Offsets in a Time of Coronavirus

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As discussed in yesterday’s post, Congress has created an override of the normal offset provisions for the CARES rebate.  It does not matter how much a taxpayer owes the IRS for prior years, if a taxpayer qualifies for the CARES rebate, the $1,200 rebate will pass through the normal offset provisions without stopping to satisfy the outstanding federal tax liability.  This is a sign of how much the government wants to put these checks into the hands of taxpayers and signals a difference in approach from the 2008 rebate checks where a large number were siphoned off to pay prior debts.

Also discussed yesterday was the decision of the Department of Education to pull back from claiming an offset of federal taxes this year. 

While it is nice that the IRS seems to acknowledge a small loosening of the normal offset bypass rules by requiring less documentation to request an offset bypass, it could go further.  It could follow the lead of the Department of Education and simply pull back from making offset for a period of time to allow taxpayers to get their refunds this year because of the extraordinary circumstances.  The IRS has this discretion as discussed above because the statute says may.  Why not exercise this discretion in the same manner as another department of the federal government?  Why should the Department of Education be making a policy decision about waiver of offset during this period different from the policy decision made by the IRS?

The issue of pulling back from making IRS offsets for a period of time took on greater urgency yesterday with the closing of the last IRS campus still running.  As long as Ogden was open it was possible for TAS to reach out to IRS employees who could perform the OBR.  Now that all of the service centers are closed there is no one home to make the OBR.  Anyone with a critical need for their refund, will not have OBR as an option because of the absence of IRS employees who could perform the OBR.

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On Friday April 3 the ABA Tax Section sent a letter to the IRS with a list of recommendations regarding how the IRS could respond to the COVID-19 impact on the tax system and on taxpayers.  One recommendation concerned offset and it provides:

… the Service has discretion to not offset a tax refund to cover a previous federal tax debt.20 In tandem with the stimulus checks provided by the CARES Act, offset bypass could provide powerful, targeted relief to those most in need. We recommend the Service provide relief from refund offset due to federal tax debt for all taxpayers with gross income less than 250 percent of the federal poverty line. In addition, we recommend the Service bypass refund offsets for returns claiming the earned income credit or additional child tax credit. Currently, the Taxpayer Advocate Service (“TAS”) assists with offset bypass refund (“OBR”) claims for individual taxpayers facing exigent circumstances. However, the tollfree number for TAS has been taken offline, and TAS local offices are busy meeting the demand of many struggling taxpayers and the challenges involved in remote work. TAS employees would be overwhelmed if they were required to individually request OBR for each eligible low-income taxpayer. A blanket policy of suspending refund offsets would enable TAS to focus on the many other taxpayer issues. Further, most low-income taxpayers are not aware of the OBR process and without Low Income Taxpayer Clinics (“LITCs”) and Volunteer Income Tax Assistance (“VITA”) sites to inform them, they likely will not know to request this assistance from TAS.

Yesterday’s post also discusses how IRC 6402 and the Treasury Offset Program (TOP) work.  Even if the IRS exercises its discretion in the statute to pull back from taking 2019 refunds to past due taxes, some taxpayers will still lose their refunds to other debts that participate in TOP.  For broader relief Congress would need to step in and provide some direction as part of the next relief package.

Offset is a powerful collection tool.  A 2016 Treasury Inspector General for Tax Administration report states that the IRS collected about $7 billion per year through offset.  By substantially turning off the computers which normally capture federal payments headed out to taxpayers with outstanding federal tax and other federal obligations, Congress has made a strong statement about the need to get money into the hands of individuals devastated by the economic impact of COVID-19.  Should it do more?

If Congress wants to be consistent with its actions in CARES, it could suspend TOP for this tax season (with the exception of past due child support payments).  Similarly, if the administration wants to be consistent with the action of at least one of its departments, assuming the statutes governing the departments have the permissive language similar to IRC 6402(a), the administration could grant relief from offset across the board for this tax season.  If there is no Congressional action to broadly suspend TOP, the administration could take the lead and follow the example set by the Department of Education by suspending offset to all federal agencies.  The IRS could independently exercise its discretion as recommended by the ABA and suspend offset.  There are many possibilities here but action should come quickly.

Comments

  1. Sandy Vos says

    It would be helpful if DOE would make this policy retroactive to cover this entire filing season, relinquishing funds they have already offset from those filing earlier in the season.

    • Yes that would be a huge help, I was hoping somebody on here would know something about it and be able to tell me how to get my taxes back because they were taken for student loans.

