TN 2 (10-14)

PR 06705.023 Maryland

A. PR 14-171 Reply to Your Request for a Legal Opinion as to Whether the Decree of the Circuit Court for Frederick County, Maryland-Judgment of Absolute Divorce dated June 26, 2007, is Binding on the Social Security Administration.

DATE: September 22, 2014

1. SYLLABUS

The divorce decree is a contract between the two parties and is not binding upon SSA (who was not a party to the agreement). The parties agreed between themselves that the husband would repay the overpayment. The agreement, does not change Stephanie’s repayment responsibility under the regulations and it does not present a valid reason for waiver or in any way impact the use of the tax offset program to recover federal debts. In fact, the agreement provides for a contractual remedy for Stephanie if Gregg did not pay a debt that he agreed to pay.

September 22, 2014

2. OPINION

QUESTION PRESENTED

Is a divorce decree stating that one of the contracting parties is responsible for paying a Social Security overpayment that the other contracting party was liable for binding upon the Social Security Administration (SSA)?

DISCUSSION

SHORT ANSWER

No. The divorce decree is a contract between the two parties and is not binding upon SSA. Pursuant to the governing regulations, the tax refund of the overpaid payee was properly intercepted.

BACKGROUND

By letter dated December 18, 2010, SSA advised Stephanie that she was overpaid $2,708 in wife benefits from May 1994 through May 2006 based on extended period eligibility for the wage earner, her ex-husband, Gregg. SSA selected the debt for enforced collection. Following notice, in May 2013, SSA intercepted the federal income tax refund for Stephanie and Eugene (presumably Stephanie’s current husband) in the amount of $1,533. Stephanie contacted the field office, contending that she should be reimbursed for the intercepted tax refund because Gregg was responsible for paying the overpayment pursuant to a 2007 property settlement agreement that designated Gregg as liable for the overpayment. Gregg subsequently paid the remaining overpayment of $1,175.

DISCUSSION

SSA properly intercepted Stephanie’s tax refund. The agreement between Gregg and Stephanie that Gregg was responsible for the overpayment is not binding on SSA.

“An overpayment is the total amount an individual received for any period which exceeds the total amount which should have been paid for that period. Once determination of overpayment is made, the overpaid amount is a debt owed to the United States Government.” POMS PN 02201.001. “Section 204(a) of the Social Security Act provides that the overpaid person (whether or not he or she still receives benefits), his or her representative payee, and any other person receiving benefits on the overpaid person’s earnings record are liable (responsible) for repayment of the overpayment.” POMS GN 02205.001. “The person who receives the overpayment is primarily (directly) responsible for the overpayment. Other persons may be primarily liable for the overpayment. If the person who receives the overpayment is the only person with primary liability, that person is solely liable for the overpayment.” POMS GN 02205.002.

SSA may intercept an individual’s tax refund to collect on an overpayment. Taxpayers who have an outstanding overpayment may be referred to the Department of Treasury to offset income tax refunds. 20 C.F.R. § 404.520. Following notice, an individual has the right to present evidence that the overpayment is (1) not past due, or (2) not legally enforceable. 20 C.F.R. § 404.522(a). Failure to submit evidence contesting the overpayment within sixty days of days of notice will result in referral of the overpayment to the Department of Treasury. 20 C.F.R. § 404.522(b).

Here, Stephanie does dispute that the debt was due. With respect to whether the debt was legally enforceable against Stephanie, there a few circumstances in which a debt is not legally enforceable: if the debt was paid in full, recovery was waived, a bankruptcy petition is pending, or if the debt was previously discharged in bankruptcy. POMS GN 02201.030. Here, the debt was not paid in full at the time of the interception and there is no evidence of a bankruptcy action.

With respect to waiver, a recovery can be waived only if the person was without fault in incurring the overpayment or if recovery would defeat the purpose of the Act or be against equity and good conscience. POMS GN 02250.001. Recovery defeats the purpose of the Act if recovery would deprive the person of the income required for ordinary and necessary living expenses. POMS GN 02250.100. Recovery is against equity and good conscience when a beneficiary, relying on benefit payments, relinquished a valuable right or changed his or her position for the worse. POMS GN 02250.150.

For example, waiver might be appropriate if an individual resigned from employment on the assumption that he would receive regular monthly benefit payments, but it was discovered three years later that, because of a SSA error, his award was erroneous and because of his age, he could not get a job. Id.

Here, under the regulations, Stephanie was overpaid and is liable for repayment of the overpayment. Because of the outstanding overpayment, SSA properly referred her to the Department of Treasury to offset her income tax refund. There is no evidence that she contested the overpayment within sixty days of notice.

