Timeframe to Distribute Tax Offsets Referred for Fraud
DATE: March 9, 2016
TO: State Agencies Administering the Federal Income Tax Refund Offset Program under Title IV-D of the Social Security Act and Other Interested Individuals
SUBJECT: Timeframe to Distribute Tax Offsets Referred for Fraud
STATUTORY REFERENCE: 45 CFR 302.32 (b)(2)(iv) requires states to distribute single return tax refund offset collections within 30 calendar days of receipt. If the tax refund offset is from a joint return, 42 U.S.C. 664(a)(3)(B) and HHS regulations at 45 CFR 303.72 (h)(5) allow a state to hold the joint offset payment for up to six months or until notified that the unobligated spouse’s proper share has been paid.
BACKGROUND: Dear Colleague Letter (DCL) 11-17 allowed states to delay distribution of a suspicious tax refund offset referred to the Internal Revenue Service (IRS), through OCSE’s Federal Collections and Enforcement Unit, until the IRS completed its investigation. The DCL also required that the state have clear documentation on its system as to why the payment was held. This exception was implemented because of states’ concerns about disbursing a potentially erroneous intercept payment within the required distribution timeframes. If the IRS subsequently discovered the error and reversed the intercept after the disbursement, the state either absorbed the loss to repay the adjusted amount or attempted to recoup the disbursement from the family.
CONTENT: With the recent publication of the Department of Treasury’s rule amending its regulation governing the offset of tax refund payments to collect past-due child support obligations and limiting the time period during which Treasury may recover certain tax refund offset collections from states, this Action Transmittal amends the exception permitted in DCL-11-17.
A state may delay distribution of a suspicious tax refund offset referred to the IRS for a period not to exceed six months from its receipt of the offset. The state must continue to have clear documentation on its system as to why the payment was held. If the IRS has not completed its investigation and/or reversed the offset after six months, the state must distribute the payment accordingly.
This Action Transmittal applies to the disbursements of all tax refund offsets referred to the IRS, including those referrals states submitted prior to January 1, 2016 (effective date of Treasury’s rule). This Action Transmittal does not apply to tax refund offsets not referred to the IRS for investigation. States are required to distribute all other offsets in accordance with the statutory references above.
EFFECTIVE DATE: These instructions are effective immediately.
INQUIRIES: OCSE Federal Collections and Enforcement Unit
Office of Child Support Enforcement