Action Transmittal AT-94-05 Part 3

Child Support Collection by IRS through offsetting Federal Income Tax
Refunds
                    ACTION TRANSMITTAL
                    AUGUST 23, 1994
                    OCSE-AT-9405      

Continued:

III. UPDATES TO CASE SUBMISSIONS

OCSE has implemented a process whereby States are able to
transmit update case data to OCSE by using personal computers.  A 
software program using a full screen data entry system has been 
developed which will allow States to enter deletes, modifications, 
transfers, and State payments on a PC to be transmitted to OCSE for 
processing.  This should be particularly beneficial during weeks in 
which the volume of updates is low, thus eliminating the need to 
create a tape.  OCSE strongly encourages States to use this method in 
order to expedite reporting.  (See EXHIBIT Z for details regarding 
procedures and specifications for personal computers.)

States may also send tapes via a tape to tape transfer.  The machines 
currently being used are MITRONS.  For those States electing to use 
the MITRON, please refer to EXHIBIT CC.  It should be noted by the 
State that data requirements for tapes being submitted on the MITRON 
are different than those for tapes mailed to OCSE.

     A.   DELETIONS AND MODIFICATIONS

For both AFDC/foster care and non-AFDC/Medicaid-only cases, 
submittals received by the early deadline can be updated for 
deletions or decreases in arrearage amounts from that deadline 
throughout the entire processing year.  For those using the later 
submittal deadline, updates will be accepted from starting after that 
deadline and lasting throughout the processing year.  Requests for 
case updates cannot be processed for the purpose of deleting or 
modifying amounts on the pre-offset notice.  Updates received at OCSE 
by the scheduled date from those States using the earlier deadline 
will be processed against the OCSE master file before forwarding the 
cases to be flagged for offset by IRS.  As in the past, OCSE strongly 
urges that updates be submitted before OCSE sends the consolidated 
file to IRS for flagging.  The extended submittal deadline only 
allows for State internal update processing prior to final submittal 
to OCSE.  Early update submission assures case correction before 
cases are forwarded to IRS for potential flagging for offset.

Cases received after the OCSE deadline will be marked on the OCSE 
master file and forwarded to IRS on a weekly basis once the cases 
have been flagged on the IRS Master File.  This means that 
effectively, cases received between early December and approximately 
the third week in January will not be processed at IRS until after 
IRS has flagged the cases on the master file, which usually occurs 
towards the end of January.  It is important that States recognize 
this time gap in processing.  OCSE strongly encourages States to 
maintain a list or file of all updates referred to OCSE during this 
time.  In the beginning of February OCSE will return a report to 
States indicating the results of the updates.  This report should be 
matched against the list or file maintained at the State to ensure 
that all updates were successful.  It should not be assumed that 
because the case was deleted or modified on the State's records or 
system, that the update was successful at IRS.  Furthermore, problems 
occasionally occur in that OCSE does not receive an update tape from 
the State for one reason or another.  Here again, it is imperative 
that each State monitors what updates have been forwarded to OCSE to 
ensure processing.  Such quality control of cases should continue 
throughout the entire processing year.

To assist States' efforts to monitor update processing, a brief 
summary of the processing schedule is provided.  Beginning at the end 
of January, every Tuesday, OCSE creates a weekly update tape to send 
to IRS.  These updates are processed at IRS over the weekend.  The 
results of IRS processing are usually received at OCSE on Tuesday or 
Wednesday and processed by us the next day.  On the following day 
OCSE mails the update results to each State.  At this time the State 
should make sure that the number of cases sent to OCSE matches the 
results received.  Also, for States that MITRON tapes, we suggest 
that you keep the input tape and the MITRON report which indicates if 
the transmission is successful until results on those cases are 
received from OCSE.  (See Exhibit I). 

Each State should be reminded again that IRS does not accept 
duplicate transaction types per case within the same weekly batch.  
In other words, if the State reports two modifications for a case in 
the same batch, IRS will accept only the first modification rejecting 
the second.  If, however, a taxpayer has been submitted for both an 
AFDC/foster care arrearage and a non-AFDC/Medicaid-only arrearage 
there is no problem in updating both cases in the same batch.  OCSE 
will edit the data prior to referral to IRS.  If duplicate 
modifications are submitted for the same case, OCSE will accept the 
lowest modification.  If, however, duplicate State payments are 
submitted, the first one will be accepted with the duplicate being 
rejected.

Update transactions can be fully effective only if they are submitted 
to IRS prior to the processing of the individual's tax return.  
Therefore, it is vital to the success of the offset process that 
States submit updates as early and as frequently as possible.  OCSE 
will forward updates on a weekly basis to IRS for processing.

States should not submit modifications/deletions as the result of an 
offset from the IRS.  The arrearage amount is automatically decreased 
by the offset amount at the time of offset.  A modification in this 
case would, in effect, reduce the arrearage amount of the offset. 

It is important to point out that in all cases where a taxpayer has 
requested an administrative review, regulations require that an 
update must be submitted if the review results in a deletion of, or 
decrease in, the amount referred for offset.  Timeframes for 
reporting updates are dependent upon when the administrative review 
is conducted.  If the review occurs prior to January 10, the update 
should be reported during the State's normally scheduled update 
process.  If, however, the review occurs after January 10 and results 
in a deletion or modification, the update must be reported to OCSE 
within 10 work days of the administrative review.  The mandatory 
update following the administrative review is required regardless of 
the magnitude of
the reduction in the amount referred for offset.

