CCA 200937032: A state cannot levy a federal tax refund outside the statutory offset process

Plain-English summary

Chief Counsel advised that, unless one of the offset provisions in IRC § 6402 applies, the Service lacks authority to pay a federal tax refund to someone other than the taxpayer. The advice explains that the Treasury Offset Program provides the mechanism for qualified parties to seek an offset for certain debts. A state therefore cannot simply submit a levy and receive the refund proceeds. The advice states that the statutory offset provisions did not apply in the discussed case because the address on the return was in a different state from the state with the unpaid tax liability.

Ruling snapshot

• Question: Can a state obtain a federal tax refund by submitting a levy when the statutory offset provisions do not apply?
• Outcome: Advice given.
• Key authorities: IRC § 6402; Treas. Reg. § 285.

Full text (IRS public release)

ID: CCA-303349-09 Number: 200937032
Release Date: 9/11/2009
Office: --------------
UILC: 6402.00-00

From: -----------------------
Sent: 3/3/09
To: ----------------------
Cc:
Subject: 6402(e) and perhaps priority and perhaps levy

Hi--I spoke with ----------------about your question this a.m., as she is an expert on overpayment issues. She confirmed that, if one of the offset provisions in section 6402 does not apply, we are without authority to pay the refund to someone other than the taxpayer. The offsets are done by FMS as part of the Treasury Offset Program, which was set up to provide for an orderly mechanism to offset certain debts. Without this mechanism, any party could attempt to assert a prior claim to the refund which would lead to having to evaluate different priority claims, etc.

So a state cannot just submit a levy, for example, and get the refund proceeds. Qualified parties can follow the procedures to seek offset of refunds under the terms of the Treasury Offset Program specifically set forth in section 6402 and Treas. Reg. 285. As you note, however, those provisions would not apply in your case because the address on the return is a different state from the state with an unpaid tax liability.