Treasury Debt Management

Treasury Offset Program (TOP)

Overview

Introduction

This section explains how the Treasury Offset Program (TOP) works with the offset of assigned payments.

Background

The Department of Treasury, Bureau of the Fiscal Service (Fiscal Service) serves as the primary disbursing office for the federal government. Fiscal Service also operates TOP to collect delinquent federal and state debts by offsetting or levying payments made to delinquent debtors.

A frequent scenario involving assigned payments is the award of attorney’s fees under the Equal Access to Justice Act (EAJA), where the “prevailing party” (i.e., party entitled to payment, or PEP) wants to assign an EAJA award to his or her attorney, 28 U.S.C. § 2412. In such cases, the agency may recognize the assignment only if the prevailing party does not owe any debts that could be collected through offset of the EAJA payment. The Supreme Court unanimously held in Astrue v. Ratliff, 560 U.S. 586 (2010), that the EAJA term "prevailing party" refers to a claimant and not the claimant's attorney, and thus the offset of an EAJA award to collect a claimant's debt to the government is proper.

Scope

The provisions of this section describe how centralized administrative offset (i.e., TOP) works with payments that have been assigned by the party that the United States is legally required to pay (i.e., PEP).

Relevant Legal Authorities

Relevant legal authorities include: 5 U.S.C. § 5514; 26 U.S.C. §§ 6331(h), § 6402; 31 U.S.C. §§ 3716, 3720A, and 3727; and implementing regulations at 31 CFR Part 285, Subpart A.

Treasury Offset Operations

Treasury Offset Program Operations: What is TOP?

TOP is a fully automated system that manages, in accordance with various federal laws, the collection of delinquent federal and state debts by intercepting payments disbursed by federal and state agencies.

Federal and state agencies to which debts are owed (referred to as “creditor agencies”) submit information about delinquent debts to TOP. Debts referred to TOP include federal tax and nontax debts, child support debts, and other debts owed to states.

How are Payments Offset?

Federal agencies that make payments (referred to as “payment agencies”) prepare and certify payment vouchers to federal disbursing officials (including those at Fiscal Service, the Department of Defense, the U.S. Postal Service, and other federal entities), who disburse payments, 31 U.S.C. § 3325; see also 31 U.S.C. § 3716(c)(1)(A). The payment voucher contains information about the payment, including information about the person entitled to receive payment. Prior to disbursing a payment, TOP compares the payment information with debtor information in the TOP database. If there is a match between a person who owes a debt that has been referred to TOP and the person to whom a payment is owed, the disbursing official offsets that payment, in whole or in part, to satisfy the debt. Amounts collected are then transmitted to the appropriate creditor agency or agencies.

The offset of state payments works differently: States that participate in the State Reciprocal Program receive extracts of federal nontax debt records from TOP. Before making a payment, a state will compare its payment information with the debtor information in the extract. The state will then offset the payment, in whole or in part, to satisfy the debt. It will then transmit amounts collected to Fiscal Service, which will in turn, transmit the amounts to the appropriate creditor agency or agencies.

How are Assigned Payments Treated?

Generally, assigned payments are legally subject to offset debts of both the assignor (i.e., the PEP) and the assignee (i.e., the person to whom the payment was assigned). A request by a PEP to make the payment to a third party is typically referred to as an “assignment.” For a valid assignment, the “transfer” or “assignment” of a claim against the United States, including the assignment of an attorney’s fees award, must meet the requirements of applicable law, including the Anti-Assignment Act, 31 U.S.C. § 3727, and the laws that apply to TOP. If the requirements are not satisfied, the assignment, as a practical matter, is not valid as to the United States.

Operationally, a payment agency generally must make a payment to the assignor, unless the payment agency confirms that the assignor does not owe any debts in TOP, in which case the payment may be made to the assignee.

How Often Can Creditor Agencies Refer Debts to TOP, and How Does This Impact Payment Agencies’ Authority to Recognize Assignments?

Creditor agencies can refer debts to TOP (or update information on debts previously referred) seven days a week, 24 hours a day. Because TOP can be updated at almost any moment, any information obtained from TOP is only accurate as of the time that the inquiry is made. As such, in the situation where the payment agency would like to determine whether it may recognize an assignment of a payment, it is imperative that the payment agency determine the existence of a debt that may be subject to offset no later than 30 days prior to the date of disbursement. This protects the United States’ interest in collecting delinquent debt owed to federal and state agencies.

Where the disbursement involves EAJA attorney’s fees, for example, checking for debts when the plaintiff files a petition for an award of fees, before the government responds to the petition, or at any time before the court issues its order, will be premature because any debt incurred by the plaintiff before a payment is disbursed is subject to offset. Treasury properly pays EAJA attorney’s fees directly to attorneys only in cases where “the plaintiff does not owe a debt to the government and assigns the right to receive the fees to the attorney.” See Ratliff, 560 U.S. at 597. As such, a court may not require the government to waive its right of offset by ordering it to recognize an agreement between the plaintiff and attorney regarding the payment of attorney’s fees.