For cases where there has been no request for an administrative 
review, States are required to notify OCSE of any decrease in or 
elimination of an amount referred for collection by Federal tax 
refund offset if the decrease is significant according to State 
guidelines.  If an administrative review has been conducted, any 
deletions or decreases must be reported to OCSE.

Updates must be submitted either on magnetic tape or, through a 
personal computer.  If a State does not have the capability of 
creating a tape for updates, a PC must be used.  Use the record 
format specified in EXHIBIT N.  Position 73 reflects transaction type 
i.e., D,S,M,L or T.  Transaction type L may be used by submitting 
States to change the local code on a certain case throughout the year 
should the need arise.  The submission must include a signed request 
for update of transmittal (see EXHIBIT E) clearly labeled "STATE 
UPDATES TO TAX OFFSET." Also, each record must indicate whether it is 
an AFDC/foster care or a non-AFDC/Medicaid-only case.  Each 
individual update case must also be identified by processing year.  
Updates should be mailed to the same address as the original 
submission.  (See EXHIBIT B for shipping and handling instructions.)  
All tapes or cartridges received at OCSE should be properly labeled 
as to what is on them.  A transmittal should also accompany each tape 
or cartridge with the exact number of deletes, modifications, 
transfers and/or State payments on the tape or cartridge.   If MITRON 
tape transmission is used, please see EXHIBIT CC.

     B.   UPDATE REPORTING BY TRANSFER STATE

Interstate cases involve a slightly different procedure due to the 
nature of their complaint process.  If the submitting State's attempt 
to resolve the complaint by reviewing its records and checking the 
computation of the arrears is unsuccessful, the noncustodial parent 
has the right to have an administrative review conducted by the State 
in which the order was issued.  For example, State A submits a case 
which is based on an order in State B.  The noncustodial parent, as a 
result of the pre-offset notice contests the referral for offset.  
State A reviews the documentation for the submittal and additional 
evidence provided by the noncustodial parent, but cannot resolve the 
matter and, at the noncustodial parent's request, forwards the case 
and all pertinent information to State B within the regulated time 
for an administrative review.  At the time State A forwards the case 
data to State B, State A must also notify OCSE of the transfer using 
the update procedure and designating the case with a 'T' for 
transfer.  (See EXHIBIT N for reporting on tape and EXHIBIT W for 
reporting manually.)  Also, the submitting State (State A) must 
designate the State to which the case is being transferred (State B).  
If the appropriate local code for State B is known, it should be 
provided when notifying OCSE of the transfer.  Upon receipt of the 
'T' updates, OCSE will process the cases with
their weekly update runs and forward to State B an update request 
form.  States are encouraged to use the normal update reporting 
procedures, i.e., personal computer or magnetic tape to report 
deletion or modification on cases submitted by another State.  When 
the update is completed, OCSE will report the results to the State 
with the order as well as report accepted updates to the State which 
initially submitted the case.

     C.   STATE PAYMENTS (REFUNDS)

The procedures for reporting State payments (refunds to taxpayers) 
will remain automated.  Each State will send to OCSE, on a weekly 
basis, a report of every refund the State makes to a noncustodial 
parent for any case submitted for tax refund offset.  Offsets 
distributed to the custodial parent are NOT to be reported as State 
payments.  The States are to use the same 
format used in issuing updates (See EXHIBIT N) using code 'S' for 
"State payment."

States can continue submitting State payments, there is no deadline.  
States are nevertheless encouraged to submit State payment reports to 
OCSE as expediently as possible.  This procedure should be of 
considerable benefit since an Injured Spouse Claim and Allocation can 
be filed for up to 6 years.

A State payment may be reported on any collection made from PY89 to 
present.  We encourage States to report any payments not previously 
reported.  When reporting a State payment, the processing year in 
which the original collection was made must be reported (see EXHIBIT 
N).

Still in effect is the State payment procedure to accept both upward 
and downward modifications of State payments.  When reporting two or 
more State payments on a case due to additional money being returned 
to a taxpayer, or an incorrect amount on the first reporting, the 
correct amount of the payment should be reported.  This is true 
whether a State is increasing or decreasing the amount of the 
payment.  For example, if a State payment of $150 is reported on a 
case, and the State refunds the same taxpayer an additional $50 at a 
later date, the State should then report a State payment of $200.  If 
on the other hand, the State reports a payment of $250, but only 
actually refunded $25, the State should then report a State payment 
of $25.

IRS will indicate if the refund involves a joint return so that 
refund checks can be issued to both parties.  In most cases, IRS will 
be providing the names for cases involving joint returns.  However, 
if only the noncustodial parent's name is provided, the refund check 
should be issued to "Mr. and Mrs.".

When the State is unable to locate an obligor for the purposes of 
returning excess amounts which have been offset, the State should 
send OCSE in writing specific case information, i.e., taxpayer name, 
SSN, amount to be returned to obligor, and a brief explanation of the 
State's efforts to locate the noncustodial parent.  OCSE will forward 
the information to IRS.  At this point IRS will research the 
individual case and provide the State with the most recent address 
for the taxpayer.  Due to disclosure limitations IRS will no longer 
issue returns to the taxpayers for the State.  As a cautionary note, 
this procedure is to be used on a limited basis, and only after 
diligent efforts have been made to locate the obligor.  It is not a 
substitute procedure for States to use instead of making prompt 
refunds, but may be used for example when the taxpayer is deceased 
and/or locate leads have been exhausted.  If money is still returned 
as undeliverable, States will need to set-up a fund to account for 
this.