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Cross-Servicing FAQ

Collection of Debts on Behalf of Another Agency

The Debt Collection Improvement Act of 1996 (DCIA) requires agencies to "transfer" their delinquent non-tax debt over 180 days delinquent to Treasury. What does "transfer" of debts mean? If an agency transfers a debt to Treasury or to another Debt Collection Center for collection, where is the record for the debt maintained?

"Transfer" is the mandatory referral of delinquent debts to Treasury or another Debt Collection Center for purposes of collection. The agency retains responsibility for reporting the debts on the Treasury Report on Receivables and Debt Collections Activities. The agency is also responsible for removing accounts from its receivables when Treasury directs it to write off the debt.

The DATA Act changed the notice requirement for federal agencies to notify the Secretary of Treasury of past due, nontax debts for the purposes of administrative offset from 180 days to 120 days. How does this affect the transfer of debt to Treasury?

Agencies relying on Fiscal Service to submit debts for administrative offset on their behalf must transfer the debts no later than 120 days delinquent in order to meet the notification requirement for administrative offset. Agencies that do not rely on Fiscal Service to submit their debts for administrative offset must still transfer their debts no later than 180 days delinquent.

Are any delinquent debts excluded from transfer to Treasury?

Yes, there are five specific instances where debts are excluded from transfer. They are:
  • Debts that are in litigation or foreclosure;
  • Debts that will be disposed of under an asset sales program within 1 year after becoming eligible for sale, or later than 1 year if consistent with an asset sales program and a schedule established by the agency and approved by the Director of the OMB;
  • Debts that have been referred to a private collection contractor for collection for a period of time determined by Treasury;
  • Debts that have been referred to a Debt Collection Center with the consent of Treasury and for a period of time determined by Treasury; and
  • Debts that will be collected under internal offset if such offset is sufficient to collect the debt within 3 years after the debt is first delinquent.

In addition, a specific class of debt may be excluded by the Secretary of the Treasury at the request of the head of an executive, legislative or judicial agency.

After 5 years of inaction, is there anything that would preclude DMS from collecting on a debt?

There is nothing that would preclude referral of a debt after 5 years of inaction provided that the debt is still valid and legally enforceable. If, however, the debtor has not been afforded due process in over 5 years, we recommend that additional due process notices be sent before using any debt collection tools that require due process such as offset or credit bureau reporting.

How will Treasury ensure that debts it directs an agency to write off are actually removed from an agency's accounting records?

Treasury will rely on audits by the Inspector General community to ensure that the agency is taking such action.

When is a debt considered to be in litigation?

"In litigation" means that the debt has been referred to the Department of Justice or, if the agency has its own litigative authority, a complaint has been filed.

When is a debt considered to be in foreclosure?

"In foreclosure" means that a notice of default has been issued.

What about debts in appeal?

Debts in an administrative appeal process would be transferred once the appeal process is completed and the amount due has been fixed. The date of delinquency would still be the date that the original payment was due. Treasury realizes that, for these debts, the period for mandatory referral may be substantially passed when such debts are transferred.

What happens to a debt when it comes out of an exception status (i.e., in litigation, foreclosure, appeal)?

If the debt remains valid and delinquent, then the agency immediately transfers the debt to Treasury (within 30 days of its return to the agency).

Can post-petition civil penalties be referred for Cross-Servicing when there is a bankruptcy?

If the individual is still in bankruptcy, debts owed by that individual should not be referred to DMS even if the debt is not included in the bankruptcy, unless the agency has obtained relief from the automatic stay.

How does an agency get the consent of Treasury for referral of debts to a Debt Collection Center?

Treasury's consent for types of accounts to be referred to Debt Collection Centers will be given when Treasury designates a Debt Collection Center.

The requirements for notifying Treasury of nontax delinquent debt includes debt administered by a third party acting as an agent for the government. What is meant by third party?

A third party acting as an agent for the federal government may include a contractor, a State agency, or another federal agency.

What kind of authority does Treasury have to act on delinquent debts that have been transferred to it?

Treasury has authority to act in the government's best interest to service, collect, compromise, suspend or terminate collection action in accordance with existing laws under which the debts arise.

Please define the terms "write off", "termination of collection action", "close out", and "discharge" as they relate to debt collection.

The definitions provided here are those currently provided in "Managing Federal Receivables" or in other Treasury publications:
  • Write off occurs when an agency official determines, after using all appropriate collection tools, that a debt is uncollectible. The debt is then removed from an agency's accounting and financial records, with the agency terminating its efforts to collect the debts.
  • Termination of collection action means to cease active efforts to enforce recovery of a debt. Generally, this would occur concurrently with the write off of the debt. The criteria in the Federal Claims Collection Standards for termination have also been used as the criteria for write off.
  • Close out occurs when an agency decides to stop all efforts to collect on a debt and may occur concurrently with the agency's decision to write off the debt. To close out a debt, the agency reports to the IRS the amount of the debt as income to the debtor.
  • Discharge is to satisfy a debt as a legal obligation through the performance of the obligation imposed under the debt instrument, such as payment in full or compromise. A debt is discharged at the time an agency stops all efforts to recover the debt because, in effect, the agency is terminating the debt as a legal obligation of the debtor's to repay. Before discharging a debt, the DCIA requires agencies to take appropriate steps to collect the debt including offset, referral to private collection agencies, referral to Treasury or a Debt Collection Center, reporting to a credit bureau, wage garnishment and litigation.
The discharge does not, however, satisfy the debtor's legal obligation to pay taxes on the debt, since it may represent taxable income to the debtor. The term cancellation is used the same as discharge; both terms are found primarily in the tax code. Close out and discharge occur simultaneously.
Given the new requirements of the DCIA, Treasury is reviewing these definitions, particularly those for write off and termination, and evaluating whether they are still valid or need to be changed. Please contact your agency liaison for questions about 1099C's.

Can an Internal Revenue Service (IRS) 1099C form be issued on debts included in bankruptcy?

Yes, debts discharged in bankruptcy should be reported on a 1099C. IRS then determines whether or not there is any tax consequence.

Return to Index of Frequently Asked Questions.

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