Disclosure of TOP Information

Legal Authorities

TOP information is protected from unauthorized disclosure, including by the Privacy Act of 1974 and by section 6103 of the Internal Revenue Code.

The Privacy Act permits disclosure of information in several instances. For example, disclosure of whether a debt has been referred to TOP is generally not precluded by the Privacy Act if: (a) the debt is owed by a non-individual; (b) an individual requests the information about him or herself; (c) an individual provides written authorization for disclosure of his or her information to a third party; or (d) disclosure is authorized by a routine use published in a “systems of records” notice (SORN). Routine uses must be consistent with the purpose for which the data was collected and not prohibited by other law. Fiscal Service’s SORN relating to TOP records has several routine uses that are consistent with the purpose for which Fiscal Service maintains such records: to collect debt. See Treasury/FMS .014--Debt Collection Operations System, 77 Fed. Reg. 8947 (2012).

Both information about tax debts and the offset of federal tax refund payments is protected by section 6103 of the Internal Revenue Code. The restrictions of section 6103 apply to both individuals and non-individuals.

Authorized Disclosures of TOP Information

Whether Fiscal Service can disclose information from the TOP database depends on the requestor, the type of information being requested, and the justification for permitting disclosure.

Debtor Request

An individual can request information about his or her own debts by contacting the federal or state agency to which the debt is owed. If unsure of whether or to whom they owe a debt, debtors may contact Fiscal Service by calling the TOP Interactive Voice Response (IVR) system at 800-304-3107, or by mail at:

Department of the Treasury
Bureau of the Fiscal Service

P.O. Box 1686
Birmingham, AL 35201-1686

In response to a debtor’s request for his or her own information, the IVR will disclose the existence of a federal nontax or state debt that is currently subject to collection through TOP, the creditor agency name, and contact information for the creditor agency.

Authorized Third Party

An individual may authorize Fiscal Service to disclose information about his or her debts to any third party. Authorized third parties may also obtain information through the TOP IVR at 800-304-3107, or by mail at:

Department of the Treasury
Bureau of the Fiscal Service

P.O. Box 1686
Birmingham, AL 35201-1686

Authorized by Routine Use

Fiscal Service may disclose certain information to the Department of Justice or another federal agency when requested in connection with a legal proceeding, or when needed to facilitate the collection of a debt through offset.

Guidance for Payment Agencies Regarding Assigned Payments

Requirement to Determine Whether Debts Exist

Before recognizing the request of a PEP to make payment directly to a third party, the payment agency must determine that recognizing the assignment will not negatively impact the government’s ability to collect a debt. Nothing in this guidance requires the payment agency to recognize an assignment, even if the PEP does not owe any delinquent debts.

In practical terms, this requires that the payment agency determine that the PEP does not owe any debts currently subject to collection through TOP.

How to Determine Whether Debts Exist

To make such a determination, the payment agency may request that Fiscal Service disclose whether the PEP owes any debts referred to TOP. Because the payment agency does not have a need to know the debt balance, delinquency date, creditor agency, and other information regarding the debt, Fiscal Service will generally not disclose additional information. To the extent a payment agency needs additional information, it can make a written case for why additional information regarding the debt at issue should be disclosed under the Privacy Act and other applicable law. Fiscal Service will review such requests to determine whether such additional disclosure is permissible.

No Split Disbursements

As the disbursing office, Fiscal Service performs an essentially ministerial task by paying the person or entity that the payment agency directs it to pay. However, because Fiscal Service is generally not authorized to disclose the amount of debt to the payment agency, the payment agency cannot direct Fiscal Service on how to split the funds if there is debt. In addition, Fiscal Service is not operationally capable of making split disbursements.

Exemption of a Class of Federal Payments from the Treasury Offset Program (TOP)

This section of payments exempt from TOP prescribes the standards and procedures regarding the exemption of classes of payments from centralized administrative offset. This section supersedes the “Standards and Procedures: Exemption of Classes of Federal Payments from the Treasury Offset Program,” which was issued on January 4, 2001, and updated on September 3, 2013. Any payment exemptions previously granted by the Secretary of the Treasury (the Secretary) remain in effect, until or unless expressly revoked.

Background

The Bureau of the Fiscal Service (Fiscal Service), a bureau of the Department of the Treasury (Treasury), serves as the primary disbursing office for the federal government. Fiscal Service also operates the Treasury Offset Program (TOP) to collect delinquent federal and state debts by offsetting or levying payments made to delinquent debtors.

Certain federal payments are statutorily exempt from centralized administrative offset. Other payments may be exempted from centralized administrative offset by the Secretary of the Treasury (Secretary) upon the request of the federal agency that issues the payments.

Scope

These provisions explain how a federal agency may submit a request to the Secretary for the exemption of a class of payments from centralized administrative offset and prescribes the standards under which the Secretary will evaluate and respond to such requests. This section does not apply to any payments made under the Internal Revenue Code of 1986.

General Rule

Federal payments are subject to offset through TOP unless exempted by federal statute or action of the Secretary.

Statutory Exemptions

There are some federal statutes that protect certain types of payments from creditors. Some of the statutes explicitly prohibit payment offset, either by use of the term “offset” or by reference to 31 U.S.C. § 3716. These types of payments are exempt from offset through TOP.

