Tax Administration:

Possible Implications of Expanding Refund Offset Provisions

GAO-09-571R: Published: May 7, 2009. Publicly Released: May 7, 2009.

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James R. White
(202) 512-5594


Office of Public Affairs
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Millions of federal taxpayers receive billions of dollars in income tax refunds every year. Many of these refunds are paid to taxpayers who owe money to the federal government or to their state or local government. The law allows certain types of debts to be collected through offsets of federal income tax refunds before payments are issued to taxpayers--in calendar year 2008, over $5 billion was deducted from income tax refunds and used instead to pay other federal agency nontax debt, state income tax debt, and overdue child support payments. Due in part to the current economic downturn and the financial problems of state and local governments, interest has grown in potential expansion of the refund offset program Congressional request, this letter's objectives are to describe (1) recent proposals to expand the refund offset program, and (2) challenges and design issues that would need to be addressed by policymakers and program administrators in the event of program expansion, including the implications of eliminating the current requirement that tax refund offsets for state income tax debts are allowed only when the affected taxpayer lives in the state seeking the offset.

Legislation to expand the types of debts or the types of entities eligible to participate in federal income tax refund offsets have been introduced to Congress in recent years. Congress has also considered but not enacted changes to the requirements with regard to existing offsets. The proposals for adding additional types of debts to the offset program include proposals to add state judicial debt. These are past-due, legally enforceable debts resulting from a state criminal or traffic court's judgment or sentence, including court costs, fees, fines, assessments, and restitution to victims of crime. There have also been proposals to add local government tax debt to the list of allowable offsets. Proposals to expand the offset program to include new types of debts submitted by local governments differed in the proposed methods for submitting the debt to Financial Management Service (FMS).

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