In any event, even if she did timely contest, she does not present an acceptable reason for waiver of the recovery. Stephanie contends that her ex-husband was responsible for paying the overpayment under the property settlement agreement entered into between the two parties. However, an agreement between two parties to designate responsibility is not a valid reason for waiver under the POMS.

The Voluntary Separation and Property Settle Agreement is an agreement between Gregg and Stephanie; it does not bind SSA. On June 26, 2007, Gregg and Stephanie entered into a Voluntary Separation and Property Settlement Agreement. A judge for the Circuit Court for Frederick County, Maryland entered a Judgment of Absolute Divorce that incorporated the agreement into the divorce judgment. Paragraph IV.D of the agreement states, “The parties agree that the husband will assume all outstanding debts with respect to the Social Security Administration overpayment . . . .” Pursuant to paragraph IV.F, “the Husband affirmatively represents that the Wife is not liable as guarantor, surety, endorser, or principal obligor of any indebtedness which, pursuant to the terms of this Agreement, the Husband has agreed to pay . . . . [T]he Husband will hold the Wife harmless and will indemnify the Wife with respect to any and all such liability and will be fully responsible for legal fees and costs incurred by the Wife in defending any claim against her in connection with any liability.”

Therefore, the parties agreed between themselves that the husband would pay the overpayment. The agreement between the two parties does not bind SSA (who was not a party to the agreement), it does not change Stephanie’s repayment responsibility under the regulations, and it does not present a valid reason for waiver or in any way impact the use of the tax offset program to recover federal debts. In fact, the agreement provides for a contractual remedy for Stephanie if Gregg did not pay a debt that he had agreed to pay. The agreement states that Gregg must indemnify Stephanie with respect to the liability. If Gregg does not comply with his obligations under the agreement, the proper recourse for Stephanie is to seek enforcement of the contact in court.

Notably, it is unclear if Gregg is responsible for the overpaid wife benefits under the agreement. SSA did not discover or notify Stephanie that it overpaid wife benefits until 2010. The settlement agreement was entered into in 2007, and thus, the agreement’s reference to “all outstanding debts with respect to the Social Security Administration overpayment” likely does not refer to the overpaid wife benefits. Rather, according to the Center for Program Support, Philadelphia Region, there were overpayments to the children, which were discovered in 2004. It is likely that the agreement referred to those overpaid benefits (the overpayment was in the amount of $1736 for each of two children; as of September 11, 2014, $417 was due).

CONCLUSION

Accordingly, we conclude that SSA properly intercepted Stephanie’s tax refund. The agreement between Gregg and Stephanie that Gregg was responsible for paying the overpayment is not binding on SSA.

Respectfully submitted,

Nora P. Koch


Acting Regional Chief Counsel, Region III

By ___________________________
M. Jared Littman/Nicole A. Schmid
Assistant Regional Counsel

B. R 04-223 In the Matter of the Estate of Mary, a/k/a Mary, Case No. 02PR642, District Court, County of Arapahoe, State of Colorado

DATE: May 20, 2004

1. SYLLABUS

The opinion expands on the policy for recovery of an overpayment from an executor of an estate of a deceased debtor.

2. OPINION

Issue

Whether the Agency may recover an overpayment in the amount of $22,574.00 from Vincent (Vincent), the personal representative of the estate of Mary (Mary). 1

DISCUSSION

Short Answer

Vincent received notice of the overpayment prior to final distribution of the estate assets on April 21, 2004. Therefore, he is in violation of the Federal Priority Statute, 31 U.S.C. § 3713(b), and could be found personally responsible for repaying the overpayment. Referral of this matter to the Department of Justice (DOJ) for enforced collection, however, is premature because Vincent did not receive proper notice of the overpayment. Specifically, the initial notice does not comport with Agency policy regarding overpayment notices, which includes informing the legal representative of the right to reconsideration and waiver of recovery, as well providing detailed information explaining the overpayment calculation. Because the December 14, 2004 notice (see Tab 3) is the only notice Vincent has received regarding the overpayment, and this notice is deficient, we recommend the Great Lakes Program Service Center (GLPSC) reissue a notice that includes the requisite information noted in the Program Operations Manual System (POMS).