Other statutes may exempt certain payment from levies, garnishments, and “other legal process.” Because “other legal process” generally refers to a writ of process for the enforcement of a judgment, such statutes do not, on their face, exempt the payments from offset.

The head of the payment agency should notify the Secretary of any statutory exemptions from offset applicable to its payments so that Fiscal Service and the payment agency can make any necessary adjustments to the payment process to ensure such payments are not offset. This notification should be made to the individual listed in the subsection about informal discussion on this page.

Exemptions by the Secretary

Payments under Means-Tested Programs

When requested by the head of the payment agency, the Secretary will exempt from centralized administrative offset a class of payments made under a means-tested program. The Secretary may exempt classes of payments prospectively but has no authority to grant retroactive exemptions.

Payments under Programs which are Not Means-Tested

When requested by the head of the payment agency, the Secretary may exempt from centralized administrative offset a class of payments made under a program that is not means-tested. The Secretary may exempt classes of payments prospectively but has no authority to grant retroactive exemptions.

In evaluating a request for exemption of a class of payments under a non-means-tested program, the Secretary should consider the following questions.

Is the program purpose clearly articulated, and has the agency demonstrated that offset would tend to interfere substantially with or defeat this purpose?

The purpose of a program may be set forth in the program authorizing statute, accompanying legislative history, or congressional reports and other congressional materials describing an agency’s mission. The Secretary will consider whether offset would tend to interfere substantially with or defeat the articulated purpose of the program.

Example: An agency wants a state to build a single bridge. The agency makes a payment to a state to build the bridge. In this case, the bridge might not be built if the payment is offset. So, exempting the payment from offset may be warranted. If, on the other hand, the state built the bridge and then seeks reimbursement for its costs from the agency, the reimbursement payment would likely not warrant exemption. In this case, the offset of the reimbursement payment would not change the fact that the bridge was already built.

Are the proceeds received from the government earmarked, by statute or regulation, for a specific purpose? If so, has the agency demonstrated that offset will interfere substantially with or defeat the program’s purpose because the payment recipient would be unable to use the proceeds for the earmarked purpose?

The Secretary will consider whether payments made under a particular program must be used by the recipient for a specific purpose and whether offset will interfere substantially with or defeat that purpose.

Example: An agency awards a grant to a state. As specified in statute, the proceeds of the grant must be used solely for the development of a vaccine. If the grant payment is offset for debts unrelated to vaccine development, the offset would violate the terms of the grant. In this case, exemption may be warranted. Contrast this with recipients of federal salary payments who can use the funds for whatever purpose they choose.

Is administrative offset cost-effective?

The Secretary will consider whether the benefits of conducting administrative offset outweigh the costs. In considering this factor, the Secretary will consider the volume and dollar amounts of the payments for which an exemption is sought and, if available, historical offset information.

Example: An agency that does not disburse its payments through Fiscal Service makes a small number of payments each year under a single program. Based on the volume and dollar amount of the payments, it is unlikely that collections that result from offset, even in the long term, will exceed the system development costs necessary to offset the payments. In this case, exemption may be warranted.

Is administrative offset administratively feasible?

The Secretary will consider the administrative feasibility of conducting offsets.

Example: If payments made under a program include both means-tested and non-means tested components within a single payment, and the various components cannot be individually identified without great cost (as compared to what might be collected through offset), exemption may be warranted for both the non-means tested and the means-tested components.

Will administrative offset tend to interfere substantially with or defeat an important national interest?

The Secretary will consider whether offset would tend to interfere substantially with or defeat an important national interest, such as national security, foreign relations, or law enforcement. If so, the Secretary will consider whether that interest outweighs the U.S. Government’s interest in collecting delinquent debts with regard to the class of payments at issue.

Submitting Exemption Requests

Informal discussions

If a payment agency believes an exemption for a specific class of payments may be warranted, it should contact Fiscal Service to discuss informally the need for an exemption and other options to meet the agency’s concerns.

The contact point for these informal discussions is:

Director
Treasury Offset Program Division
Debt Management Services

3201 Pennsy Drive, Bldg E,
Landover, MD 20785

202-874-6810

Fax: 202-874-6474

Formal Request for Exemption: Generally

If, after informal discussions with Fiscal Service, a payment agency determines that a formal request for exemption is appropriate, the head of the payment agency may request that the class of payments be exempted from centralized administrative offset. This request must be in writing.

Required Information for All Exemption Requests

The requesting agency must submit information that clearly supports the request for exemption, including each of the following items:

a narrative statement that clearly identifies the class of payments for which an exemption is requested,

the specific purpose of the program,

whether the agency believes the program is means-tested or non-means-tested, and

citations to the relevant statutes and regulations governing the program.

Required Information for Exemption Requests for Means-Tested Payments

In addition to the information specified in the Exemptions by the Secretary subsection, the requesting agency must provide each of the following items:

a clear indication that the program purpose is to provide an adequate standard of living to program beneficiaries, and

a description of the beneficiaries of the program and the criteria used in the program to determine if the beneficiaries need program assistance.

