Treasury offsets for unpaid employer unemployment taxes

CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION                UC TOP
               ADVISORY SYSTEM                           CORRESPONDENCE SYMBOL
          U.S. DEPARTMENT OF LABOR                       DUIO/DPM/OUI
             Washington, D.C. 20210                      DATE
                                                          January 9, 2015


ADVISORY:       UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 2-09,
                Change 3

TO:             STATE WORKFORCE AGENCIES

FROM:           PORTIA WU /s/
                Assistant Secretary

SUBJECT:        Recovery of Unpaid Unemployment Insurance Employer Tax Debt Under the
                Treasury Offset Program

1. Purpose. To inform states of recent updates to the guidance provided by the Internal
   Revenue Service (IRS) for state unemployment insurance (UI) agencies using the Treasury
   Offset Program (TOP) to collect employer UI tax debt.

2. References.
   • Public Law No. 110-328, SSI Extension for Elderly and Disabled Refugees Act;
   • Title III of the Social Security Act;
   • The Internal Revenue Code (IRC), including the Federal Unemployment Tax Act
      (FUTA);
   • 31 CFR 285.8, Offset of tax refund payments to collect state income tax obligations;
   • 28 U.S.C. § 1746, Unsworn declarations under penalty of perjury;
   • Sections (b)(2), (l)(10), and (p)(4) of 26 U.S.C. § 6103, Confidentiality and disclosure of
      returns and return information;
   • 26 U.S.C. § 6402, Authority to make credits or refunds;
   • Internal Revenue Service (IRS) Publication 1075, Tax Information Security Guidelines
      for Federal, State and Local Agencies;
   • Unemployment Insurance Program Letter (UIPL) No. 02-09, Recovery of Unemployment
      Compensation Debts Due to Fraud from Federal Income Tax Refunds;
   • UIPL No. 02-09, Change 1, Recovery of Unemployment Compensation Debts Due to
      Fraud from Federal Income Tax Refunds;
   • UIPL No. 02-09, Change 2, Recovery of Unemployment Compensation Debts Due to
      Fraud from Federal Income Tax Refunds;
   • UIPL No. 22-96, The Immediate Deposit and Withdrawal Standards, (61 Fed. Reg. 27101
      (May 30, 1996));
   • Treasury Offset Program, Technical Bulletin, Number UIC 11-02, February 11, 2011;



 RESCISSIONS                                             EXPIRATION DATE
 None                                                    Continuing

   •   UIPL No. 11-11, The Claims Resolution Act of 2010 (P.L. 111-291) and the Tax Relief,
       Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L.111-312) –
       Provisions Affecting the Federal-State Unemployment Compensation Program; and
   •   UIPL No. 12-14, Required Use of the Treasury Offset Program to Collect Covered
       Unemployment Compensation Debt.

3. Background. On September 30, 2008, the President signed Public Law No. 110-328, the
   SSI Extension for Elderly and Disabled Refugees Act. Among other things, this Act
   amended Federal law to permit states to recover certain UI debts due to fraud from the
   debtor’s Federal income tax refunds under the TOP operated by the United States Department
   of the Treasury (Treasury). It also established certain “due process” requirements states must
   meet prior to establishing collection using TOP.

   UIPL No. 02-09, issued on November 28, 2008, provided a general overview of the Federal
   amendments and the anticipated design of the unemployment compensation (UC) TOP.
   UIPL No. 02-09, change 1 and UIPL No. 02-09, change 2 provide state UI agencies with
   updated guidance to procedures on the implementation of the UC TOP. In particular, change
   1 supersedes and replaces Section 5 of UIPL No. 02-09.

   UIPL No. 12-14, issued on May 20, 2014, notified state UI agencies that the Bipartisan
   Budget Act of 2013 requires the use of UC TOP to collect covered UI debt.

   This UIPL provides additional specific guidance and implementing instructions that directly
   affect the collection of unpaid employer UI taxes through TOP.

