cases involving the same SSN, States should include on the tape only
one record reflecting combined local requests for AFDC/foster care
cases, and one record reflecting combined local requests for non-AFDC
and Medicaid-only cases.  Duplicate AFDC or foster care case
submittals or duplicate non-AFDC and Medicaid-only case submittals
from a State will not be accepted.  Therefore, both the AFDC/foster
care case and the non-AFDC and Medicaid-only case (with the greatest
arrearage) will be accepted and all others will be rejected.  Each
State must combine its duplicate cases in either category and submit
them as one case for offset.  States should submit one consolidated
file on magnetic tape to OCSE with a completed certification. 
However, multiple tape submissions will be accepted from a State
provided that each submission is accompanied by a completed
certification.  Multiple tape submissions should only occur if time
does not permit the State to merge all local requests into a single
submission or if the State lacks the capability to merge data onto
magnetic tape.  It is important to the ultimate effectiveness of the
Program that States take the time to review their final case
submittals.

Every time a record is submitted to OCSE for processing, i.e., final
submittals or updates, the State must indicate whether the
transaction pertains to an AFDC/foster care case (A) or to a
nonAFDC/Medicaid-only case (N).  Every update and State payment must
also contain the corresponding processing year.  Any records not
containing this information will be rejected.  (See EXHIBIT N for
Tape Submission Requirements.)  Any record submitted that does not
contain the case type indicator will be rejected.  Likewise, all
reports issued by OCSE will include a case type indicator for each
record, as well as the appropriate processing year.

If there are multiple submittals for the same noncustodial parent
from more than one State, the first tape certified to OCSE will
receive priority for collection.  After this initial priority,
satisfaction of State claims is based on the amount of the
delinquency (from highest to lowest).  All arrears assigned under
either 402(a)(26) or 471(a)(17) will be satisfied before any nonAFDC
delinquency can be offset.  It should be noted that other Federal
debts in addition to back taxes may be offset by interception of tax
refunds.  IRS debts have first priority over all other offsets.  AFDC
and foster care arrearages come next, followed by all other Federal
debts, and non-AFDC child support arrearages including Medicaid-only
cases.

     F.   EDIT VALIDATION

Each State submission will be processed through an Edit Validation
program prior to acceptance for forwarding to IRS.  The State will
receive an Edit Validation Report which indicates types of errors and
percentage of errors.  OCSE will analyze these statistics and make
the final decision as to what corrective actions, if any, will be
taken.  Possible actions include:
          o    Tape returned to State for correction and resubmittal
               (if time permits);
          o    Errors corrected by OCSE; or
          o    Errors rejected (not correctable).

Detailed tape instructions and specifications are contained in
Exhibit H.

     G.   SUBMISSION DATE

The deadline date for final case submittal is dependent upon whether
OCSE or the State issues the pre-offset notice.  For States
requesting OCSE to send their pre-offset notices, all requests for
offset must be received by OCSE by the date listed on the schedule. 
It is imperative that States meet this deadline so OCSE can ensure
that case submittals are processed prior to the IRS deadlines. 
States issuing their own pre-offset notices have until the later date
listed to submit their final offset requests, but only if the State
certifies by IV-D Director's signature, that notices for the prior
processing year were mailed by October 31 and that notices for the
current processing year will be mailed by October 31.  In-house
updates will not be processed from those States submitting at the
later date.  Please make sure that the tape is accurate at submittal
time.  A State which issues its own pre-offset notice can nonetheless
submit by the earlier date and thus remain competitive in terms of
priority listing for multiple-state case submittals.  Detailed tape
instructions and specifications are contained in EXHIBIT B.

     H.   SUBMITTING TEST CASES TO OCSE

State Agencies are accorded one opportunity to test the accuracy of
the case records and to correct errors prior to the submission
deadline for certified cases.  This one-time test submission should
ensure that cases will not be lost during offset processing due to
errors that could have been corrected prior to the certified
submission.  The cases submitted will be processed through the OCSE
Edit-Validation program, then forwarded to IRS for a test match on
the Taxpayer Master File.  In addition to this processing, all cases
that come back from IRS as unaccountable because name and SSN do not
agree - Code 20, will be sent to the Social Security Administration
to be run against the Enumeration Verification System.  These cases
will be run against "system 220" which will correct those SSNs that
may be off slightly or have a transposition, thus causing it to
reject.  The results of this processing will be sent to the State so
that any corrections may be made before final submittal time.  This
process will also be done at the end of the final submittal
processing.  States may use these results to correct cases for the
next processing year.  Please submit all new cases from your State to
ensure more accurate final submittals from your State.  Furthermore,
if the test tape results in new addresses from IRS, it will assist
OCSE during the issuance of pre-offset notices.  That is, it will
minimize the time and effort that would otherwise be required in
October.

States will receive a Test Tape Rejection Report which will indicate
matching errors at IRS due to problems with the noncustodial parent's
name or SSN.  Agencies may then correct their case records before
submitting the certified (final) tape.

The total number of test cases and the total amount of arrearage
should be provided with the submittal.  The Test Tape may be
submitted to OCSE during the scheduled time frame.  No Test Tapes
will be accepted after the deadline (see EXHIBIT B).  Although States
have until the final date to submit the Test Tape to OCSE, it is
strongly suggested that the tapes be submitted by the date given for
the end of the first batch.  This is because all cases OCSE receives
by this date will be sent to IRS for processing so States will
receive the results and addresses during the first or second week of
July giving States more time to analyze results and correct errors
for the final submittal.  In addition, those States who issue their
own notices will have more time to process the address information in
order to issue notices.  Cases submitted after the earlier deadline
will not be sent to IRS until approximately the second week of July
and the results will not be sent to the States until the last week of
July.
 

PROCEDURES ARE CONTINUED IN THE ATTACHMENTS TO THIS DOCUMENT

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