Required Information for Exemption Requests for Non-Means-Tested Payments

In addition to the information specified in the subsection about Required Information for All Exemption Requests, the requesting agency must provide each of the following items:

a detailed justification for the exemption pursuant to any applicable standards set forth in Payments Under Programs which are Not Means Tested in this section.

if the request for exemption is justified in whole or in part on the basis that offset is not cost effective or administratively feasible, the total number and dollar amounts of payments in the class that are estimated to be disbursed on an annual basis in the foreseeable future.

Addressing the Request

The agency must send the request to:

Commissioner
Bureau of the Fiscal Service
U.S. Department of the

3201 Pennsy Drive, Bldg E
Landover, MD 20785

The agency should send a copy of the request to:

Director
Treasury Offset Program Division
Debt Management Services

3201 Pennsy Drive, Bldg E,
Landover, MD 20785

Request for additional information

If Fiscal Service determines that a request is incomplete or that it needs more information, Fiscal Service will notify the requesting agency that the request is incomplete and describe the specific information that must be submitted to complete the exemption request.

If, after a reasonable period of time, the Secretary has not received this additional information, Fiscal Service will notify the requesting official that the request is considered withdrawn.

Secretary’s Response

The Secretary will provide a written response to the request after submission of a completed request.

In responding to any request for exemption, the Secretary may grant the exemption in whole or in part, or deny the exemption in whole or in part. The Secretary may also suggest alternative actions.

Revoking Exemption

In general, exemptions granted by the Secretary are permanent. However, the Secretary may revoke a previously-granted exemption if the Secretary determines it is appropriate to do so. Fiscal Service will notify the payment agency of any such revocation.

Fiscal Service Cross Servicing Responsibilities

Overview

Background

The Cross-Servicing program is a Fiscal Service program managed by its Debt Management Services (DMS) area. It provides collection services on delinquent debt owed to federal agencies. It collects debt through various means, including by contacting debtors through demand letters and telephone calls, negotiating payment agreements, referring debts to private collection contractors, referring debts to the Department of Justice for litigation, reporting debts to credit bureaus, initiating administrative wage garnishment, and submitting debts to the Treasury Offset Program (TOP) for offset of federal and state payments.

Scope and Applicability

The provisions of this TFM chapter:

Apply to all Federal agencies that are required or authorized to transfer debts to the Cross-Servicing program per 31 U.S.C. § 3711(g), and

Govern the collection of debts that have been transferred to the Cross-Servicing program per 31 U.S.C. § 3711(g).

This TFM chapter does not apply to Fiscal Service’s operation of Centralized Receivables Service (CRS) nor the Treasury Offset Program (TOP). However, a federal agency complies with the requirement to notify Treasury of a debt for offset pursuant to 31 U.S.C. §§ 3716(c)(6) and 3720A(a) when it: (1) transfers a debt to the Cross-Servicing program at 121 days or less delinquent, and (2) through the agency profile form, authorizes Fiscal Service to refer the debt to TOP for collection through offset of all eligible payments.

Authority

Authority to Promulgate Regulations and Service Debts

Fiscal Service is authorized to promulgate regulations and establish guidelines to assist federal agencies in the performance of debt collection activities, including the referral of eligible, nonexempt debts to the Cross-Servicing program. See 31 U.S.C. §§ 3711(g) and 3711 note, and 31 CFR § 285.12.

As Treasury’s designated debt collection center pursuant to 31 CFR § 285.12(a), Fiscal Service is responsible for collecting and otherwise servicing transferred debts.

Authority to Charge Fees

Fiscal Service is authorized to charge creditor agencies fees to cover up to the full cost of servicing transferred debts, which creditor agencies generally must pass on to debtors as costs of collection. 31 U.S.C.§§ 3711(g)(6),3717(e). For a further discussion of fees and costs, see Subsection 5040, Fees and Costs.

Authority to Collect Debts and Compromise

Fiscal Service provides services through the Cross-Servicing program pursuant to its statutory authorities to service, collect, or compromise transferred debts, or to suspend or terminate collection action thereon. See 31 U.S.C. § 3711(g).

With regard to debts that have been transferred to the Cross-Servicing program, Fiscal Service generally has the same authority available to the head of the creditor agency to compromise transferred debts or collect transferred debts in installments. In addition, the Department of Justice has delegated to Fiscal Service the authority to compromise debts with a principal balance of up to $500,000. In general, Fiscal Service may accept proposed compromises of debts with a principal balance of over $500,000 only with the approval of the Department of Justice.

Authority to Suspend and/or Terminate Collection Action

Per 31 U.S.C. §§ 3711(g)(1)(B), 3711(g)(4), and 3711(g)(5), and the authority delegated to Fiscal Service by the Department of Justice, Fiscal Service is authorized to suspend and/or terminate collection action on transferred debts with a principal balance of up to $500,000. Fiscal Service generally may approve the suspension or termination of collection action for debts with a principal balance of over $500,000, only with the approval of the Department of Justice.

Per subsection 5035.60, Suspend and/or Terminate Collection Action, Fiscal Service may suspend and/or terminate collection action in accordance with applicable federal law, including the Federal Claims Collection Standards (31 CFR Parts 900-904).

