Court Reverses TOP Offset Against Social Security Payments That Exceed Court's Restitution Schedule for Payments (7/21/21; 8/2/21)

In United States v. Taylor, No. CrimAction 06-658-03, 2021 U.S. Dist. LEXIS 134638 (E.D. Pa. July 20, 2021), CL here, the Court found that the Treasury Offset Program (“TOP”) collection, via offset, of criminal restitution from Social Security Benefits was not permitted under the Court’s schedule for restitution ($100 per year) and ordered return of the collections in excess of the Court’s restitution schedule.

Key points of the holding:

1. In January 2008, Taylor was convicted of the defraud / Klein conspiracy In ordering restitution in the earlier criminal case, the Court determined restitution was $3,300,000 but that Taylor could pay not more than $100 per year and scheduled that she pay that amount per year.  

2. Taylor thereafter began receiving Social Security monthly payments.

3. The Federal Government has a Treasury Offset Program (“TOP”) permitting the Government to collect against debts a person owes to the Government by offsetting payments the Government owes to the debtor.  The Court’s discussion of the TOP program is good, so I quote it (Slip Op. pp. 5-6; cleaned up):

TOP is a federal program authorized by the Debt Collection Act of 1982, as amended by the Debt Collection Improvement Act of 1996, which permits the Treasury Department to collect delinquent debts owed to federal agencies. See 31 U.S.C. § 3716. Under TOP Congress has subjected to offset all funds payable by the United States,’ § 3701(a)(1), to an individual who owes certain delinquent federal debts. The contours of TOP program have been described in the following terms: 

The practice of withholding federal payment in satisfaction of a debt is known as an administrative offset.” The Debt Collection Improvement Act of 1982, 31 U.S.C. §§ 3701 et seq., authorizes the Treasury Department “to collect non-tax debts by withholding funds paid out by other federal agencies.” Pursuant to the TOP, any federal agency with a claim against the debtor, after notifying the debtor that the debt is subject to administrative offset and providing an opportunity to dispute the debt or make arrangements to pay it, may collect the debt by administrative offset. In order to do so, the creditor agency must certify to Treasury that the debt is eligible for collection by offset and that all due process protections have been met. If properly certified, the Treasury Department must administratively offset the debt. 

Under TOP, Social Security benefits are eligible for offset pursuant to the Debt [*6] Collection Improvement Act. n6  
   n6 An offset to a person’s Social Security benefits, however, cannot exceed 15% of the monthly covered benefit payment. 31 C.F.R. § 285.4(e).

4. Restitution is the type of debt owing to the Government that may be offset under TOP.

5. The problem was that the sentencing court had determined that Taylor could pay only $100 and ordered a payment schedule accordingly.  The TOP offset had the effect of overriding that determination and order.

6. The Court, the court that ordered sentencing, was not pleased and issued an opinion and order to correct that problem.

JAT Comments:

1. Taylor involved a case prior to enactment in 2010 of the provisions for immediate assessment of restitution.  § 6201(a)(4).  I think, the lessons of Taylor may be applied to restitution orders subject to that provision.  Once the restitution is assessed as a tax, what is the effect of sentencing court restitution schedules?  Once assessed as a tax, does the restitution-based assessment (“RBA”) take on a life of its own that is not linked to the restitution order and limits on restitution order?  I have not fully researched that, but suspect that, the RBA assessment is still subject to whatever conditions and limitations are in the order.

2. In Taylor, before the TOP offset kicked in, the IRS tried to get Taylor to contractually agree to $25 per month (aggregating $300 per year) rather than $100 per year.  “Taylor did not oppose the modification, but she requested that the government draft an order that included the new monthly payment amount for the Court to approve. The government never submitted the proposed modification of Taylor’s restitution payment schedule to the Court for approval and Taylor’s restitution payment amount remained $100 per year.”  (Slip Op. 4; cleaned up.)  In a footnote, the Court says:  “Until the filing of Taylor’s pending motion, the Court was unaware of everything that transpired between the Government and Taylor in 2017 and 2018. Thus, the Court did not know that both parties were in agreement that Taylor was financially able to pay more towards her restitution, because the Government never moved to modify Taylor’s restitution payment plan.”  This raises an interesting question as to whether the Government and the defendant subject to restitution can agree to modify the terms of the restitution without court order.  I suppose, though, that if they contractually agree and no one complains and otherwise honors the agreement, restitution might be practically modified even if all legal niceties (court order) are not honored.

3. This goes back to a discussion I have had as to what must be done if, after ordering restitution and the RBA is made, the IRS and the taxpayer agree that the restitution and thus the RBA is too high or an OIC would be appropriate if the RBA were really a tax assessment.  I won’t get into the details of the issue, but link to my posts—at least some of them—discussing the issue.

• Can Restitution Be Reduced by Payments on the Tax Liability Subject to Restitution? (Federal Tax Crimes Blog 10/26/13), here.
• More on the Relationship Between Tax Liability and Tax Restitution Assessed as a Tax (Federal Tax Crimes Blog10/25/13), here.
• What Can Be Done If Tax Restitution Exceeds the Tax Due (Federal Tax Crimes Blog 9/2/13), here.
• Tax Restitution and Doubt As to Amount (Federal Tax Crimes Blog 7/10/13), here.
• Restitution Based Assessment--Some Issues of Interest (Federal Tax Crimes Blog 8/3/19; 8/7/19), here.

4.  Added 8/2/21 9:15am:  Keith Fogg of the Procedurally Taxing Blog has an excellent posting on this case.  Keith Fogg, Limitation on Offset When the Government Seeks to Collect Restitution (Procedurally Taxing Blog 8/2/21), here.  Keith notes the additional point that the IRS can make a tax assessment and collect on the tax assessment.  Note in this regard, in Taylor, that the IRS did not make a restitution-based tax assessment ("RBA") which would be subject to the conditions of the restitution.  The question this raises is whether, in a case where the IRS does make an RBA  and is not happy with the court's conditions for restitution, it could make a separate independent tax assessment in the same amount (so that there are two tax assessments that must be cross-credited for payments) and collect on the nonrestitution-based tax assessment without regard to the restitution conditions imposed by the court?  I think perhaps, from a technical perspective, the IRS probably could do that but might get the wrath of the sentencing court.