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Collection Actions: 10.2.12 Installment Plans and Other Compromises

Installment repayment plans are specifically authorized if the debtor documents an inability to pay in a lump sum.254 The regulation provides that the amounts and schedule of payments should bear a reasonable relation to the size of the debt and the debtor’s ability to pay.255 The regulations require that installment agreements provide for payment in full within three years, or less when possible.256

Collection Actions: 10.2.13 Suspension, Termination, and Discharge of Claims

The statute allows an agency to suspend or end collection on a claim of not more than $100,000 when it appears that no person liable on the claim has the present or prospective ability to pay a significant amount of it, or if the cost of collecting the claim is likely to exceed the amount recovered.277 There are a few exceptions, including one for claims involving fraud.278 If the claim exceeds $100,000, collection can be terminated or suspended only by the Department of Justice.

Collection Actions: 10.2.15.2 Administrative Procedure Act

The Administrative Procedure Act (APA) provides that “final agency action for which there is no other adequate remedy in a court [is] subject to judicial review.”311 An APA action is available to review an agency’s determination to offset a debt against a tax refund or other government payment.312 The agency decision must be final; that is, it must be the culmination of agency action, and legal consequences must flow from it.313 APA review is

Collection Actions: 10.2.15.4 Suit Under Privacy Act

A debtor might consider a claim under the Privacy Act353 if, for example, the government wrongfully discloses information about the debt.354 A Privacy Act claim will lie only against a federal agency or “government-controlled corporation,” not against individual federal employees355 or private collectors, private colleges, or other non-federal entities involved in collecting a debt.356

Collection Actions: 10.2.15.7 Violation of Bankruptcy Stay

If the debtor has filed bankruptcy, a government creditor may violate bankruptcy law by, for example, freezing a bank account in violation of the automatic stay or attempting to collect a discharged debt. Available relief includes compensatory damages, including damages for mental anguish, the return of improperly intercepted funds, and, if the misconduct is willful or in bad faith, attorney fees.419

Collection Actions: 10.2.15.8 Fair Debt Collection Practices Act and Fair Credit Reporting Act

Debt collection by United States officers and employees is excluded from the Fair Debt Collection Practices Act (FDCPA).420 However, private collection agencies and collection attorneys hired by the government are bound by the FDCPA and all other applicable legislation regulating debt collection practices.421 Claims under the FDCPA may be appropriate if a collector has, for example, misrepresented the government’s rights in connection with collection of a claim.

Collection Actions: 10.2.15.9 Seeking Relief in the Court That Determined the Debt

If the claim that the government is collecting arose from a judicial decision, it may be possible to obtain an order from that court requiring the government to restore improperly collected amounts. For example, in United States v. Hughes,428 the D.C. Circuit held that the criminal court that imposed an order of restitution had the authority to order the government to return a tax refund that it should not have intercepted.

Collection Actions: 10.2.15.12 Government Counterclaim for the Debt

The government may seek to nullify a suit challenging its collection methods by counterclaiming for the underlying debt or arguing that the underlying debt should operate as an offset against any amount owed to the plaintiff. One court has rejected this approach in a case involving illegal administrative offsets by the government.

Collection Actions: 10.3.2 Who May Invoke the Procedures Act

Most of the provisions of the Federal Debt Collection Procedures Act (Procedures Act) can be invoked only by the United States or “counsel for the United States.” The “United States” is defined as a federal corporation, an agency, department, commission, board, or other entity of the United States or an instrumentality of the United States.480 “Counsel for the United States” is defined as a U.S. Attorney, an Assistant U.S. Attorney designated to act on behalf of the U.S. Attorney, an attorney with the U.S.

Collection Actions: 10.3.3.2 Judgment Liens

Judgment liens are effective for twenty years, and may, with court approval, be renewed for one additional twenty-year period.498 Until the judgment lien is satisfied, the debtor is ineligible for grants or loans made, insured, guaranteed, or financed directly or indirectly by the federal government, although agencies have authority to promulgate regulations for waiver of this provision.499

Collection Actions: 10.3.3.5 Execution on the Debtor’s Property

The Procedures Act gives the federal government the right to execute on all property in which the judgment debtor has a substantial non-exempt interest.518 Upon commencing a proceeding to execute on the judgment debtor’s property, the government must prepare and serve a notice informing the debtor of the existence of exemptions, the right to a hearing, and the right to seek a change of venue.519 The government may obtain multiple writs of execution simultaneously, and may obtain successive w

Collection Actions: 10.3.5 Government’s Right to Impose a Surcharge

The Procedures Act allows the government to recover a surcharge of up to 10% of the debt to cover the costs of processing and handling the litigation and enforcement of the claim.535 This surcharge can be recovered, however, only in proceedings seeking prejudgment or postjudgment remedies, not in a suit on the underlying debt.536 The government is not entitled to a surcharge when it is awarded attorney fees, or when the law on which the claim is based provides any other amount to cover such