Fiscal Service Responsibilities

Collect and Compromise Transferred Debt

Fiscal Service, or its private collection contractor in accordance with Fiscal Service’s contract requirements, will take appropriate action to collect and/or compromise transferred debts per applicable statutory and regulatory requirements, and Fiscal Service procedures. Fiscal Service, or its private collection contractor, will take one or more of the following actions unless the creditor agency and Fiscal Service agree that such actions are not legally permitted or otherwise not in the best interest of the government:

Send demand letters,

Call the debtor,

Refer the debt to TOP for all types of offset, including the offset of payments made by States that participate in the State Reciprocal Program, tax refund payments, salary payments, and other federal nontax payments,

Enter into installment payment agreements,

Enter into compromise agreements,

Refer the debt to private collection contractors,

Report the debt to credit bureaus,

Gather information about the debtor, including purchasing credit reports to assist in the collection effort and using skip tracing and asset-location services,

Administratively garnish wages after:

• Locating the debtor’s employer,
• Sending any required due-process notice to the debtor,
• Issuing the garnishment order to the employer,
• If requested by or on behalf of the debtor, providing the hearing request to the creditor agency for adjudication or, if agreed to by the creditor agency providing the hearing on the creditor agency’s behalf, and
• Taking necessary steps to enforce the order against the employer including, if necessary, initiating litigation.

Refer the debt to the Department of Justice for litigation,

Report compromised debt to the Internal Revenue Service on the appropriate Form 1099-C, and

Take any additional appropriate steps necessary to service the debt.

Maintain and Update Records

Fiscal Service will make available to the creditor agency sufficient information for the creditor agency to update its delinquent debt records, maintain accurate debt balance information, reconcile its debt information, and run status reports on all collection activities. Fiscal Service will provide the creditor agency with a complete accounting of all fees charged (per Section 5040, Fees and Costs) if requested by the creditor agency.

As appropriate, Fiscal Service will provide the creditor agency with access to other relevant information regarding transferred debts.

Modify Records

Fiscal Service will, if appropriate, update and/or modify its delinquent debt and debtor records with information obtained from its skip tracing and asset-location services. This information may include, among other things, contact information for the debtor (including mailing addresses, physical addresses, phone numbers, and email addresses), alternative debtor names (including alternative spellings, maiden names, married names, nicknames, and other aliases), taxpayer identification numbers, and employer information.

Respond to Disputes and Inquiries

Fiscal Service, or its private collection contractor in accordance with Fiscal Service’s contract requirements, will respond to all debtor inquiries received while Fiscal Service is servicing the debt. Fiscal Service will consult with the creditor agency as necessary to receive assistance with its responses.

If a debtor (or someone on the debtor’s behalf) disputes the validity or enforceability of a debt, Fiscal Service may, if appropriate, submit such disputes to the creditor agency for resolution. Disputes may be based on assertions that the debt is not owed, that the debt was paid in full, that an automatic stay in bankruptcy precludes collection, that the debt was discharged in bankruptcy, or a variety of other bases.

If the creditor agency determines that it must communicate directly with third parties about a matter while Fiscal Service is servicing the debt (see Section 5030.40c, Coordination) or thereafter, Fiscal Service will provide the information necessary for the creditor agency to respond to inquiries. Such inquiries may be from Congress, inspectors general, requestors under the FOIA or the Privacy Act, or other relevant parties.

Fiscal Service will assist the creditor agency in defending litigation resulting from the government’s collection efforts.

Return Transferred Debt

Fiscal Service may return a debt to the creditor agency if Fiscal Service determines that one or more of the following factors is met:

The balance of the debt, as reported to Fiscal Service by the creditor agency, is below $25.00,

Fiscal Service has been unable to locate the debtor,

Fiscal Service has been unsuccessful in its debt collection efforts,

The creditor agency has requested the debt be returned, and Fiscal Service, in its discretion, believes that return of the debt is appropriate,

The creditor agency’s certification is incomplete, inaccurate, or unreliable, including because:

• The debtor has filed for bankruptcy and the automatic stay is in effect,
• The debt is invalid or unenforceable, or
• Collection is otherwise precluded.

Facts have changed since the creditor agency certified the debt, and the debt is no longer valid and/or legally enforceable,

The debtor (if an individual) is deceased,

The debtor (if an entity) is no longer in business and has dissolved in accordance with applicable law,

The debtor has a total inability to pay, or

Fiscal Service otherwise determines that the return of the debt is appropriate.

A return based on a circumstance above is not a final determination by Fiscal Service that such a circumstance exists. The creditor agency must make its own determination.

Suspend and/or Terminate Collection Action

Fiscal Service may suspend or cease collection action on its own initiative, or at the request of the creditor agency, if appropriate.

