In managing the collection of this debt, the FMS relies on two programs it operates with assistance from several federal agencies. This report briefly describes the origins and current status of both programs and discusses legislation being considered in the 110 th Congress to expand their scope. It will be updated to reflect recent developments affecting either program. The FPLP facilitates the collection of overdue federal taxes by imposing a continuous levy on designated federal payments disbursed by the FMS to business and individual taxpayers holding delinquent tax debt. Origins and Current Status of the Treasury Offset Program

The TOP arose from several provisions of the Debt Collection Improvement Act of 1996, which authorized the Treasury Department to establish a mechanism for withholding or reducing certain federal payments to pay off delinquent federal and state non-tax debt held by individuals. Under the current program, the FMS offsets or lowers a variety of federal payments to satisfy an individual's delinquent federal non-tax debt, child support obligations, or state income tax debt. The act would require the Centers for Medicare and Medicaid Services (CMS) to make its payments to health care providers and vendors under Medicare Parts A and B available for screening for delinquent tax debt under the FPLP over two years: 50% of payments would be screened the first year and 100% of payments the following year. The House passed a bill ( H.R. 4848 ) in February 2008 that included a provision directing CMS to participate in the FPLP. In addition, the bill would require the FMS and IRS to assist the CMS in meeting those deadlines. What is more, in late June 2008, the House passed a measure ( H.R. 6275 ) to raise the exemption amounts for individual taxpayers under the alternative minimum tax in 2008. Among the offsets included in the bill is a proposed amendment of IRC Section 6331(h)(2) that would allow the IRS to apply a continuous levy to federal payments to vendors that sell or rent property (as opposed to goods and services) to the federal government and are delinquent in the payment of their federal taxes.
One of the numerous functions performed by the Financial Management Service (FMS) at the Treasury Department is the collection of delinquent tax and non-tax debt owed to a variety of state governments and federal agencies.
In managing the collection of this debt, the FMS relies on two programs it operates with assistance from several federal agencies: the Treasury Offset Program (TOP) and the Federal Payment Levy Program (FPLP). Both programs allow the FMS to offset or reduce specified federal payments to individuals or companies in order to satisfy qualified tax or non-tax debts. The TOP deals with federal non-tax debts (e.g., delinquent federal student loans) and state tax and non-tax debts, whereas the FPLP is targeted at federal tax debt only.
This report describes the origins and current status of both programs and discusses legislative initiatives in the 110th Congress to expand or modify their scope or design. It will be updated to reflect recent developments affecting either program.
Two bills passed by the House but not considered by the Senate would expand the list of federal payments subject to continuous levy under the FPLP. In February 2008, the House passed H.R. 4848. One of its provisions would direct the Centers for Medicare and Medicaid Services (CMS) to participate in the FPLP. It would also require CMS to take all necessary steps to ensure that all payments to health care providers under Medicare Parts A and B are processed through the program by the end of September 2011. The FMS and Internal Revenue Service would be required to provide all needed assistance to enable CMS to meet that deadline.
In addition, in late June 2008, the House passed a measure (H.R. 6275) to raise the exemption amounts for individual taxpayers under the alternative minimum tax in 2008. Among the offsets included in the bill is an amendment of IRC Section 6331(h)(2) that would allow the FMS to apply a continuous levy to federal payments to vendors that sell or rent property to the federal government and are delinquent in the payment of their federal taxes.