FACTS

According to information you have provided, at the time of her death, the decendent, Mary, owed $22,574.00 to the Agency for an overpayment of benefits due to excess income. In a notice date December 14, 2003 (see Tab 3), the GLPSC informed Claire (Claire), the attorney for the estate, that "[b]ased on [Mary] receiving a government pension, her Social Security benefits should have been reduced. Therefore[,] an overpayment of $22,574.00 resulted" (id.) 2 The notice also informed Claire that according to Agency records, she was appointed as executor of the estate, and that pursuant to 31 U.S.C. § 3713, she would become personally liable for the overpayment if the estate's debt to the United States was not satisfied first and there were insufficient funds to pay all debts. The notice did not include, for example, "the monthly amount, if any, which should have been paid, . . . the months for which the different amount should have been paid, and the amount which was paid for those months." POMS § GN 02201.009B.1. (What Notice Includes). Nor did the notice mention the right to reconsideration of the overpayment determination or the right to request waiver of recovery. See id.

In a letter dated December 22, 2003 (see Tab 2), Claire informed the GLPSC that Mary died on June 27, 2002, and that Vincent was appointed personal representative of the estate on July 18, 2002. Claire also noted that following Vincent's appointment as personal representative, a "Notice to Creditors" was published three times in a local newspaper, beginning August 1, 2002, and ending August 15, 2002, and the "[the Agency] did not file a claim within this time period . . ." (id.) Claire noted further that "the personal representative of the Estate of Mary is denying the request by the Social Security Administration for repayment of $22,574.00," and that the estate would be closed 60 days from the date of her letter. Thus, despite the defective notice, Vincent, through the attorney for the estate, arguably requested reconsideration in December 2003, and the Agency has not responded to that request.

Statements from USBank, which are attached to the "Final Accounting-For Period From: July 24, 2002 To April 11, 2003" (see Tab 4) reflect that on December 31, 2002, the "customer," presumably, Vincent, withdrew $145,000 from a USBank account in the name of "The Estate of Mary ." On March 26, 2004, approximately three months after he received notice of the overpayment through the attorney for the estate, Vincent, in his capacity as Trustee of the H~ Family Trust (the Trust), filed a "Receipt and Release" (see Tab 5), attesting that he had received cash in the amount of $146,362.98, and securities valued at $3,205.10 and $1,134.66 from himself as the personal representative of the estate. The "Receipt and Release" does not reflect the exact date Vincent "contingently" distributed these assets to the Trust; however, as explained further below, the "final" distribution date, which in this case is April 21, 2004, is the relevant date for purpose of determining his liability for the overpayment under the Federal Priority Statute.

During a telephone conversation with Claire on April 19, 2002, she informed our office that Vincent had distributed the assets to the Trust before he received notice of the overpayment from the Agency in December 2003. Claire also continued to assert that the Agency had missed the deadline to file a claim and had failed to prove the estate's liability for the overpayment. On April 21, 2004, Claire forwarded to our office a copy of the "Decree of Final Discharge" (see Tab 6) issued by the probate court, purportedly releasing and discharging Vincent "from any and all liability arising in connection with the performance of [his] fiduciary's duties. . . ."

Legal Analysis

The Federal Priority Statute provides that, "A representative of a person or an estate . . . paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government." 31 U.S.C. § 3713(b). "The statute is to be 'liberally construed so as to effect the public purpose of securing debts owed to the United States.'" United States v. Idaho Falls Assocs. Ltd. P'ship, 81 F. Supp.2d 1033, 3713 (D. Idaho 1999) (quoting United States v. Whitney, 654 F.2d 607, 609 (9th Cir. 1981) (citing Bramwell v. United States Fid. & Guar. Co., 269 U.S. 483 (1926)); see also United States v. Moore, 423 U.S. 77, 81-86 (1975).

"'The basic elements of § 3713(b) and of its predecessor statutes is that (1) a fiduciary (2) make a distribution which (3) leaves the estate with insufficient funds to pay (4) a debt owing the United States where (5) the fiduciary had knowledge or notice of the debt due to the United States at a time when the estate had sufficient assets with which to satisfy the debt owing to the United States.'" United States v. Bartlett, 186 F. Supp.2d 875 (C.D. Ill. 2002) (citations omitted).

Vincent, as the personal representative for the estate, is a fiduciary. He distributed the assets of the estate to the H~ Family Trust, leaving the estate with insufficient funds to pay the overpayment. While Vincent contends he had already distributed the estate assets to the Trust before he received notice of the overpayment, "[t]he distribution by [Vincent] prior to the closure of the estate was not a final distribution pursuant to a final decree, but a contingent distribution." Ferri v. Bowen, No. C-85-505-SPM, 1986 WL 373, at *2 (E.D. Wash. July 16, 1986) (noting that "[i]t is 'distribution' which is controlling"). The date Vincent made a final distribution of the estate assets is the determining factor in this case with respect to his personal liability under the Federal Recovery Statute. See id. Therefore, even if Vincent did distribute the assets of the estate into the Trust before he received notice in December 2003, he received notice of the overpayment prior to the closure of the estate in April 2004 and is in violation of the Federal Priority Statute. See id.

