Before referring a debt for collection by administrative offset, a creditor agency must provide each debtor with:
(a) a written notification of the nature and the amount of the debt, the intention of the agency to collect the debt through administrative offset, and an explanation of the debtor’s rights;
(b) an opportunity to inspect and copy the records of the agency;
(c) an opportunity for review within the agency; and
(d) an opportunity to enter into a written repayment agreement.
Can they offset my tax refund and then tell me after the fact?
Yes, after the debt has been referred for administrative offset and an offset is taken, the disbursing official conducting the offset must notify the debtor/payee that the offset has occurred (including the amount and type of payment that was used to pay the debt) and the identity of the creditor agency requesting the offset, including a contact name. The specific timing of the notice is not mandated for tax refund offsets.
What if I did not receive a notice at all?
Regardless of the type of payment, failure of the debtor to receive notice will not affect the legality of the offset (withholding).
The answer depends on whether or not you satisfied your obligations to the federal government. If you signed an Unconditional Personal Guaranty for a commercial loan backed by the Small Business Administration (SBA), then you are responsible for the payment of the debt in the event your brother does not or cannot pay. In due course, the SBA will send you a notice letter that is effectively a demand for payment. If you do not pay the debt or make suitable arrangements agreeable to the SBA, then the debt will be referred to the U.S. Treasury Department for further collection activity.
Apart from being placed into the Treasury Offset Program (TOP) and being exposed to tax refund intercept, administrative wage garnishment and the offset of other federal benefit payments like social security, you will be placed into the Credit Alert Interactive Voice Response System (CAIVRS).
CAIVRS receives inputs from DOJ, Education, SBA, HUD, USDA and the VA. CAIVRS Reporting System is a system maintained by the federal government that lists persons who have defaulted or had a loan foreclosed within the last three years on a debt owed to the Federal government or are currently delinquent on a debt owed to the Federal government. When you apply for an SBA Loan, participating lenders are required to check the CAIVRS database to determine whether the individuals or businesses identified in applying for the loan have either a delinquent federal debt or a prior loss which bar them from SBA financial assistance.
The government has a long memory and there is no statue of limitations on the collection of an unpaid non-tax treasury debt under the TOP program. So, before you sign on the dotted line, think hard. if the government takes a loss, you will be barred from the SBA loan program.
If you would like more information on this subject, you may contact the Perliski Law Group at (214) 446-3934 for a free initial consultation.
I am a federal contractor and I defaulted on an SBA loan years ago, can the Treasury offset my contract payments?
We have had quite a few clients ask us how a defaulted SBA loan might affect their business dealings with the government. In this post we are going to look at this question from the perspective of a client who has one or more contracts with the federal government under which they receive payments for services rendered.
For example, a medical practice or surgical center might receive Medicare payments or a janitorial service might have a contract to clean the offices of certain federal buildings. Will defaulting on an SBA loan really affect any of those agreements? Yes.
Will I be barred from receiving government contracts?
Surprisingly, no, unless otherwise provided by law. Contracting officers shall not use the presence of the CCR debt flag indicator (see below) to exclude a contractor from receipt of the contract award or issuance or placement of an order. However, the government will take steps to ensure that delinquent funds are collected. And, they will be aggressive once they become aware of the delinquency.
Centralized Offset of Federal Payments
As we have just learned, you probably won’t lose your contract award because of defaulted SBA debt, but federal payments made to you are all but certain to be offset. When it is contemplated that the Government-wide commercial purchase card will be used as the method of payment, and the contract or order is above the micro-purchase threshold, contracting officers are required to verify whether the contractor has any delinquent debt subject to collection under the Treasury Offset Program (TOP). This check must be performed at the time of contract award or order placement.
Federal contracting officers are required to check the General Services Administration Central Contractor Registry (CCR) to determine whether a contractor owes a delinquent debt. When the Government contracts for goods or services and pays with a credit card, those payments are made to the card-issuing bank and cannot legally be intercepted for delinquent debts owed by the contractor.
The contracting officer, by law, may not authorize the Government-wide commercial purchase card as a method of payment during any period the CCR indicates that the contractor has delinquent debt subject to collection under the TOP. In such cases, payments under the contract shall be made in accordance with the clause at 52.232-33, Payment by Electronic Funds Transfer—Central Contractor Registration, or 52.232-34, Payment by Electronic Funds Transfer—Other Than Central Contractor Registration, as appropriate in order to assure that delinquent contractors are paid through a mechanism that can be offset or levied to collect the contractor’s debts.
The original law references CCR. What is SAM?
The CCR was the primary supplier database for the U.S. Federal government until July 30, 2012. On July 30, 2012, the CCR transitioned to the System for Award Management (SAM). SAM is now the Official U.S. Government system that consolidated the capabilities of CCR/FedReg, ORCA, and EPLS. For purposes of this post, all references to the original CCR process should now reflect SAM. If you had an entry in the CCR database, you now have an entry in SAM.
Owing unpaid federal debts can cause serious problems. If you would like more information on how the Treasury Offset Program (TOP) works, please contact the Perliski Law Group for a free initial consultation at (214) 446-3934 or use the Contact Us link at the top right of this page.
My spouse and I filed a joint tax return and our refund was offset to repay a defaulted SBA loan my spouse guaranteed before we were married. What must I do to receive my portion of the refund?
Depending on whether you are in a community property state or not, all or part of your income may be liable for the debts of your spouse, even those incurred prior to marriage. However, you personally are not liable for his/her debts. Sometimes that is of small consolation. In the case of tax refunds, you may or may not be entitled to the return of that portion of the refund associated with your income or at least some part of it. In order to determine whether you might have rights, it is important to understand a few things:
Who is taking my refund and why?
The Treasury Offset Program (“TOP”) is a centralized offset program, administered by the Bureau of the Fiscal Service’s (“BFS”) Debt Management Services (“DMS”), to collect delinquent debts owed to federal agencies. Fiscal Service is a bureau of the United States Department of the Treasury. Under TOP, the names and taxpayer identifying numbers of debtors included in a federal database are matched against the names and taxpayer identifying numbers of recipients of federal payments, including, in this example, a tax refund. If there are matches, the tax refund is reduced (known as an “offset”) to satisfy the delinquent debt.
What is an Injured Spouse?
An injured spouse is an individual:
1. Who filed a joint tax return (Form 1040) and
2. All or part of the refund overpayment was, or is, expected to be applied to a past-due obligation of the other spouse and
3. The non-obligated spouse wants his/her share of the joint refund
Injured Spouse Eligibility Requirements
The injured spouse:
1. Is not required to pay the past-due amount, and
2. Will report the income, and/or
3. Will report payments
Form 8379 Injured Spouse Allocation
1. IRS Form 8329 is filed by the non-obligated spouse on a joint tax return
2. Filed only if the taxpayer owes a past due, legally enforceable debt owed to IRS or a debt administered by BFS
How to File Form 8379
1. Submit with jointly filed Form 1040
2. Filed by itself after offset
3. Filed with Form 1040X only if original return (Form 1040) is to be amended/changed to request additional injured spouse refund.
What should happen next?
With Non-Tax Debts such as defaulted SBA loans:
1. Confirm and verify Federal non-tax debt offset
2. Furnish creditor agency information
Creditor Agency will:
1. Provide debt balance and establish payment agreements
2. Refund any money taken in error
3. Remove a debtor or change status of debt from the FMS debtor database
This can be a very complicated area. If you have additional questions about a defaulted SBA loan owed by your former spouse and ongoing tax refund offsets, contact our SBA loan default attorneys at the Perliski Law Group at (214) 446-3934.