Collection Actions: 10.3.6 Debtor’s Ability to Challenge Postjudgment Remedy

A judgment debtor who disputes the government’s right to a particular postjudgment remedy may file a motion to quash.538 The district court must conduct a hearing on the motion as soon as practicable.539 The issues are limited to the validity of any claim of exemption and the government’s compliance with the Procedures Act’s requirements.540 Some courts have declined to grant a hearing where the debtor has not alleged one of these grounds,

Collection Actions: 10.3.7 Venue and Distant Forum Issues

A serious concern about the Procedures Act is the establishment of nationwide service of process.549 One result of this provision is that the court can issue a writ of garnishment anywhere in the country.550 It also applies to service of the complaint and summons, thereby creating the specter that the federal government could sue in a forum thousands of miles from the alleged debtor’s current residence.

Collection Actions: 10.3.8 Six-Year Statute of Limitations; Time Period for Enforcement of Judgment

In general, with a number of exceptions, suits by the United States for money damages based on an express or implied contract are subject to a six-year statute of limitations.572 The same limitations period applies to suits to recover money erroneously paid to a civilian employee of a federal agency or a member or dependent of the uniformed services.573 The limitations period for most tort suits by the United States is three years.574 These l

Collection Actions: 10.4.1 Introduction

The federal government has extremely powerful tools to enforce federal tax debts—it can place a lien and levy on property, including bank accounts, wages, Social Security, and even pension payments. As a result, consumers must pay special attention to federal tax debts and treat them as high-priority debts.578

Collection Actions: 10.4.2 Importance of Filing the Return on Time

Whether or not a consumer can afford to pay the taxes that are owed, the consumer should be advised to file the required tax return. Every U.S. citizen or resident alien whose taxable income exceeds certain amounts must file an annual income tax return.

The deadline for most people to file individual income tax returns and pay any taxes owed is around April 15 every year, but the exact date varies slightly from year to year due to, for example, holidays. For the 2022 tax year (due April 18, 2023), a person must file a federal income tax return if:

Collection Actions: 10.4.3.1 Generally

It is generally a bad idea for a consumer who cannot afford to pay taxes that are owed to put the debt on a credit card. A financially stressed consumer will likely have trouble repaying the credit card debt, and, as described below, the IRS will generally give a taxpayer a better deal. Interest rates will be lower, there will not be a processing fee to pay, and the taxpayer may even get the IRS to reduce the tax obligation.

A consumer who files a return but cannot afford to pay the taxes due generally has three options in dealing with the IRS:

Collection Actions: 10.4.3.3 Offer-in-Compromise

The IRS may accept payment for less than what a taxpayer actually owes through its “offer-in-compromise” program. Reduced payment is permitted when the IRS determines that, under established financial guidelines, the taxpayer cannot afford to pay the full amount of taxes owed or where an exceptional circumstance exists such that collection of the tax would create an economic hardship or would be unfair and inequitable (for example, the assets that could be used to pay the tax debt are needed to pay for the long-term care of a seriously ill person).

Collection Actions: 10.4.3.4 Currently Not Collectible Status

Some taxpayers may qualify for a temporary hardship determination from the IRS, called “currently not collectible” (CNC) status. The IRS will only grant this status if the taxpayer does not have any assets that could be used to pay the tax debt and does not have any income left after “allowable expenses.”

Collection Actions: 10.4.4 Spousal Defenses

In certain limited cases, a taxpayer’s responsibility to pay a tax may be cancelled when the tax is owed entirely by a spouse or ex-spouse. This cancellation, called “innocent spouse relief,” may be available when the spouse or ex-spouse was solely responsible for the failure to pay the taxes, the taxes are entirely attributable to the spouse’s separate business, or the taxpayer was the victim of domestic abuse. This is true even if the taxpayer filed a joint return.

Collection Actions: 10.4.6 Effect of Bankruptcy on Tax Debt

Bankruptcy is not as effective a remedy when dealing with taxes as with other debts. In general, only old tax debts can be discharged in a chapter 7 bankruptcy—for example, where the debt stems from a timely filed return that is more than three years old. Existing tax liens are likely to remain on the debtor’s property even after a bankruptcy.

Collection Actions: 10.4.7 Sources of Assistance

Low-income taxpayers may be able to get help with tax problems from a “Low Income Taxpayer Clinic.” These are legal clinics based at law schools and legal services offices that help low-income taxpayers handle disputes with the IRS. Clinic locations are listed in IRS Publication 4134 (Low Income Taxpayer Clinic List) and can be found on the IRS’s website.606 Another option may be a local legal services office, which can be located using www.lawhelp.org.