Vincent, through the attorney for the estate, also continues to dispute the Agency's right to recover the overpayment from the estate assets on the basis that the Agency missed the deadline to file a claim. However, "[a]s it undisputed that state probate nonclaim statutes do not bar claims of the federal government, the status of the probate proceedings cannot be deemed controlling." Id. (citing United States v. Summerlin, 310 U.S. 414 (1940)).

In construing the predecessor statute to 31 U.S.C. § 3713(b),[ ] the courts have uniformly held a personal representative liable who, having actual notice of the debt due the Government, distributed the estate pursuant to a decree of distribution without first paying the debt due the Government even though the Government had not submitted a claim in the probate proceedings.

United States v. Boots, 675 F. Supp. 550, 551 (E.D. Mo. 1987) (citations omitted). Vincent has "the burden of proving the statute does not apply" to him. Ferri, 1986 WL 373, *2 (citing United States v. Cole, 733 F.2d 651, 654 (9th Cir. 1984)).

Vincent also continues to dispute the validity of the overpayment, and therefore, may contest whether the Agency actually had a "claim," i.e., whether the estate was indebted to the Agency within the meaning of the Federal Priority Statute before the assets were finally distributed .3 "The terms of the . . . statute are to be construed liberally so as not to frustrate its purpose in securing sufficient revenue for the payments of public debts." United States v. Moriarty, 8 F.3d 329 (6th Cir. 1993) (holding that "although the United States may be precluded by the applicable statute of limitations from brining an action for money damages, it continues to have a 'right to payment' against the debtor in this case and thus may enforce that right in other ways") (citing Bramwell v. United States Fidelity & Guar. Co., 269 U.S. 482, 487 (1926); United States v. State Bank of N.C., 31 U.S. (6 Pet.) 29, 34, 8 L.Ed. 390 (1832)). Furthermore, "[i]n interpreting the term 'claim' under the federal priority statute, we look for guidance to the Bankruptcy Code." M~, 8 F.3d at 334 (citing United States v. Moore, 423 U.S. 77, 84 (1975)). "In the Bankruptcy Code, 'claim' is defined broadly as a 'right to payment, whether or not such right is reduced to judgment, . . . contingent, . . . [or] disputed. . . ." M~, 8 F.3d at 334 (emphasis in original) (citing 11 U.S. C. § 101(5)). Here, we believe the estate's debt arose on or about September 27, 2002, the date the Agency discovered and manually posted Mary's overpayment in its computer system. "Once a determination of overpayment is made, the overpaid amount is a debt owed to the United States Government." POMS GN 02201.001. 4 See Memorandum, Florida - Recovery of Overpayment Incurred Subsequent to Chapter 7 Bankruptcy, CC IV (G~ & A~) to Assistant Regional Commissioner, Program Operations and Systems (May 5, 1993) (noting "[t]he debt to SSA is not created until [the beneficiary] reports the amount of her 1990 earnings or until as here, an investigation reveals that there were excess earnings for 1990).

Thus, we believe that Vincent is in violation of the Federal Recovery Statute and, therefore, liable in his personal capacity as the representative of the estate for the $22,574 overpayment. However, we caution that DOJ may be reluctant to initiate a recovery action 5 against Vincent in his capacity as personal representative if the Agency cannot demonstrate he received proper notice of the overpayment.

The December 2003 notice that Vincent received through the attorney for the estate (see Tab 3) does not comport with Agency policy. POMS GS 02201.009 (Notification of Overpayment) requires that written notice be sent and requires that the notice include the "[o]verpayment amount and how and when it occurred (i.e., the overpaid amount, the monthly amount, if any, which should have been paid, why the different amount was due, the months for which the different amount should have been paid, and the amount which was paid for those months)." The December 2003 notice simply states the following: "Based on [Mary] receiving a government pension, her Social Security benefits should have been reduced. Therefore[,] an overpayment of $22,574.00 resulted" (see Tab 3). Additionally, the notice must inform the claimant of the "[r]ight to reconsideration of the overpayment determination," as well as the "[r]ight to request waiver of recovery and the automatic scheduling of a personal conference if a request for waiver cannot be approved." Id. § GN 02201.009B.1. The December 2003 notice does not mention reconsideration or waiver.

