1. 1 Treasury Offset Program NASC PRESENTATION

2. 2 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

3. 3 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

4. 4 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

5. 5 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

6. 6 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

7. 7 Due Process Notice Intent to offset 60 days to dispute the debt Any state law requirements

8. 8 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

9. 9 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

10. 10 TOP – Transmission Method Batch Processing Connect:Direct Dataline from creditor agency to FMS Connect:Mailbox Manual process using modem to transmit files to FMS

11. 11 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

12. 12 Vendor Offset Notice Sent by FMS Date and amount of offset, Agency to which money is sent, contact point at agency

13. 13 TOP Process PAYMENTS TOP Database DEBTS Does payee name & TIN match debtor name & TIN? No Yes Check or EFT to payee $$ to creditor agency Notice to debtor

14. 14 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

15. 15 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.

16. 16 Test Results State Debts Offset by TOP Offset Category FEDERAL PAYMENT AMOUNT AMOUNT OFFSET NUMBER OF PAYMENTS OFFSET Admissions & Amusements 51,377.769,061.0530 Central Collection 1,557,326,841.231,479,410.871,067 Corporate Tax 5,211,598.74259,864.6085 Motor Carrier 396,285.0033,444.181 Fuel Tax 352127.891 Individual Taxes 2,583,635.91288,990.90442 Sales & Use 23,997,046.84569,647.00246 Withholding 100,244,032.554,757,725.891,341 $1,689,811,170$7,398,2723,213 Federal vendor payments for the month of September 2006. Feds indicated this was a low volume month.

17. 17 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

18. 18 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

19. 19 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.

20. 20 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.

21. 21 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

22. 22 IRS Tax Refund Intercepts Fiscal Year 2006 30,530 federal tax refunds intercepted $21,800,000

23. 23 State Refund Intercept Statistics Fiscal Year 2006 Collection Category Count Dollar Amount Individual72,371 $ 33,692,391.13 Withholding7,116 $ 4,814,632.01 Sales & Use Tax1,669 $ 1,625,750.03 Corporation588 $ 2,806,101.11 IRS7,854 $ 4,852,747.68 Central Collections Unit92,562 $ 41,019,785.53 Dept. of Human Resources (child support)14,438 $ 7,168,580.58 Other States687 $ 211,579.63 TOTAL $ 96,191,567.70

24. 24 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

25. 25 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

26. 26 Contact at FMS For questions on the state reciprocal agreement pilot program, please contact: Sarah Martin 202-874-6884 sarah.martin@fms.treas.gov

27. 27 Treasury Offset Program Questions ???