B-231370, Oct 18, 1990, 70 Comp.Gen. 41
B-231370: Oct 18, 1990
The Government Printing Office (GPO) was entitled to take prompt payment discounts on contract payments owed to Swanson Typesetting Service but paid to the Internal Revenue Service (IRS) pursuant to notice of levy even though actual transfer of funds to IRS did not occur until after contractual payment period for prompt payment discounts. GPO may not be deprived of its right to take prompt payment discounts where payment to contractor is withheld on account of an IRS levy notice. We also conclude that GPO was entitled to take prompt payment discounts since payments would have been made within the discount period but for the IRS notice of levy. BACKGROUND Swanson is one of a number of contractors from whom GPO procures printing services.
B-231370, Oct 18, 1990, 70 Comp.Gen. 41
PROCUREMENT - Payment/Discharge - Payment withholding - Prompt payment discounts - Propriety 1. The Government Printing Office (GPO) was entitled to take prompt payment discounts on contract payments owed to Swanson Typesetting Service but paid to the Internal Revenue Service (IRS) pursuant to notice of levy even though actual transfer of funds to IRS did not occur until after contractual payment period for prompt payment discounts. GPO may not be deprived of its right to take prompt payment discounts where payment to contractor is withheld on account of an IRS levy notice. PROCUREMENT - Payment/Discharge - Payment priority - Payment procedures - Set-off 2. Although IRS served notice of levy on GPO pursuant to 26 U.S.C. Sec. 6331, we view such notice as an IRS request for GPO to set off amounts GPO owed its contractor. U.S. for Use of P.J. Keating Co. v. Warren Corp., 805 F.2d 449, 452 (1st Cir. 1986). Thus, GPO properly transferred to IRS amounts owed the contractor, Swanson Typesetting Service, on invoices received both before and after receipt of the notice of levy.
Swanson Typesetting Services:
In response to a Notice of Levy issued by the Internal Revenue Service (IRS), the United States Government Printing Office (GPO) withheld a number of payments owed to one of its contractors and subsequently transferred the withheld amounts to the IRS. Of the payments withheld and paid to IRS, some became due prior to the date that GPO received the IRS notice and some became due after that date. Before making payment to IRS, GPO took prompt payment discounts on all of the withheld amounts. The contractor, Swanson Typesetting Service (Swanson), challenges the propriety of the GPO's implementation of the way and disputes GPO's authority to take prompt payment discounts on the withheld payments. The General Counsel of GPO seeks our advice on these issues under 31 U.S.C. Sec. 3529 (1982).
We conclude that GPO properly transferred to the IRS the payments owed to Swanson since we view the transfer as a setoff even if initiated pursuant to a formal notice of levy. We also conclude that GPO was entitled to take prompt payment discounts since payments would have been made within the discount period but for the IRS notice of levy.
Swanson is one of a number of contractors from whom GPO procures printing services. Under its contract with Swanson, GPO refers specific printing jobs to Swanson in accordance with a prearranged schedule of charges and requirements. As each job is completed, Swanson returns it to GPO along with an invoice requesting payment. The contract allows GPO to earn prompt payment discounts on those payments which are made within a specified number of days ("the discount period") after the invoice is received. GPO has established a computerized system which assures that payments to its contractors (including Swanson) are made within the discount period.
On November 27, 1987, GPO received an IRS Notice of Levy issued pursuant to 26 U.S.C. Sec. 6331 (1982), as amended, against Swanson for unpaid taxes and related charges in the amount of $145,677.75. The levy covered all property and other rights of Swanson held by GPO as of the date that GPO received the levy notice. According to GPO, prior to the date that it received the levy notice, it had already received and partially processed a number of invoices from Swanson for previously completed work. For some of these invoices, processing had proceeded to the point that checks (discounted for prompt payment) had already been written, but had not yet been mailed. Other invoices had been or were about to be approved for payment and entered into the automated system to await the date upon which a check (less the prompt payment discount) would be automatically written and mailed. In addition to the invoices received prior to the IRS notice, several more invoices were received after GPO received the IRS notice, but prior to the completion of GPO's response to IRS.
GPO withheld payment on all the invoices, aggregated the amounts payable into one single payment of $26,036.06, and sent that amount to IRS on December 16, 1987. Of this amount, $24,048.52 represented the payment (less prompt payment discounts) of those invoices received prior to the IRS notice. The balance, $1,987.54, represented payment (less prompt payment discounts) of those invoices received after receipt of the IRS notice.