If appropriate, upon return of a transferred debt with a principal balance of $500,000 or less, Fiscal Service may recommend termination of collection action. Return of a debt, by itself, does not constitute Fiscal Service’s approval to terminate collection action. However, unless otherwise specified, Fiscal Service will be deemed to have recommended termination of collection action on the debt if Fiscal Service returns a debt with a principal balance of $500,000 or less for any of the following reasons:

Fiscal Service has been unable to locate the debtor,

Fiscal Service has been unsuccessful in its debt collection efforts,

Fiscal Service has discovered that the debtor (if an individual) is deceased, unless a claim may be filed against the decedent’s estate, or

The debtor (if an entity) is no longer in business and has dissolved in accordance with applicable law.

If Fiscal Service returns a debt, the creditor agency is responsible for determining whether it is appropriate to terminate collection action.

If Fiscal Service returns a debt due to the filing of a bankruptcy petition, Fiscal Service will not be deemed to recommend termination of debt collection action. The creditor agency remains responsible for collecting the debt in compliance with applicable bankruptcy rules or suspending or terminating collection action on the debt, if appropriate.

Credit Collections to the Creditor Agency

Fiscal Service will credit collections (less the fees charged to the creditor agency, per Section 5040, Fees and Costs) to the appropriate Agency Location Code via the Intra-governmental Payment and Collection System (IPAC).

If Fiscal Service’s collection efforts result in a collection of funds greater than the total amount of debt owed by a debtor or result in a collection of funds in violation of the law, the creditor agency is responsible for refunding such erroneous collections, if such a refund is appropriate. If Fiscal Service is aware that an erroneous collection may have occurred, Fiscal Service will notify the creditor agency of the possible erroneous collection.

Fees and Costs

Fees Charged to the Federal Entity

Fiscal Service Fees

The creditor agency must pay fees to Fiscal Service. These fees will be for up to the full cost of servicing transferred debts, including, but not limited to, Fiscal Service’s internal costs and amounts charged by private collection contractors or the Department of Justice (including private counsel under contract with the Department of Justice).

Fiscal Service will announce its fee structure and fee amounts to creditor agencies prior to implementing any new fees, generally prior to the start of each Fiscal Year. Fees are based on all collections received after the transfer of the debt from the creditor agency to Fiscal Service (and before the debt has been returned to or recalled by the creditor agency), not including collections generated and properly identified by the creditor agency as collections through internal offset.

Refund of Fees

Except as specified below, Fiscal Service will retain its fees from amounts collected on behalf of the creditor agency, regardless of whether the collection on which the fee is based was, or is required to be, returned by the creditor agency to the debtor.

Fiscal Service generally will review and evaluate requests for refunds to the creditor agency fees in consideration of the following:

Fiscal Service, through no fault of the creditor agency, collected an amount greater than the debt balance and charged fees on such over collections,

Fiscal Service, through no fault of the creditor agency, collected on a debt after it has been recalled by the creditor agency and charged fees on such collections, or

On a case-by-case basis, if: (1) the creditor agency’s error caused the fee to be charged, (2) the fee charged did not relate to collections generated by Fiscal Service, and (3) Fiscal Service learned of the error within 12 months of charging the fees.

Fiscal Service will make the final determination on requests for refunds of collection fees, based on its sole discretion.

Costs Charged to the Debtor

Unless otherwise prohibited or provided for by law, 31 U.S.C. § 3717 (e) requires creditor agencies to charge the debtor for the costs of processing and handling transferred debts, including fees charged by Fiscal Service.

The creditor agency must credit all payments made by a debtor to the debt, including payments for fees charged by Fiscal Service to the creditor agency.

Exemption of Debt from Treasury Cross-Servicing Program

Introduction

This section provides the standards that the Department of the Treasury (Treasury), acting through the Bureau of the Fiscal Service (Fiscal Service), uses to exempt federal agencies from the requirement to transfer a specific class of delinquent debt to Treasury for collection pursuant to 31 U.S.C. § 3711(g).

Scope

These provisions include:

Apply to all federal agencies seeking an exemption of a class of debts from the mandatory transfer requirement, and

Supersede all versions of the “Standards and Procedures for Exemption of Classes of Debts from the Requirement of Referral to Treasury under the Debt Collection Improvement Act of 1996 (DCIA)" previously issued by Treasury.

Any prior decisions to exempt, deny or withdraw an exemption for a class of debts from mandatory transfer to the Treasury remain in effect.

Authority

The Secretary has the authority to grant, deny, and withdraw exemptions for specific classes of debts from the requirement to transfer debts to the Cross-Servicing Program. See 31 U.S.C. § 3711(g)(2)(B). The DCIA also authorizes the Secretary to establish rules, regulations, and procedures for granting exemptions pursuant to 31 U.S.C. § 3711(g)(10).

Background

The DCIA generally requires federal agencies to transfer any debt that is more than 180 days delinquent to the Cross-Servicing Program. There are five specific statutory exemptions from this requirement. These exemptions cover debts: (1) in litigation or foreclosure, (2) disposed of under an established asset sales program within a specific timeframe, (3) referred to a private collection contractor for a period of time determined by Treasury, (4) referred by, or with the consent of, the Secretary to a Treasury-designated debt collection center for a period of time determined by the Secretary, or (5) collected by the agency through internal offset if such offset is sufficient to collect the claim within three years of delinquency. Treasury regulations at 31 CFR 285.12 include, among other things, more specific descriptions of the exemptions described above.

