Collections Practices

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Write-Off and OMB Circular A-129
Office of Management and Budget
Office of Federal Financial Management
Debt Collection Conference May 12, 2004
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Agenda
• Write-Off and OMB Circular A-129
– Delinquent Debt – OMB Circular A-129 Provisions – Delinquent Debt Collection Process – Memorandum M-04-10 (dated April 19, 2004)

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Delinquent Debt
• Direct Loans
– A payment has not been made by the date specified in the agreement

• Guaranteed Loans
– Borrower breaches the loan agreement with the private sector lender

• Other Debt
– Debtor does not pay or resolve the debt by the date specified in the agency’s initial written demand for payment
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OMB Circular A-129 Provisions
• Refer debts 180 days delinquent to Treasury • Establish Currently Not Collectible (CNC) as a reporting category • Write-off all debt older than two years • Review (continuously) delinquent debt

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Delinquent Debt Collection Process
Write-Off• Accounting Action

CloseOut? Yes

No CNC

• Report on TROR • Continue all cost-effective collection tools

No 1099C? Yes
• Issue 1099C

Close-Out

• Report on TROR • Cease all collection action

Close-Out

• Report on TROR • Cease all collection action 5

Delinquent Debt Collection Process Write-Off
• Occurs when the agency determines that the likelihood of collection is less than 50% • Mandatory (unless documented and justified to OMB in consultation with Treasury) for delinquent debt that
– Has no value for accounting purposes or – Is older than two years

• Once the debt is written-off, the agency must classify the debt as either one of the following:
– Currently Not Collectible (CNC) – Closed-Out
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Delinquent Debt Collection Process
Write-Off
• Accounting Action

CloseOut? Yes

No CNC

• Report on TROR • Continue all cost-effective collection tools

No 1099C? Yes
• Issue 1099C

Close-Out

• Report on TROR • Cease all collection action

Close-Out

• Report on TROR • Cease all collection action 7

Delinquent Debt Collection Process Close-Out• After mandatory write-off, an agency determines that it is no longer cost effective to pursue collection
– File a 1099C with the Internal Revenue Service – Notify the debtor in accordance with IRS Code – Report closed-out debts on the Treasury Report on Receivables – Stop all collection activity, including the sale of debts, once debts are closed
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Delinquent Debt Collection Process
Write-Off
• Accounting Action

CloseOut? Yes

No CNC

• Report on TROR • Continue all cost-effective collection tools

No 1099C? Yes
• Issue 1099C

Close-Out

• Report on TROR • Cease all collection action

Close-Out

• Report on TROR • Cease all collection action 9

Delinquent Debt Collection Process Currently Not Collectible• Continued collection efforts are likely to yield higher return for the government than the 1099C process Maintain the debt for administrative offset and other collection tools until one of the following occur:
1. 2. 3. 4. Debt is paid; Debt is closed-out; or All collection activities are legally precluded; or The debt is sold, whichever occurs first.10

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Memorandum M-04-10
• Purpose
– Establish a new reporting requirement pursuant to the DCIA of 1996 – Remind Federal agencies of current and ongoing responsibilities under the debt collection provisions of the DCA of 1992, as amended by DCIA, and OMB Circular A-129

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Memorandum M-04-10 New Requirements
• Review and report annually on internal standards and policies regarding compromising, writing-down, forgiving, or discharging debt
– Description of agency policies – Description of policy deficiencies and corrective actions – Statement whether policies are consistently implemented – Statement whether all eligible discharged / closed-out debt has been reported to the IRS on Form 1099-C and on the Treasury Report on Receivables
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Memorandum M-04-10 Current / Ongoing Requirements • Fully participate in centralized offset, that is, the Treasury Offset Program • Aggressively service and collect delinquent debts • Denial of direct and indirect loans to delinquent debtors • Accurately and timely report on receivables
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Contact Information
Adam Goldberg Office of Federal Financial Management Financial Integrity and Analysis Branch 202-395-7583 agoldber@omb.eop.gov

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So key probe is:

is debt

1. Currently Not Collectible (CNC) or

2. Closed-Out?


If 2. then
Stop all collection activity, including the sale of debts, once debts are closed

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http://www.ocio.usda.gov/directives/doc/DR2130-006.htm

WRITE OFFS

a An agency must write off a debt or claim when the agency has taken all appropriate actions required by 4 CFR Parts 101-105 and OMB Circular A-129, and determines that the debt or claim is uncollectible.

b Appropriate documentation must be maintained to support the write off of any debt or claim.

c If there is a reasonable expectation that an uncollectible debt or claim may become collectible in the future, that debt may be written off, but must be maintained in the administrative records of the agency to pursue the future collection activity. These debts or claims should not be closed out.

d Debts or claims with a principal amount in excess of $2,000, that are being considered for write off, may be submitted to the Office of the General Counsel for advice.

e Debts or claims may be written off without being closed out.

An uncollectible claim may be written off and closed out simultaneously by reporting the debt or claim to the Internal Revenue Service for inclusion in the debtor's taxable income.

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An uncollectible claim may be written off and closed out simultaneously by reporting the debt or claim to the Internal Revenue Service for inclusion in the debtor's taxable income.


That leads me to a logical question:

if 1099C Form has been issued by a bank to IRS does that mean that debt was
closed out or there may be a provision when 1099C may be issued on 
Currently Not Collectible (CNC) ?

