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Government Can Collect Many Delinquent Debts By Keeping Federal Tax Refunds as Offsets

NCJ Number
Date Published
30 pages
To improve the Federal Government's debt collection procedures, the General Accounting Office (GAO) suggests that the Government collect certain delinquent debts by keeping Federal tax refunds as offsets.
Over $400 million in nontax receivables was written off by the Government in fiscal 1978, and that amount is increasing. Collection of these receivables could be accomplished by transferring the uncollectible receivable balances to the Internal Revenue Service (IRS) for matching against subsequent tax refunds. In cases where an individual or firm owes the Government money, the applicable tax refund would be reduced by this amount. To evaluate the feasibility of this offset method, GAO provided data to IRS on 613 outstanding Government receivables valued at $413,309. IRS determined that $153,583, or 36 percent, could conceivably have been collected by reducing tax refunds paid in the following 2 years. Additional amounts could have been recovered in succeeding years. Further, the Federal Government's right to collect delinquent debts by offsetting against amounts due the debtors is strongly supported by statutes and court decisions. Thus, IRS should implement procedures which (1) provide for agencies to refer delinquent receivables to IRS after all collection efforts have been exhausted and (2) screen Federal income tax refunds against those delinquent debts and withhold all or part of refunds due. However, IRS expressed reservations about the practicability of this program when balanced against the value of concentrating IRS resources on the administration of tax laws. The full IRS response to GAO's recommendations is appended, and footnotes are provided.