Recently, the Virginia Department of Taxation (TAX) announced that they will participate with the Internal Revenue Service (IRS) in an automated levy program to offset potential refunds. This will implement the offset program that allows the Commonwealth to notify the IRS of any amounts due and have the taxpayer’s refund from the IRS offset by any amounts due to TAX.
What is new is that this program will now be working in the other direction, too. TAX will offset any state refund by amounts that may be owed to the IRS.
All practitioners and taxpayers should pay attention to the fact that local amounts owing are now included in this program. Thus any client taxpayer who owes a locality for BPOL, property taxes, or any other assessment may find their refunds from TAX and the IRS offset to satisfy the local obligation.
See below for the action taken by the 2009 Virginia legislature which seems to be the enabling legislation permitting these offsets.
Setoff Debt Collection Act
House Bill 1830 (Chapter 786) and Senate Bill 1292 (Chapter 571) would allow local governments to collect delinquent local tax bills through setoff of the debtor’s federal income tax refund provided that Congress enacts legislation that allows local governments to collect delinquent local tax bills using offsets from such refunds. The acts incorporate this authority into the existing debt setoff program managed by TAX. The acts also establish classifications to be used to determine the priority when there are multiple claims to refunds. The priority classifications will be as follows:
- Claims by TAX;
- Claims filed by the Department of Social Services, Division of Child Support Enforcement;
- Claims filed by any court or administrative unit of state government;
- Claims filed by any county, city or town;
- Claims filed by the Internal Revenue Service.
Claims within the same classification will be determined by the order in which the claimant agency filed a written notice of its intent to effect collection through setoff with TAX. Claims filed by any county, city or town for an offset of a federal income tax refund would be limited to claims for delinquent local taxes.
Effective: Contingent upon enactment of authorizing legislation by Congress.Amended: §§ 58.1-520 and 58.1-530.
Any client caught by these offsets will need to know the appropriate agency to contact, if they have no understanding as to why the offset occurred. If the IRS offsets an amount due to the state, you MUST call the state and not the IRS. If a state refund is offset by an amount due to the IRS, then you MUST call the IRS at (800) 829-7650 or (800) 829-3903. If there has been a previous notice by the IRS of intent to levy, then NO notice will be sent to the taxpayer regarding the offset.
Hopefully this will provide some understanding of the programs regarding refund offsets as we begin filing returns.