In addition to the five specific exemptions, the DCIA also granted the Secretary authority to exempt, or withdraw the exemption for, any other class of debts from the mandatory transfer requirement. The Secretary may grant such exemptions at the request of a federal agency or upon the Secretary’s own initiative.

Standards for Issuance of an Exemption: General Rule

When analyzing a potential exemption, the Secretary will determine if granting the exemption is in the best interest of the United States. See 31 CFR 285.12(d)(5). To do so, the Secretary will consider three factors:

Factor 1: Whether an exemption is the best means to protect the government’s financial interest.

Factor 2: Whether transfer of the class of debts to Treasury interferes with the program’s goals.

Factor 3: Whether an exemption is consistent with the purposes of the DCIA.

The Secretary will give appropriate weight to these factors based on the circumstances and the specific exemption at issue. The Secretary may consider other factors in his or her discretion.

Factor 1: Best Means to Protect the Government’s Financial Interest

The Secretary will consider whether collections by the government would be greater, costs of collection would be lower, and/or some other type of financial gain would accrue to the government, if the agency does not transfer the applicable class of debts to the Cross-Servicing Program. The Secretary will consider the number, dollar amount, age, and collection rates of the applicable class of debts.

Factor 2: Transfer to Treasury Would Interfere with Program Goals

The Secretary will also consider whether transfer of the applicable class of debts to the Cross-Servicing Program would interfere with the goals of the program under which the debts arose.

Factor 3: Exemption is Consistent with the Purposes of the DCIA

Finally, the Secretary will consider whether the exemption of the class of debts is consistent with the purposes of the DCIA, which are:

To maximize collections of delinquent debts owed to the government by ensuring quick action to enforce recovery of debts and the use of all appropriate tools.

To minimize the cost of collection by consolidating related functions and activities and utilizing interagency teams.

To reduce losses arising from debt management activities by requiring proper screening of potential borrowers, aggressive monitoring of all accounts, and sharing of information within and among federal agencies.

To ensure that the public is fully informed of the federal government’s debt collection policies, and that debtors are cognizant of their financial obligations to repay amounts owed to the federal government.

To ensure that debtors have all appropriate due process rights, including the ability to verify, challenge, and request compromise of claims, and that they also have access to administrative appeals procedures which are both reasonable and protect the interests of the United States.

To encourage agencies, when appropriate, to sell delinquent debts, particularly debts with underlying collateral.

To rely on the experience and expertise of private sector professionals to provide debt collection services to federal agencies.

Submitting Exemption Requests: Informal Discussions

If an agency believes an exemption for a specific class of debts may be warranted, it should contact Fiscal Service to discuss informally the need for an exemption and other options to meet the agency’s concerns. The contact point for these informal discussions is listed in the "Contact" section of this section.

Formal Request for Exemption: Generally

If, after informal discussions with Fiscal Service in accordance with the subsection about informal discussions above, an agency determines that a formal request for exemption is appropriate, the head of the agency may request exemption of the class of debts from mandatory transfer. Formal requests should be addressed and sent as stated the subsection Addressing the Request above.

Required Information for All Exemption Requests

The requesting agency must submit a narrative statement that clearly identifies the class of debts for which it is seeking an exemption, and that describes whether and how each of the factors described in the Standards for Issuance of an Exemption above apply. The requesting agency must also provide citations to any specific statutes and regulations applicable to the class of debts (e.g., laws that detail program purposes or provide the agency authority to utilize unique debt collection tools).

Required Information to Support Factor 1, Best Financial Interest of the Government

If the requesting agency asserts that an exemption is in the best financial interest of the government, it must, to the extent possible, document the following with regard to the specific class of debts for which the agency is seeking an exemption:

For each of the last five years, the total number and aggregate dollar amount of: (1) debts in the class (including both current and delinquent debt); (2) all delinquent debt in the class; (3) debts in the class less than or equal to 180 days delinquent; (4) debts in the class more than 180 days delinquent.

For each of the last five years, annual collection rates for each of the four categories listed above.

For each of the last five years, annual collection costs for each of the four categories listed above.

The agency’s use of all appropriate tools to collect delinquent debt (including, for example, due process notices, opportunities for review and inspection of records, demand and other letters, phone calls, credit bureau reporting, private collection agencies, litigation, offset, administrative wage garnishment, 1099-C reporting, and implementation of procedures to ensure that delinquent debtors do not receive financial assistance in the form of federal loans or loan guaranties). The description should also describe any unique tools available to the agency to collect the class of debts for which it is requesting an exemption, along with applicable statutory or regulatory citations.

Any unique characteristics of the debts within the class that would make collection by the Cross-Servicing Program less effective, or which better positions the agency to maximize collections and/or minimize costs.

A detailed explanation of its debt collection processes. The explanation should outline the steps the agency takes (or will take) in collecting delinquent debt and describe the agency’s collection strategy for debts. The strategy should address the timeframes for, and use of, all appropriate debt collection tools.