POMS GN 02215.055, which specifically pertains to estates administered by a legal representative, states that "[a] legal representative must be notified of how and when an overpayment was made and the estate's liability for repayment." Moreover, these procedures also require the Agency to inform the legal representative of "[t]he right to reconsideration and waiver" and "[t]reat any protest/appeal of the estate's liability for repayment . . . as a request for reconsideration of that issue." Id. GN 02215.055 B.1.a.& e. Again, the notice Vincent received through the attorney for the estate in December 2003 does not meet these requirements. "If notification is deficient (e.g., notice is not sent, . . . content is inadequate), a new notice must be sent." Id. § GN 02201.009B.8. 6 Furthermore, as noted above, the Agency has not responded to Vincent's request for reconsideration.

Thus, while the December 2003 notice was sufficient to alert Vincent that the Agency has a claim against the estate, 7 this notice is insufficient for the purpose of establishing the estate's liability for the overpayment because it does not contain the requisite information.

CONCLUSION

For the reasons discussed above, we believe Vincent could be found liable in his personal capacity under the Federal Priority Statute for the overpayment because he received sufficient notice of the Agency's claim prior to final distribution of the estate assets. 8 However, we do not believe DOJ will institute recovery action if the Agency cannot prove the fact and amount of the debt, which will require to Agency to show that it followed its internal policies with regards to notice of the overpayment. 9 Therefore, we recommend the Agency reissue a notice to Vincent in his capacity as personal representative that contains the requisite information noted in the POMS.

Deana R. Ertl-Lombardi
Regional Chief Counsel, Region VIII

By ___________________________
Yvette G. Keesee
Assistant Regional Counsel


Footnotes:

[1]

On April 13, 2004, you submitted a "Notice of Hearing on Petition for Final Settlement and Distribution (Non-Appearance)" (see Tab 1), scheduled for April 20, 2004, to the Office of the General Counsel, Region V, in Chicago, Illinois, which referred the matter to our office because a Colorado State Court has jurisdiction over the probate proceedings. After consultation with the Colorado U.S. Attorney's Office, we did not send an attorney to the non-appearance hearing. We determined that since the assets had been "contingently" distributed, it was unlikely the court would delay the final settlement and distribution of the estate, and, if warranted, the Agency could refer this matter to the Department of Justice (DOJ) for a civil suit to recover the overpayment from Vincent at the conclusion of the administrative proceedings.

[2]

The GLPSC sent a similar notice to the probate court.

[3]

Sections (a) and (b) of 31 U.S.C. § 3713 provide, in part, as follows:

(a)(1) A claim of the United States Government shall be paid first when-(b) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.

[4]

In this context, we believe "determination" is synonymous with "discovered," as opposed to the term of art, "initial determination," which requires written notice. See POMS GN 02201.009 ("When the debt is discovered, the fact, amount and liability for repayment must be communicated as soon as possible. If the overpayment is discovered because of an oral communication (telephone call or interview), the liability for repayment is communicated during the first oral contact. Written notice is always sent.")

[5]

POMS § GN 02215.170.A (Handling of Overpayment Claims for Referral to DOJ) notes that "[t]he ARC, POS is responsible for either reporting or not reporting an outstanding debt to the U.S. Department of Justice (DOJ) Central Intake Facility for possible civil suit." Referrals must be submitted to the Department of Justice on a "Certificate of Indebtedness" and a Claims Collection Litigation Report pursuant to the instructions set forth in the POMS. See id. § GN 02215.170B.4.

[6]

"Whenever there is a delay of more than 1 year between the time overpayment occurs and the time a determination is made (i.e., notice sent), a complete explanation and evidence to support the delay must be provided by the PC when the debt claim is referred to DOJ." POMS§ GN 02215.150.B.2.

[7]

"The knowledge requirement of ... 31 U.S.C. § 3713 may be satisfied by either actual knowledge of the liability or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim of the United States. To be chargeable with knowledge of such a debt, the executor must be in possession of such facts as to put him on inquiry." B~, 186 F. Supp. 2d at 886-87.

[8]

This opinion does not address recovery actions that could be taken against the beneficiaries (distributes) of the trust. "When an overpaid person (e.g., beneficiary or representative payee) dies, the person's estate becomes liable. If the estate is closed, the distributees or legatees are liable to the extent of the proceeds of the estate (or property attributable to such proceeds) which are in his/her possession when notified of the overpayment." POMS 02205.001.B.2.

[9]

To ensure that civil suit is not barred, the complaint must be filed within:

a. Six years after the right of action accrues (i.e., within 6 years after the time an overpayment determination has been made); or

b. One year after a final decision has been rendered in an administrative proceeding (i.e., reconsideration, hearing, and/or review by the Appeals Council), whichever is later.

POMS § GN 02215.159B.2.


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