The Office of Legislative
and Public Affairs

Fact Sheets

MAJOR ACCOMPLISHMENTS

The Debt Collection Improvement Act of 1996 and other statutes provide the tools for administering a centralized program for the collection of delinquent, non-tax and tax debts. The Financial Management Service (FMS), a bureau of the Department of the Treasury, is charged with implementing the government's delinquent debt collection program. FMS's Debt Management Services (DMS) carries out the program utilizing its Treasury Offset Program (TOP) and Cross-Servicing Program. Today, the FMS debt collection program is a central tool for sound financial management at the federal level. Since 1996, FMS has collected more than $31.5 billion in delinquent debt. In fiscal year 2007, collections of federal delinquent debt surpassed $3 billion for the fifth consecutive fiscal year. This fact sheet highlights the progress made in the program during fiscal year 2007.

Through the debt collection program, FMS provides an extremely valuable government-wide service, assisting with the collection of delinquent federal debt, much of which would not be collected otherwise. The debt program has had a tangible impact on agency fiscal operations, the stewardship of taxpayer dollars, the integrity of important federal programs, such as student loan programs, and efforts to collect delinquent child support debt.

Critical to the success of collection efforts is the role of the federal program agencies - that of referring eligible delinquent debts to Treasury for collection. At the close of fiscal year 2007, 100 percent (45.0 billion) of the eligible federal non-tax debts had been referred to TOP for collection. For the same time period, 100 percent ($9.3 billion) of the eligible debts had been referred to the Cross-Servicing Program for collection, up from 43 percent at the end of fiscal year 1999. Through TOP, total collections were more than $3.6 billion for fiscal year 2007.

Additionally, $131 million was collected through the Cross-Servicing Program. Providing high-quality customer service throughout the collection process and implementing new initiatives to aid in preventing delinquencies were Treasury priorities throughout fiscal year 2007. One of the customer service tools used at the TOP Customer Service center, the Interactive Voice Response (IVR) system, significantly reduces waiting times for callers, by providing an automated response system to address callers' questions. During the 2007 tax season, the TOP Customer Service Center handled more than 2.7 million phone inquiries, compared to 2.5 million inquiries for the same period during the 2006 tax season. TOP Call Representatives handled only 10 percent of all calls received.

PROGRAM OVERVIEW

Treasury Offset Program

TOP is a debt collection program that uses both Offset and the Federal Payment Levy Program.

Offset

Offset is a process whereby federal payments are reduced or "offset" to satisfy a person's overdue federal debt, child support obligation, or state income tax debt. A payee's name and taxpayer identification number are matched against a Treasury/FMS database of delinquent debtors for automatic offset of funds. Offset funds are then used to satisfy payment of the delinquent debt to the extent allowed by law.

For fiscal year 2007, payment types subject to offset included Office of Personnel Management retirement payments, Internal Revenue Service (IRS) tax refunds, some vendor payments (Treasury disbursed and non-Treasury disbursed payments), federal employee travel payments, some federal salary payments, and Social Security benefit payments.

Offset of federal salary payments, through TOP, is conducted in partnership with the salary paying agencies: The U.S. Department of Agriculture's National Finance Center, the Department of the Interior, the Department of Defense, the U.S. Postal Service, and the General Services Administration. This program provides a more efficient process than the non-centralized/internal salary offset process currently used by some federal agencies.

Offset of Social Security benefits payments, which began in May 2001, was implemented in stages to ensure that payment recipients received appropriate notices of potential offsets, as well as the opportunity to take action to avoid offsets. This specific offset program was fully implemented in 2002. The State Income Tax Program was launched in January, 2000 to enable offset of federal tax refund payments to satisfy past-due legally enforceable state income tax obligations. The legal authority for this offset is 26 U.S.C. 6402 (e), 31 CFR 285.8, and applicable state law. To date, 39 states and the District of Columbia participate in the program. The State of Mississippi is planning to participate in early 2008.

