8790 OFFSET CLAIM PROCEDURE
8790.1 GENERAL
(Revised 9/91)
Government Code Section 12419.5 authorizes the State Controller to collect money due to one State department by a person or entity, by deducting the amount from any money that may be owing to such person or entity by another State department. This procedure is called offsetting. An amount owed to a person by the State may be for refund of a tax, license, or fee; payment of services received or materials purchased. Refunds of retirement contributions are not subject to offset.
All requests for offset under authority of Government Code Section 12419.5 must be filed with the State Controller for implementation under these sections, except those outlined in SAM Section 8790.5.
Section 12419.4 of the Government Code, authorizes offset against security deposits held by various agencies in their treasury trust bank accounts or in the form of bonds deposited with the State Treasurer, by the agencies holding the items, under specified conditions.
8790.2 LIMITATIONS ON USE
(Revised 9/91)
The offset procedure augments rather than replaces existing tax and other collection procedures and is for use when effective procedure does not exist and the State would otherwise suffer loss. A department's remedy under the special laws applicable to its particular program and the general laws of the State is normally more appropriate and should be used unless circumstances are such that the offset procedure is the most logical method of collection. See SAM Section 8776.6 and 8776.7 for collection procedures to be employed by State departments.
8790.3 NOTICE TO DEBTOR
(New 10/66)
If the amount due to a State department does not represent an amount involving a tax, offset is normally made only after giving notice to the debtor (the person or entity against whom the offset has been requested) and providing him/her with an opportunity to present any valid objection he/she may have to the use of the offset procedure.
8790.4 TAX LIABILITY
(Revised 1/75)
In the case of a tax assessment, the offset procedure is not used unless the assessment has become final. Where the tax liability has become final (i.e., the taxpayer has no further period to file an objection) and positive identification of the debtor-taxpayer can be made (e.g., through social security number, employer number, or other account number as carried on the accounts of the State department filing the claim for offset), offset is normally made without the above prior letter to the debtor.
8790.5 OFFSET—TAX REFUNDS
(Revised 9/91)
State departments desiring to offset against possible tax refunds to be made by the Franchise Tax Board, Board of Equalization, Employment Development Department, and the State Controller's Tax Refund Division, will contact such department, furnishing a list showing the name, social security number or other identification number, and the amount due from each person or company, in a form acceptable to the department involved.
In the situations specified below, the State Controller has authorized State departments to effect offset without the requirement that the request be submitted to the State Controller for prior approval; however, a notice of the offset must be sent to the debtor by the State department which is withholding payment to the debtor.
Tax Liability: The State department requesting offset must certify that the tax assessment has become final and must meet the other requirements set forth in SAM Section 8790.4.
Overpayments: These are overpayments for Separated Employees only; e.g., salary overpayments, maintenance advances, and revolving fund advances.
Student Loans: Any loans that are made to college and university students that have become uncollectible.
8790.6 FEDERAL LEVY
(New 10/66)
Government Code Section 926.8 provides that whenever a Federal agency, in the collection of taxes or amounts owing to it, is authorized by Federal law to levy administratively on credits owing to a debtor, it may file a certificate of claim with the State against moneys owing by the state to such debtor. When a request for payment is received under this procedure, any amounts due the State by the debtor are first offset before payment is made to the Federal Government.
8790.7 PROCEDURE FOR INITIATING OFFSET
(Revised 6/79)
It will be the responsibility of the creditor-department which has a claim against a person or entity to determine whether any other State department (debtor-department) owes that person or entity money for services performed, materials supplied, or a refund. If the debtor-department is identified, the creditor-department will submit a written request (original and two copies) to the debtor-department, setting forth the nature of its claim, its reasons for using the offset procedure, and requesting offset against the money owing to the person or entity by the debtor-department. If the debt arises out of a tax assessment, the creditor-department must certify that the tax has become final.
The debtor-department will prepare a claim in accordance with the offset request. The claim should include the original of the letter from the creditor-department and must be clearly identified as an offset claim. The claim will be routed to the State Controller's Division of Audits, where it will be processed in accordance with established procedures.
8790.8 ACCOUNT FOR OFFSETS
(Revised and Renumbered 2/71)
In the absence of statutory authority making other provisions, an appropriation may be improperly augmented by the exercise of offsets. For example, assume the following: (1) an entity owes a State department $80,000 due to an overpayment made by the department in a prior fiscal year; (2) the State department owes the entity $100,000 for current year claims; (3) the amount owed to the State department is offset against the current amount due leaving a net of $20,000 which is paid to the entity from the current year appropriation. At this point, the current year appropriation contains $80,000 more in expenditures, and the prior year appropriation credited with $80,000 as an abatement.
If the amount offset is applicable to another fund or appropriation, appropriate adjustments will be made in the department's accounts and the State Controller's Office will be requested to make similar adjustments in its accounts.