Required Information to Support Factor 2, Interference with Program Goals

If the requesting agency is asserting that the transfer of a class of debts would interfere with program goals, it must provide a written explanation that describes:

Specific goals to be achieved by the program.

Adverse impact transfer of debts to the Cross-Servicing Program has (or is expected to have) on the agency meeting its program goals.

Why the agency cannot sufficiently mitigate any adverse impact that transfer would have.

Required Information to Support Factor 3, Consistency with DCIA’s Purposes

If the requesting agency is asserting that exemption of the class of debts is consistent with some or all of the purposes of the DCIA, it must provide a written explanation addressing:

The specific purposes of the DCIA that would be fulfilled by exemption.

Specific tools and resources that the agency has to collect debts within the class in furtherance of the DCIA’s purposes.

Any other data or information that supports the agency’s position that exemption will be consistent with the DCIA.

Addressing the Request

The agency should address the request to:

Commissioner
Bureau of the Fiscal Service
Department of the Treasury

3201 Pennsy Drive, Building E
Landover, MD 20785

And send the request to:

Director
Receivables Management & Debt Services Division
Debt Management Services
Bureau of the Fiscal Service
Department of the Treasury

3201 Pennsy Drive, Building E
Landover, MD 20785

Request for Additional Information

If Fiscal Service determines that a request is incomplete, or that it needs more information, Fiscal Service will promptly notify the requesting agency that the request is incomplete and describe the specific information that must be submitted to complete the exemption request.

If, after a reasonable period of time, the Secretary has not received this additional information or notification from the requesting agency that more time is needed to provide the additional information, Fiscal Service will notify the requesting official that the request is considered withdrawn.

Response to an Agency Request for Exemption

The Secretary will provide a written response to the request after submission of a completed request.

In responding to any request for exemption, the Secretary may grant the exemption in whole or in part, or deny the exemption in whole or in part. The Secretary may also suggest alternative actions.

Exemptions Initiated by the Secretary

The Secretary has the authority to grant exemptions on his or her own initiative. If the Secretary determines that such an exemption is appropriate, the Secretary will communicate this decision to impacted agencies. Because exempt debts may, but are not required to be, transferred to the Cross-Servicing Program, an agency may still refer its debts to the Cross-Servicing Program even if the Secretary grants such an exemption.

Withdrawing Exemption

In general, exemptions granted by the Secretary are permanent. However, the Secretary may withdraw a previously-granted exemption if the Secretary determines it is appropriate to do so. Fiscal Service will notify the payment agency of any such revocation.

Federal Financial Management Standards

Functions and Activities

Delinquent Debt Collection FFM.070.010

Generate and send dunning notices, with due process language, to alert the payers of debt delinquent status;

Determine allocation of amounts collected (e.g., first to penalties and administrative costs, second to interest, then to accounts receivable);

Update receivables based on agency negotiated installment plan or compromise agreement;

Request agency internally offset a federal payment;

Consult agency’s legal counsel to determine whether to refer debts to the Department of Justice for litigation or use other litigation authority;

Refer debts to Treasury’s Debt Management Services (DMS) for cross-servicing based on agency advice and as soon as due process requirements are met (i.e., 120 days delinquent);

Includes processing of fines, penalties, and administrative fees

Federal Financial Management System Requirements (FFMSR)

Managing Debt (2.5.1)

Capture debt category (for example, bankruptcy and at private collection agency) to support debt reporting consistent with the TFM.

Managing Debt (2.5.2)

Match delinquent debtor information with payment recipient information within and between federal agencies to affect administrative debt offsets (for example, by administrative wage garnishment and request for paying agency to collect the offset) as required by the CFR as well as OMB Circular No. A-129, and consistent with the TFM.

Managing Debt (2.5.6)

Refer debt for collection (for example, to Treasury if delinquent more than 120 days and to the Department of Justice whenever the agency determines debt is uncollectable) as required by OMB Circular No. A-129 and consistent with the TFM.

Reporting on Debt (2.6.1)

Provide receivable and collection status data to support the receivable and collection reporting activities as defined in OMB Circular No. A-129 and as specified in the TFM.

Use Cases

Bill to Collect

Treasury Financial Manual (TFM)

TFM Volume I Part 3 Chapter 6100; Centralized Offset of assigned Payments

TFM Volume I Part 3 Chapter 6200; Exemption of a Class of Federal Payments from the Treasury Offset Program (TOP)

TFM Volume I Part 3 Chapter 5200; Exemption of a Class of Debt from Transfer to the Treasury Cross-Servicing Program

TFM Volume I, Part 3, Chapter 5000; Collecting Delinquent Nontax Debt Through the Treasury Cross-Servicing Program

Other Resources

Office of Management and Budget (OMB)

The Office of Management and Budget (OMB) oversees the implementation of the President’s vision across the Executive Branch. OMB carries out budget development and execution that is applicable to Collections and Receivables.

Contact Information

Contact Details

Direct inquiries concerning Debt Management to:

Department of the Treasury
Bureau of the Fiscal Service
Debt Management Services

3201 Pennsy Drive, Building E
Landover, MD 20785

202-874-6810

debt-tfm@fiscal.treasury.gov