Oregon's Offset Program for Collecting Delinquent Debts Has Been Highly Effective

The State of Oregon has a very successful program for collecting uncontested delinquent debts by keeping State tax refunds as offsets. Significant amounts of money have been collected that would have otherwise been uncollected. At the same time, the rights of the debtors have been protected. In 1979, the State spent about $200,000 to collect over $2.4 million in delinquent debts by offset. In evaluating this program, the possibility of its applicability to the Federal Government was explored.

The procedures operating effectively in Oregon to protect debtors' rights are similar to procedures recommended for the Internal Revenue Service (IRS) test of a Federal offset program. An agency referring a debt for offset must establish the debt's validity by giving the debtor ample opportunity to dispute the Government's claim; notifying the debtor that the receivable was being transferred to IRS for collection; giving the debtor an opportunity to request a hearing on the offset; and notifying the debtor when the debt was collected by offset. As demonstrated in Oregon, these procedures would fully protect the individual debtor's rights. While offset is a needed and useful tool for collecting delinquent debts, Federal agencies would still be primarily responsible for collecting debts resulting from their operations. The offset program would not supplement nor replace effective agency collection systems. However, agencies need to adopt more aggressive collection procedures, including practices used by commercial firms. GAO continues to believe that an income tax refund offset program is a logical, simple, and economical method of collecting debts that are uncollectible by any other means. An effective offset program would substantially reduce the over $1 billion the Federal Government loses annually by writing off uncollectible debts. The evidence favoring a test of a Federal offset program is overwhelming. Collection by offset is also warranted by equity concerns.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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