Case Applying Refund to Federal Government Nontax Debt (7/21/12)

In Kipple v. United States, 2012 U.S. Claims LEXIS 821 (2012), here, the Court of Federal Claims blessed § 6402 offset from a tax refund for repayment of student loans owed to the Department of Education (by acquisition from the original lender).  The offset was made  under the Treasury Offset Program, acronymed to TOP.  A description of the TOP program is here, with the summary being.

The Treasury Offset Program is a centralized offset program, administered by the Financial Management Service's (FMS) Debt Management Services (DMS), to collect delinquent debts owed to federal agencies and states (including past-due child support), in accordance with 26 U.S.C. § 6402(d) (collection of debts owed to federal agencies), 31 U.S.C. § 3720A (reduction of tax refund by amount of the debts), and other applicable laws. FMS disburses federal payments, such as federal tax refunds, for agencies making federal payments (known as "payment agencies"), such as the Internal Revenue Service. "Creditor agencies," such as the Department of Education, submit delinquent debts to FMS for collection and inclusion in TOP and certify that such debts qualify for collection by offset.

The key statutory provisions are 26 USC 6402(d), here, and 31 USC 3720A, here.

One of the key requirements is that the agency seeking the offset (DOE in the case) must have given the federal debtor notice and opportunity to object before implementing the TOP procedure for the debt.  That notice, like many tax notices (specifically notices of deficiency and notices of assessments) and, I am sure other governmental notices, must be sent to the addressee's last known address.  The agency must prove proper sending, not actual receipt.  (Put another way, the statute assigns the risk of nonreceipt to the addressee rather than to the Government agency.)  Echoing what is said on this issue in many tax cases, the Kipple court said:

Although DOE satisfied notice requirements by sending a letter to plaintiff's last address on file, defendant emphasizes the likelihood that plaintiff actually received "at least one, if not all of the letters sent by DOE." Def.'s Renewed Mot. Sum. J. 6-7. From the tenor of plaintiff's correspondence with Van Ru Credit Corporation and the DOE, it seems more likely to us that he did not actually receive notice of the offset before it occurred. The likelihood of actual receipt, however, is not the relevant standard. By sending a notification letter to plaintiff at his address on file, the DOE satisfied the notice requirements. Relevant regulations provide that notification or a "reasonable attempt" to notify should be sent to the taxpayer; one possible reasonable attempt would be to send a letter to an address on file at the IRS, and another would be to send to the last address on file at the agency. See 26 C.F.R. § 301.6402-6(c)(4), (d)(1) (2007) (stating that the IRS's last address on file would be reasonable); 31 C.F.R. § 285.2(d)(2) (2007) (stating that relying on the agency's last address on file would be reasonable). DOE's manner of notification was sufficient.

For my students in the tax procedure class, please note the two key points:  (1) there is a § 6402(d) process for offsetting refunds for nontax obligations to the Government; and (2) note the pervasive civil notice standard for mailing to the last known address (which is required for many key tax notices, including notices of deficiency and notices of assessment).

I have added a reference to 31 USC 3720A and the TOP program to a footnote in the 2012 text footnoted version.