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Treasury Offset ProgramNASC PRESENTATION

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What is TOP?

TOP = Treasury Offset Program

A centralized process that intercepts federal payments of payees who owe delinquent debts to federal and state agencies

Offset is withholding funds payable by the United States to a person to satisfy a debt owed to the United States or a State

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What is TOP

Statutes and Regulations for Administrative Offset (offset of federal payments to collect state debts) 31 U.S.C. 3716 and 31 CFR 285.6

Statutes and Regulations for State Payment Offset (offset of state payments to collect federal no-tax debts) State law, 31 U.S.C 3716 (h), any state regulations and 31

CFR 285.6

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What is TOP?

TOP is one of the largest and most effective tools in collecting delinquent debts for federal and state agencies: Debts owed to the United States (tax & non-

tax) Child support obligations enforced by state

agencies State income tax debts State debts (pilot to begin Spring 2007)

Collections total over $3 billion per year

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What is TOP?

TOP is a system that compares payments with debts

Payment and debt comparisons are made on the basis of Name and Federal Identification Number

When a match occurs the payment is offset to collect the debt

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TOP

All debts have a 10 year statute of limitations

Debt must be at least $25*

* This is the minimum TOP will accept, but dollar amount could be set higher for certain programs

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Due Process

Notice Intent to offset 60 days to dispute the debt

Any state law requirements

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As of June 30, 2006

TOP database contains…

$36.2 billion in federal non-tax debts $86.1 billion in child support debts $129.4 billion in federal tax debts $5.7 billion in state income tax debts

Total $257 billion

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Priority of Debts in TOP

• IRS income tax debts

• Child support debts assigned to states under Temporary Assistance to Needy Families program

• Federal non-tax debts

• Other child support debts

• State income tax debts

When more than one debt is submitted for the same debtor, TOP applies funds collected in accordance with priorities set by statute and policy

and applies offset funds in the following order:

NOTE: If a debtor has two or more debts of the same priority, TOP applies funds to the oldest debt first

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TOP – Transmission Method

Batch Processing Connect:Direct

Dataline from creditor agency to FMS Connect:Mailbox

Manual process using modem to transmit files to FMS

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Agreement to Certify Debts

This agreement lets FMS know that you will follow the Due Process rules for submitting debts electronically to TOP All debts are true and collectible Are delinquent, valid, and legal Are not in bankruptcy or foreclosure

Debts are certified for

life of debt Agreements are done annually in December for all new debt to

be loaded in the upcoming calendar year

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Vendor Offset Notice

Sent by FMS Date and amount of offset, Agency to which money is sent,

contact point at agency

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TOP Process

PAYMENTS

TOPDatabase

DEBTS

Does payee name &TIN match debtor

name & TIN?

No

Yes

Check or EFTto payee

$$ to creditoragency

Notice to debtor

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Debt Management Operations Center

Operates the National TOP Call Center

Callers are referred to states/agencies for Account balances Specific debt information Removal from TOP Adjustments or refunds

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Fees

Fees- A fee will be charged to the state for each offset ($22).

The amount of the fee will be added to the debt amounts and may be adjusted annually for FMS to recover the Federal cost of the program.

The state may include a fee for each debt forwarded to Financial Management Services or the fee can be added to the amount of the state debt at FMS.

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Test Results State Debts Offset by TOP

Offset Category

FEDERAL PAYMENT AMOUNT

AMOUNT OFFSET

NUMBER OF PAYMENTS

OFFSET

Admissions & Amusements

51,377.76 9,061.05 30

Central Collection 1,557,326,841.23 1,479,410.87 1,067

Corporate Tax 5,211,598.74 259,864.60 85

Motor Carrier 396,285.00 33,444.18 1

Fuel Tax 352 127.89 1

Individual Taxes 2,583,635.91 288,990.90 442

Sales & Use 23,997,046.84 569,647.00 246

Withholding 100,244,032.55 4,757,725.89 1,341

$1,689,811,170 $7,398,272 3,213

Federal vendor payments for the month of September 2006. Feds indicated this was a low volume month.

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Programs for States

States can participate in the Treasury Offset Program two ways:

State Income Tax Program Federal tax payments may be offset to collect state income

tax debts (debtor must reside in state)

Reciprocal Agreement

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System Set-up Requirements

Review legislation Reciprocal Agreement Agency submits TOP Agency Profile Form Agency submits TOP Security Access Request

Form for each user FMS tests system with agency Agency submits certification agreement Agency submits certified debts to FMS

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Chapter 577 of 2006 Laws (House Bill 448)

Added Section 13-930 to Tax-General Article, Annotated Code of Maryland.

Authorizes Comptroller to withhold tax refunds and other state payments for liabilities held by Treasury.

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Chapter 577 of 2006 Laws (House Bill 448)

Allows Comptroller to certify state tax due to Treasury.

Permits Treasury to withhold vendor payments for remittance to Comptroller.

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State Reciprocal Agreement

Legal references, due process, debt certification, operational requirements, fees, offset notices, fund transfers, reversals and refunds

Pilot with three states to begin Spring 2007-Maryland, New Jersey, and Kentucky

Pilot will be reviewed after one year to determine if program is mutually beneficial and cost effective

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IRS Tax Refund Intercepts

Fiscal Year 2006

30,530 federal tax refunds intercepted $21,800,000

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State Refund Intercept Statistics Fiscal Year 2006

Collection Category Count Dollar Amount

Individual 72,371 $ 33,692,391.13

Withholding 7,116 $ 4,814,632.01

Sales & Use Tax 1,669 $ 1,625,750.03

Corporation 588 $ 2,806,101.11

IRS 7,854 $ 4,852,747.68

Central Collections Unit 92,562 $ 41,019,785.53

Dept. of Human Resources (child support) 14,438 $ 7,168,580.58

Other States 687 $ 211,579.63

TOTAL $ 96,191,567.70

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Collection Statistics

Offset Category FY2005

total FY2006 total

Withholding Tax $2,385,651.07 $2,379,881.59

Sales & Use Tax $602,525.02 $750,187.65

Admission & Amusements $14,871.13 $4,436.34

Individual Tax $1,448,801.34 $1,320,479.82

Corporate Tax $236,373.61 $400,749.86

Tire Fee $2,301.07 $1,275.10

Internal Revenue Service $62,273.96 $111,904.44

Central Collection Unit $2,402,921.77 $2,337,066.44

Motor Fuel Tax Division $22,851.50 $97,232.01

Unemployment Insurance $1,151,282.49 $1,090,650.69

TOTAL $8,329,852.96 $8,493,863.94

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Current Project Status

State Debtors notified of potential TOP offset Reciprocal agreement signed Agreement to certify debts signed All TOP security and profile forms completed TOP and State ACH forms completed Modifications in process for R*STARS and

Comptroller Tax Systems

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Contact at FMS

For questions on the state reciprocal agreement pilot program, please contact:

Sarah Martin

202-874-6884

sarah.martin@fms.treas.gov

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Treasury Offset Program

Questions ???