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Offset of Tax Refund to Satisfy Unpaid Child Support

Posted on Jan. 13, 2020

We are entering peak offset season as federal tax refunds serve to satisfy many state and federal obligations of individuals who anticipated a check from Uncle Sam.  The recent case of Blue v. United States Department of Treasury, No. 1:19-cv-01926 (N.D. Ohio 2019) serves as a reminder not only of the ability of the Treasury Department to take a federal tax refund and send it to a government creditor but of the inability to challenge the offset by suing Treasury.

Mr. Blue brings his case against Treasury pro se in the state court. In some ways this makes sense because he will ultimately need to bring an action in state court to obtain the relief he seeks but the defendant will differ. The Department of Justice removes the case to federal court and then immediately files a motion to dismiss for lack of subject matter jurisdiction. You might think it odd to remove a case only to dismiss it but doing so is normal and makes sense. The government does not want to make the jurisdictional argument to a state court judge who might find jurisdiction exists. Better to remove the case to federal court, which the government has the absolute right to do, and dispose of it there in a setting where the government has more comfort in the outcome.

The district court dismisses the case with a short order first discussing sovereign immunity and the failure of Congress to authorize a suit such as this and then citing to IRC 6502 and the specific prohibition against a suit such as this:

Congress has not waived sovereign immunity for this type of suit against the Treasury Department. In fact, Congress has explicitly barred such suits, stating, “No Court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c), (d), (e), or (f).” 26 U.S.C.A. §6402(g). Subsection (c) cited above authorizes a reduction of an individual’s federal income tax refund for “any past-due [child] support . . . owed by that person.” 26 U.S.C. § 6402(c). Under the terms of the statute, this Court lacks jurisdiction over any claims against the Treasury Department pertaining to offsets of income tax refunds for child support arrearages.

If Mr. Blue wants to get his tax refund, he needs to go to the state court that issued the child support order and convince that court that no outstanding order existed that should have caused the Treasury Department to send his federal tax refund to the child support agency. The system does not allow attacking the offset by suing Treasury. His only remedy lies in getting the child support order declared incorrect or fully satisfied. It’s not surprising that Mr. Blue thinks he should go after the Treasury Department and the offset program. Many clients of the clinic come in with the same view – that they have a tax problem not a problem with whatever agency has used the Treasury Offset Program to grab the tax refund. The Blue case shows the futility of suing Treasury. Taxpayers seeking to obtain a refund must always go to the part of the state or federal government requesting the offset and work out the issue there. Assuming that the state or federal agency properly certified a debt to Treasury, Treasury will always win with the defense that it simply offset as contemplated in the federal statutes.

Because he brought the suit against the wrong party, we do not know if he really owes the child support to which the refund was offset.  The court did not need to get into the merits of his liability in order to dismiss his case.  Assuming that he has a valid argument that he does not owe the child support, the dismissal here does not prevent Mr. Blue from making that argument in a case against the child support agency.

Because it is the season for offset, here are links to prior blog posts on the offset issue that might be of benefit if you are dealing with an offset issue:

Offset of an overpayment where taxpayer designated the payment

Defense to Payment as a basis for stopping offset of student loans

Offset to satisfy student loans and general discussion of offset program operation

When is an offset an offset

TIGTA report explaining offset program

Illegal exaction – offset against a criminal fine

Requesting a bypass of the offset against prior federal taxes

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