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Offset of Tax Refund Payments To Collect State Income Tax Obligations

Document Details

Information about this document as published in the Federal Register.

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Financial Management Service, Fiscal Service, Treasury.


Final rule.

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Under provisions of the Internal Revenue Service Restructuring and Reform Act of 1998, the Federal tax refund of a taxpayer who owes a past-due, legally enforceable State income tax obligation may be reduced, or offset, by the amount owed by the taxpayer. The funds offset from the taxpayer's Federal tax refund are forwarded to the State that reported the past-due State income tax obligation. On December 20, 1999, the U.S. Department of the Treasury's Financial Management Service (FMS) published a notice of proposed rulemaking in the Federal Register by cross-reference to an interim rule published in the Federal Register on the same day. This final rule adopts the interim rule without change.


This rule is effective January 26, 2005.

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Gerry Isenberg, Financial Program Specialist, at (202) 874-6660; Ellen Neubauer or Ronda Kent, Senior Attorneys, at (202) 874-6680. A copy of this final rule is being made available for downloading from the Financial Management Service Web site at the following address:​debt.

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The Internal Revenue Code authorizes the Secretary of the Treasury to offset Federal tax refund payments to satisfy debts owed to the United States and to collect past-due support for States. Under the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 685, 779 (1998), the authority to offset tax refund payments was amended to allow for the offset of Federal tax refund payments to collect past-due, legally enforceable State income tax obligations reported to the Secretary of the Treasury by States. The amendments authorizing such offsets were effective January 1, 2000.

Offsets to collect delinquent State income tax debts from Federal tax refunds are processed through the Treasury Offset Program (TOP), which is operated by FMS, the disbursing office for the Treasury Department. TOP is a centralized offset program through which FMS offsets tax refund payments, as well as other nontax Federal payments, to collect delinquent debts owed to Federal agencies and States. This rule governs only the offset of one type of payment (i.e., tax refunds) to pay one type of delinquent debt (i.e., past-due, legally enforceable State income tax obligations).

On December 20, 1999, FMS published a notice of proposed rulemaking, 64 FR 71233 (NPRM), concerning the offset of tax refunds to collect delinquent income tax obligations owed to States. On the same day, FMS published an interim rule with request for comments, 64 FR 71228, which contained the text for the NPRM. The closing date for comments regarding the proposed and interim rules was January 19, 2000.

Comments on the Proposed and Interim Rules

FMS did not receive any comments on the NPRM by the close of the comment period. Likewise, FMS did not receive any comments on the interim rule, which served as the text for the NPRM. Therefore, the interim rule is adopted, without change, as a final rule.

Regulatory Analysis

This final rule is not a significant regulatory action as defined in Executive Order 12866. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), 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 only assists States in the collection of past-due legally enforceable State income tax debt. Therefore, a regulatory flexibility analysis is not required.

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, FMS has been collecting past-due income tax obligations owed to States by tax refund offset since January 2000. Procedures affecting States submitting delinquent income tax obligations for collection and persons owing delinquent income tax obligations to States remain substantially unchanged. 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.

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List of Subjects in 31 CFR Part 285

  • Administrative practice and procedure
  • Black lung benefits
  • Child support
  • Claims
  • Credit
  • Debts
  • Disability benefits
  • Federal employees
  • Garnishment of wages
  • Hearing and appeal procedures
  • Loan programs
  • Privacy
  • Railroad retirement
  • Railroad unemployment insurance
  • Salaries
  • Social Security benefits
  • Supplemental Security Income (SSI)
  • Taxes
  • Veteran's benefits
  • Wages
End List of Subjects

Adoption as Final Rule

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Accordingly, the interim rule adding § 285.8 to 31 CFR part 285, subpart A, which was published at 64 FR 71228 on December 20, 1999, is adopted as a final rule without change.

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Dated: January 21, 2005.

Richard L. Gregg,


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[FR Doc. 05-1421 Filed 1-25-05; 8:45 am]