After GPO made payment to IRS, Swanson disputed GPO's actions. Swanson has essentially two arguments. First, Swanson maintains that the IRS levy notice could not be properly applied to any of the invoices upon which GPO withheld payment because it believes that all of the withheld payments were owed on invoices that it submitted after GPO received the levy notice. Swanson also claims that IRS informally told GPO that the levy was only intended to apply to the proceeds of a particular lawsuit (brought against the United States by Swanson) then pending before the United States Claims Court. Second, Swanson argues that, at a minimum, in order to qualify for prompt payment discounts, GPO was required to pay the withheld amounts to someone (either Swanson or the IRS) within the discount period. Since GPO did not, Swanson concludes that the discounts were improperly taken.
Swanson's first argument is premised on the proposition that the levy issued pursuant to section 6331 of the Internal Revenue Code, 26 U.S.C. Sec. 3331, did not reach the withheld payments that GPO transferred to IRS. /1/ We need not dwell long on this issue since we view the transfer of funds as a setoff rather than a levy. In this regard, we agree with the holding of the First Circuit Court of Appeals in U.S. for Use of P.J. Keating Co. v. Warren Corp., 805 F.2d 449, 452 (1st Cir. 1986) that the IRS' service of a notice of levy upon another government agency "does not magically transform a traditional setoff by the federal government into a levy." See also Aetna Insurance Co. v. United States, 456 F.2d 773, 197 Ct. Cl. 713 (1972); Barrett v. United States, 367 F.2d 834, 177 Ct.Cl. 380 (1966); In Re Lanny Jones Welding and Repair Inc., 106 Bankr. 446 (E.D. Va. 1988); but see United Sand and Gravel Contractors, Inc. v. United States, 624 F.2d 733 (5th Cir. 1980). Thus, we see no merit in Swanson's first argument.
Turning to Swanson's second argument, we conclude that the amounts payable on those invoices were properly reduced by the prompt payment discounts. This Office has repeatedly held that the government may not be deprived of its right to take aprompt payment discount where the delay in payment was causedby the contractor, including, for example, where payment iswithheld on account of an IRS levy notice. /2/ These reduced amounts were then properly payable by GPO to IRS for credit onits tax claim against Swanson.
The fact that IRS did not receive the payments until after the prompt payment discount period does not affect our conclusion.
We do not agree with Swanson that GPO was required by thecontract to pay "someone," either Swanson or IRS, within thediscount period under these circumstances. Once GPO receivedthe notice, it was prohibited from paying Swanson, and in ourview, both its obligation to make payment to Swanson and theprompt payment timing provisions of the contract weresuperseded as a matter of law. In B-210243, Apr. 22, 1983, we allowed an agency to take a prompt payment discount under circumstances similar to those of the present case, where an agency of the United States is asked to set off funds, we think payment can be properly viewed as having been constructively made at the time that the agency received the setoff request. In other words, GPO effectively made payment at the moment that the levy notice, qua setoff, attached to the amounts that GPO otherwise owed to Swanson. /3/
Based on the foregoing, we conclude that GPO properly withheld and paid to IRS the amounts owed to Swanson on invoices received both before and after receipt of the levy notice. We also conclude that GPO was entitled to take the prompt payment discounts for those invoices which it would otherwise have earned under its contract with Swanson, but for its compliance with the IRS request for setoff, albeit one couched as a levy.
/1/ Whenever a tax assessment remains unpaid after notice and demand, IRS may collect the tax by "levy" upon all property and rights to property belonging to the delinquent taxpayer, no matter who possesses that property. 26 U.S.C. sec. 6331(a) & (b) (1982), as amended by Pub. L. No. 98-369, tit. VII, sec. 714(o), 98 Stat. 964 (1984). With the exception of levies against wages or salary, IRS levies are not "continuous," that is, they apply only to property possessed and obligations existing at the time of the levy. Compare 26 U.S.C. sec. 6331(e), as amended by Pub. L. No. 100-647, tit VI, sec. 6236(b)(2), (h)(1), 102 Stat. 3342, 3738, 3741 (1988). In order for IRS to levy against property acquired after the date that the levy notice is received, it must issue a new levy notice. Cf. 26 U.S.C. sec. 6331(c)(1982); 26 C.F.R. sec. 301.6331-1(a)(1)(1988).
/2/ B-210243, Apr. 22, 1983 (The contractor's actions, including "its actions which resulted in the IRS levy ... are the cause of the Government's delay in making the final payment in this case. (Citation omitted.) Therefore, (the government) is entitled to the (prompt payment) discount."). Cf. 18 Comp.Gen. 155, 157 (1938); B-201328, Oct 28, 1981; B-184351, Jan 27, 1976.
/3/ In this respect taking offset has often been likened to making a payment. E.g. B-195066, Sept. 22, 1980 (Where the Navy offset unpaid leave rations it owed a member against advance pay the member owed the Navy, we said, "the setoff effectively constituted payment of the amount due the member ...") See also 6 Op. Att'y Gen. 732, 743 (1854); Studley v. Boylston Nat'l Bank, 229 U.S. 523, 528 (1913).