  2. Nancy Ryan says

    It is inconceivable that the Service could be touting a Taxpayer First Initiative that does not routinely exempt EITC and CTC refunds from offset. Recipients of these credits are by definition the poorest of the poor, and it is high time for the federal government to stop giving money meant to provide poor children with the barest of necessities with the right hand and then snatching it back with the left. Many, if not most, states have exemption statutes that prevent EITC and CTC refunds from being used to pay the parents’ creditors in state judicial actions and in bankruptcy proceedings. The federal government needs to follow suit.

    • Carl Smith says

      Some years ago, Nina Olson asked Congress to only permit levy on 15% of EITC refunds — following a similar model from the U.K. She got nowhere.

      • Nancy Ryan says

        I know Carl, but now we have the “Taxpayer First Initiative” and COVID-19. Perhaps timing is everything?

        • Nancy’s suggestion reminds me of the NYT series “The America We Need” which is using the pandemic as a way to explore ideas on how we can emerge as a better country post-pandemic. Same goes for tax administration. The offset bypass system needs a refresh.

          • I just wants to know if I’m getting my check. The president didn’t send checks out for a person to pay child support. It was sent to use for this virus. I understand child support needs to be paid, but at this time we all need help. I think it is wrong in what they are doing to the poor.

  3. sherry Lewis says

    There were broadcasts and reports publicly made where Trump as well as 2 Congressmen jumped the gun and said that all 2019 federal returns filed 3/13/2020 or after would not be subject to Refund offsets or garnishments, including past due debts to the IRS, and excluding past due child support would be waived and any of these refunds seized on or after 3/13/2020 would be eligible for a refund. I applaud the Dept Of Education for stepping up and stopping all offsets and garnishments due to Federal Student Loan debt. They are making the IRS look pretty bad during our Nations time of need. I just keep watching and hoping the IRS will catch up and get on board, even if that means they have to refund a whole bunch of offset returns.

    • So are they off setting back child support or not? because me and my husband both are on child support from previous relationships and we have a 4 year old in our home that needs as well as our other kids…plus i work in the health care field everyday putting myself at risk and come home to my daughter..putting her at risk..And we cant even get harzard pay but if my child gets sick and has to be quarentined..what then? There are people that are paying support bi weekly and still cant catch a break..its sad bc my hubby is in jail so i have no other support nor family here in Wisconsin so i kist pray that we dont get sick.period bc they dont give kids medication here for colds

  4. I am a single mom with 3 kids under nine at home. I also just had my taxes taken for cs I can’t work at Crackle barrel I can’t receive unemployment and now I need that money for bills and take care of my children while this virus has stopped life for moment.So do I get stimulus or cs taking that to cause I love in housing and no job I can’t pay rent elec. Is will my kids and I end up homeless ????? I need that cash to maintain my simple life.
    Caries Allen carieann10209710@Gmail.com

  5. So who do I contact to request my federal offset not be taken? I can’t get a person anywhere!

  6. Andrew James Conine says

    Hi my name is Andrew Conine I am currently unemployed and filed my taxes for 2019 the Iowa Department of Revenue took every single dime I made state and federal taxes and also has taken my my first stimulus check now I don’t think it’s fair that we have to suffer in this time of Crisis because the state wants it’s money paid back to them people are suffering without this money jobs are hard to find getting rides to jobs even harder to get everything is so difficult right now the stimulus checks were not designed to pay back a debt they were designed to help us in an emergency situation and I think it’s very unfair that we’re getting charged for that with an emergency fund which is supposed to be helping us when the kids and their moms get stimulus checks to no offense to them because I am down for paying my kids that’s fair but when we’re in a time of Crisis like this I really think the state or government should stand back and give us our emergency money especially when you’re homeless like me and I don’t have any type of funds coming in at all besides the stimulus check because of a virus nobody knows or understands how or why it was accumulated in the first place I don’t care all I’m saying is there’s people out here that are suffering because the state wants their child support back and if people like me suffering out here because those guys in their high seats up there in the government want their little bit of Child Support back when they’re sitting pretty and we’re sitting here in the gutter that’s all I have thank you

  7. I’m like the other man who money was took for child support, and I think that’s wrong because at this time we all need help, because of this virus we can’t work . And for someone to take your money at this time is wrong. The mother of my kids get her $1200.00 dollar check any way. And now they took my check and

  8. Aaron Fox says

    I owe back support and I’m not getting fucking stimulus check this is so fucked up

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