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http://www.ci.laredo.tx.us/Finalread/2001%20Final%20Readings/2001-O-249.htm


VII.      CLOSEOUT OF RECEIVABLES / 1099-G FORM

1.      At the time to “closeout” of a receivable, Finance shall report the amount of the unrecoverable receivables to the IRS as income to the debtor on IRS Form 1099-G. Once the receivable has been referred to the IRS, the City needs take no further recovery action. The City may, however, accept voluntary repayments of the receivable, without notifying the IRS of repayment. At this point, any further notification to the IRS becomes the taxpayer's (debtor's) responsibility.

 

2.      Finance Department, where appropriate, shall follow IRS procedures on completing Form1099-G for closing out of accounts receivables. The procedures for referral shall include the following requirements to the IRS by February 28th of the same year:

·         Including administrative costs (to the extent assessed by the organization and as subject to an organization's rules and/or regulations),

·         Penalties where appropriate

·        Accrued interest and loan principal wherever applicable.

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http://www.irs.gov/pub/irs-pdf/f1099g.pdf

 Form: 1099-G

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http://www.usaindebt.com/category/learn/

What is a 1099 Form?

A 1099 form is used to disclose any income other than wages, salaries, and tips.

It is used by independent contractors, otherwise knows as ‘freelancers’ as a report for their ‘per-job’ income. The Internal Revenue Service has more than a dozen of 1099 form variations, covering earning such as contributions, dividends, cancellation of debt (yes, they tax that also), gambling winning and others. Here’s the list (1):

1099-A: acquisition or Abandonment of Secured Property
1099-B: Proceeds from Broker and Barter Exchange Transactions
1099-C: Cancellation of Debt
1099-CAP: Changes in Corporate Control and Capital Structure
1099-DIV: Dividends and Distributions
1099-G: Government Payments
1099-H: Health Insurance Advance Payments
1099-INT: Interest Income
1099-LTC: Long Term Care Benefits
1099-MISC: Miscellaneous Income
1099-OID: Original Income Discount
1099-PATR: Taxable Distributions Received From Cooperatives
1099-Q: Payment from Qualified Education Programs
1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs, or Insurance Contracts
1099-S: Proceeds from Real Estate Transactions
1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
W-2G: Certain Gambling Winnings

A 1099 form is issued for each and every job, if a business issues 250 or more 1099 forms, it is required to file them electronically. It is mostly common with independent contractors, and it is required when compensation exceeds $600 per calendar year.


SL: So 1099-G refers to Government payments.

We go back to 1099-C, then.


Cancellation of Debt over $ 600.

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http://www.azag.gov/press_releases/july/2007/TwoFromAnthemIndicted.pdf

STATE OF ARIZONA ANDREA M. ESQUER
DEPARTMENT OF LAW PRESS SECRETARY
1275 W. WASHINGTON STREET PHONE: (602) 542-8019
PHOENIX, ARIZONA 85007-2926 CELL PHONE: (602) 725-2200
WWW.AZAG.GOV

FOR IMMEDIATE RELEASE

Two from Anthem Indicted on Fraud, Theft Charges

(Phoenix, Ariz. – July 20, 2007) Attorney General Terry Goddard today announced the
indictment of Lori Lee Spranger, aka Lori Moriarity, 37, and Michael Moriarity, 33, both of
Anthem, on 14 counts of fraud, theft, securities fraud, sales of unregistered securities and
transactions by unregistered dealers or salesmen.


According to the indictment, between 2004 and 2006, the defendants obtained some $273,000
from investors to whom they sold securities in a debt collection company called Vector 90.
Arizona law requires that securities of this type be registered, that securities salesmen be
registered and that debt collection companies be licensed. The indictment alleges that
defendants failed to inform investors that Vector 90 was not licensed, that the securities were
not registered and that the defendants were not registered.

The defendants also failed to disclose that one of Spranger’s prior debt collection companies
ended in bankruptcy and that another ended with an Arizona Corporation Commission Order
forbidding Spranger from operating an unlicensed debt collection company. The indictment
further alleges that Spranger and Moriarity used most of the money invested in Vector 90 to pay
for personal living expenses and that Vector 90 was not operated as an actual business.
The indictment alleges that after the Arizona Corporation Commission ordered the defendants
and Vector 90 to temporarily cease and desist operations, the defendants raised another
$300,000 from new investors by selling unregistered securities in two other unlicensed debt
collection companies, Universal Portfolio Systems, Inc. and Capital Collection Bureau. The
indictment states that the defendants used most of the new investments to pay for personal
living expenses.

In September 2006, the Arizona Corporation Commission issued a permanent cease and desist
order to the defendants regarding the Vector 90 operation. The order included restitution of
$225,000, a fine of $50,000 and a promise from defendants that they would not exercise control
over any entity that sells securities until the restitution and fine are paid in full. The restitution
and fine remain unpaid.

If convicted on two or more of the fraud and theft charges, each defendant faces a mandatory
prison term of up to 23 years. They are scheduled to be arraigned in Maricopa County Superior
Court on July 30. The indictment is the result of an investigation conducted by the Securities
Division of the Arizona Corporation Commission. A copy is attached.

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Office of Attorney General Terry Goddard