Federal Payment Levy Program

The Federal Payment Levy Program (FPLP) was initiated by FMS in July 2000. FPLP is a program whereby delinquent Federal income tax debts are collected by levying non-tax payments, as authorized by the Taxpayer Relief Act of 1997. FPLP includes levy of vendor, Federal employee salary, OPM retirement, and Social Security benefit payments. It is accomplished through a process almost identical to offset, that is by matching delinquent debtor data with payment record data. This automated collection of the debt at the time of payment occurs after the delinquent taxpayer has been afforded due process, in accordance with the Internal Revenue Code.

Fiscal Year 2007 TOP Referrals as of September 30, 2007

As of September 30, 2007, the TOP database contained $270.6 billion in delinquent receivables. The largest component of TOP's delinquent debtor database was the $126.2 billion in federal income tax debts submitted to FPLP.

By the end of fiscal year 2007, in terms of federal non-tax debts, $45.0 billion (100 percent) of the amount of debts eligible for referral were referred. Of that total, 51 percent ($22.8 billion) were debts referred by the Department of Education.

Efforts by states, HHS's Office of Child Support Enforcement (OCSE), and FMS to refer more delinquent child support debts to TOP resulted in referrals of $92.8 billion, as of September 30, 2007.

Referrals of state income tax debts rose to $ 7.6 billion from $6.1 billion in FY 2006.

Fiscal Year 2007 TOP Collections as of September 30, 2007

Total collections through TOP in fiscal year 2007 were $3.6 billion. Since enactment of the DCIA in April 1996, $30.8 billion has been collected through TOP. In fiscal year 2007, administrative offset collections were $186.8 million, a 30 percent increase over fiscal year 2006 collections. Fiscal year 2007 was the fifth full year for offsets of Social Security payments to collect federal non-tax debt. Administrative offset collections have steadily grown each year.

Total tax refund offset collections for child support debts, federal non-tax debts and state income tax debts totaled $3.1 billion. Child support collections totaled $1.69 billion, which was an increase of $114.4 million over fiscal year 2006 collections.

Total collections of state income tax debts by offsetting federal tax refunds totaled $241 million. Collections under FPLP totaled $343 million in fiscal year 2007, a 13 percent increase from the $303 million collected in fiscal year 2006. The IRS determines which federal tax debts can be collected through the levy process.

Cross-Servicing

Cross-Servicing is the process whereby agencies refer federal non-tax debts more than 180 days delinquent to FMS for collection. Treasury utilizes a variety of collection tools once agencies refer their debts. Those tools include: Treasury demand letters, telephone calls to debtors, referral of debts to TOP, reports to credit bureaus, referral to one or more of the private collection agencies (PCAs) on Treasury's contract, and referral to the Department of Justice for litigation. FMS also provides administrative wage garnishment (AWG) as a debt collection tool available to federal agencies through Cross-Servicing. AWG is proving to be a valuable tool for increasing collections, and FMS continues to encourage federal agencies to authorize its use through Cross-Servicing. Presently, 17 agencies participate in the AWG program. In fiscal year 2007, AWG collections totaled over $7.0 million, a 25 percent increase compared to fiscal year 2006.

In fiscal year 2007, FMS Cross-Servicing awarded new contracts for private collection agency services. This represents the third private collection agency contract for FMS since the Debt Collection Improvement Act of 1996. Five collection agencies won award of the contract, which will cover services to FMS until 2012. These five agencies will compete against each other on a quarterly basis to gain a larger share of FMS's debt portfolio.

Fiscal Year 2007 Cross-Servicing Referrals as of September 30, 2007

The calculation of the amount of debts eligible for referral is based on information provided by the agencies in the Treasury Report on Receivables at the end of the fiscal year's third quarter. For fiscal year 2007, debts eligible for referral to Cross-Servicing totaled $8.8 billion.

As of September 30, 2007, Cross-Servicing referrals were $9.3 billion, or 100 percent of the eligible debts.

Fiscal Year 2007 Cross-Servicing Collections as of September 30, 2007

Since the inception of the Cross-Servicing program, FMS and its PCAs have collected nearly $900 million.

In fiscal year 2007, FMS and its PCAs collected more than $131 million, a slight increase over the previous year.