Revision of the Tax Refund Offset Program

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 301 [TD 8837] RIN 1545-AV50

TITLE: Revision of the Tax Refund Offset Program

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the
administration of the Tax Refund Offset Program (TROP). This action
is necessary because effective January 1, 1999, TROP, which had been
administered by the IRS, was fully merged into the centralized
administrative offset program known as the Treasury Offset Program
(TOP), which is administered by the Financial Management Service
(FMS). These regulations will affect State and Federal agencies that
participate in TROP.

DATES: Effective Dates: These regulations are effective September 7,
1999.

Dates of Applicability: For dates of applicability of these
regulations, see §§301.6402-5(h) and 301.6402-6(n).

FOR FURTHER INFORMATION CONTACT: Beverly A. Baughman, (202)622- 4940
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations on Procedure and
Administration (26 CFR part 301) that revise the effective dates for
regulations under section 6402(c) and (d). Those subsections provide
rules relating to the offset of past-due support payments and debts
owed to Federal agencies against Federal tax refunds, respectively.

On August 31, 1998, a notice of proposed rulemaking (REG-104565- 97)
under section 6402(c) and (d) was published in the Federal Register
(63 FR 46205). Although written or electronic comments and requests
for a public hearing were solicited, no comments were received and
no public hearing was requested or held. The proposed regulations
under section 6402(c) and (d) are adopted by this Treasury decision
without revision.

Explanation of Provisions

Section 6402(c) provides, in general, that the amount of any
overpayment to be refunded to the person making the overpayment must
be reduced by the amount of any past-due support (as defined in
section 464(c) of the Social Security Act) owed by that person of
which the Secretary has been notified by a State in accordance with
section 464 of the Social Security Act.

Section 6402(d) provides, in general, that upon receiving notice
from any Federal agency that a named person owes a past-due, legally
enforceable debt to that agency, the Secretary must reduce the
amount of any overpayment payable to that person by the amount of
the debt, pay the amount by which the overpayment is reduced to the
agency, and notify the person making the overpayment that the
overpayment has been reduced.

Prior to January 1, 1998, the IRS made offsets pursuant to section
6402(d) according to regulations prescribed under §301.6402-6. Prior
to January 1, 1999, the IRS made offsets pursuant to section 6402(c)
according to regulations prescribed under §301.6402-5.

Section 31001(v)(2) and (w) of the Debt Collection Improvement Act
of 1996 (110 Stat. 1321-375), amended 42 U.S.C.

664(a)(2)(A) and 31 U.S.C. 3720A(h), respectively, to clarify that
the disbursing agency of the Treasury Department may conduct tax
refund offsets. The disbursing agency of the Treasury Department is
the Financial Management Service (FMS).

The IRS and FMS agreed to merge the Tax Refund Offset Program
(TROP), which had been administered by the IRS, into the centralized
administrative offset program known as the Treasury Offset Program
(TOP), which is administered by the FMS. The merger of the two
programs is intended to maximize and improve the Treasury
Department's government-wide collection of nontax debts, including
those subject to offset against the debtor's federal tax refund. The
full merger of TROP with TOP occurred on January 1, 1999.

Final rules concerning the manner in which the FMS will administer
the collection of nontax Federal debts after the merger of TROP with
TOP were published by the FMS in the Federal Register on August 28,
1998 (63 FR 46140) (codified at 31 CFR Part 285.2) effective for
refunds payable after January 1, 1998.

The regulations in this document provide an ending effective date
for §301.6402-6 to accommodate the beginning effective date of the
FMS regulations. Accordingly, §301.6402-6 does not apply to refunds
payable after January 1, 1998.

Final rules concerning the manner in which the FMS will administer
the collection of past-due support payments were published by the
FMS in the Federal Register on December 30, 1998 (63 FR 72092)
(codified at 31 CFR Part 285.3), effective for refunds payable after
January 1, 1999. The regulations in this document provide an ending
effective date for §301.6402-5 to accommodate the beginning date for
the full merger of TROP with TOP. Accordingly, §301.6402-5 does not
apply to refunds payable after January 1, 1999.

Special Analyses

It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations, and
because these regulations do not impose a collection of information
on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter
6) does not apply. Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed rulemaking that preceded these
regulations was submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.

Drafting Information

The principal author of these regulations is Beverly A.

Baughman of the Office of Assistant Chief Counsel (Income Tax and
Accounting). However, other personnel from the IRS and the Treasury
Department participated in the development of the regulations.

List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION Paragraph 1. The authority
citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6402-5 is amended by adding paragraph (h) to
read as follows:

§301.6402-5 Offset of past-due support against overpayments.

* * * * *

(h) Effective dates. This section applies to refunds payable on or
before January 1, 1999. For the rules applicable after January 1,
1999, see 31 CFR part 285.

Par. 3. Section 301.6402-6 is amended by revising paragraph (n) to
read as follows:

§301.6402-6 Offset of past-due, legally enforceable debt against
overpayment.

* * * * *

(n) Effective dates. This section applies to refunds payable under
section 6402 after April 15, 1992, and on or before January 1, 1998.
For the rules applicable after January 1, 1998, see 31 CFR part 285.

Bob Wenzel
Deputy Commissioner of Internal Revenue
Approved:
Jonathan Talisman
Assistant Secretary of Treasury

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