4. IRS Alert. The IRS issued an alert by email on November 5, 2014, to all state UI agencies
   notifying them about changes to TOP that affect the intercept of unpaid UI employer taxes.
   The alert stated:

   •   IRS Counsel determined that:

           o Under IRC 6402(f), state UI agencies are now able to certify employer UI debt to
             the Bureau of Fiscal Services as eligible for TOP offset of the debtor’s federal tax
             refund;
           o The term “person” in IRC 6402 includes all entities that are defined as a “person”
             under IRC 7702(a)(1), which includes an individual, trust, estate, partnership,
             association, company, or corporation. Corporate, partnership, and other entity UI
             tax debt meet the definition of a contribution due to the unemployment fund of a
             state under IRC 6402(f)(4); and
           o The authority for contractors to access TOP Federal Tax Information (FTI) is
             dependent upon the statute under which TOP FTI is received. Specifically,
             contractors may be granted access to UI TOP FTI under IRC 6103(d) for tax
             administration; however, no contractors may be granted access to UC TOP FTI
             received under IRC 6103(l)(10) for benefits administration.




   •   Required Actions (As stated by the IRS):

           o State UI agencies that participate in UI TOP offsets for tax administration under
             IRC 6103(d) will need to clearly describe and implement the security controls for
             the new stream of UI TOP FTI by the Safeguard Security Report (SSR)
             submission due date; either immediately before or immediately after receipt of UI
             tax TOP FTI;
           o State UI agencies that have not previously received any FTI, including TOP FTI,
             must submit an SSR to the IRS Office of Safeguards for approval prior to the
             initial receipt of either UI tax or UC benefit TOP FTI;
           o State UI agency SSRs should combine and describe the physical and logical
             controls for all data streams subject to safeguard requirements, paying special
             attention to clarify any differences between controls for UI tax TOP FTI and UC
             benefit TOP FTI;
           o State UI agencies must pay special attention to ensure that SSRs, FTI access
             procedures, and contracts specify that contractors may be granted access to UI tax
             TOP FTI associated with tax administration, but may not be granted access to UC
             benefit TOP FTI associated with benefits administration;
           o State UI agencies must ensure that FTI awareness training and, if appropriate,
             internal inspections, are completed for contractors granted access to UI tax TOP
             FTI associated with tax administration; and
           o State UI agencies must ensure that the IRS Office of Safeguards is notified 45
             days in advance of granting a contractor access to UI tax TOP FTI.

5. Action Requested. States are reminded that UIPL No. 12-14 requires states to use the TOP
   to recover all types of UC debts that remain uncollected as of the date that is one year after
   the debt was determined to be due and collected. This includes uncollected UI contributions
   that are past due. The Department was waiting for the IRS to instruct states how to submit
   unpaid UI employer contribution debt to the TOP program before issuing an update to UIPL
   No. 02-09. This UIPL contains those instructions.

   The IRS will conduct a Webinar on January 15, 2015 to instruct state UI agencies how to
   implement the TOP program to collect unpaid employer UI taxes. To register, please visit
   http://fiscal.treasury.gov/fsservices/gov/debtColl/wkshpEvents/debt_tng_topStates_WEBINA
   R_jan2015.htm, or call (202) 874-6810.

   Some of the unique aspects of the employer tax debt collection process in TOP are:

   •   Contractors are permitted access to UI tax FTI, which means that states with contractors
       supporting their information technology will be able to participate in TOP for UI tax debt.
       However, the prohibition for contractor access to UI benefit FTI remains in place.
   •   The new debt type “UT” and the new site ID “TX” identify UI tax debt in the data file
       submitted to Treasury for TOP.
   •   States will identify UI tax debt to TOP for employer accounts that are sole proprietorships
       or partnerships by the SSN of the owner/partner.



   •   States will identify UI tax debt to TOP for employer accounts that are corporations under
       the Federal Taxpayer Identification Number (TIN).

   As requested by the IRS alert, state UI agencies are encouraged to comply with the
   instructions in the IRS alert and contact the IRS Office of Safeguards at
   [email protected] as soon as possible.

6. Inquiries. Questions or concerns should be directed to the appropriate Regional Office.