42-1122

42-1122. Setoff for debts to state agencies
and courts; revolving fund; definitions

A. The department shall establish a liability setoff program by which refunds under
sections 42-1118 and 43-1072 may be used to satisfy debts that the taxpayer owes to this
state or a court. The program shall comply with the standards and requirements
prescribed by this section.

B. If a taxpayer owes an agency or court a debt, the agency or court, by November 1
of each year, may notify the department, furnishing at least the state agency, court or
program identifier, the first name, last name, middle initial or middle name and suffix,
social security number and any other available identification that the agency or court
deems appropriate of the debtor as shown on the records of the agency or court, and the
amount of the debt.

C. The department shall match the information submitted by the agency or court by
at least two items of identification of the taxpayer with taxpayers who qualify for
refunds under section 42-1118 and:

1. Notify the agency or court of a potential match, the taxpayer's home address and
any additional taxpayer identification numbers used by the taxpayer. Even if the taxpayer
is not entitled to a refund, the department of revenue shall provide to:

(a) The court, the clerk of the court and the department of economic security, for
child support and spousal maintenance purposes only, the home address of a taxpayer whose
debt for overdue support is referred for setoff and any additional taxpayer
identification numbers used by the taxpayer.

(b) The court, the home address and any additional taxpayer identification numbers
used by the taxpayer whose debt for a court obligation is referred for setoff and who is
identified by the court as a probationer on absconder status.

2. Request final agency or court confirmation in writing or electronically as
determined by the department within ten days of the match and of the continuation of the
debt. If the agency or court fails to provide confirmation within forty-five days after
the request, the department shall release the refund to the taxpayer.

D. An agency or court may submit updated information, additions, deletions and
other changes on a quarterly or more frequent basis, at the convenience of the agency or
court.

E. On confirmation pursuant to subsection C, paragraph 2 of this section, the
agency shall notify the taxpayer, by mail to the most recent address provided by the
taxpayer to the department:

1. Of the intention to set off the debt against the refund due.

2. Of the taxpayer's right to appeal to the appropriate court, or to request a
review by the agency pursuant to agency rule, within thirty days of the mailing of the
notice.

F. In addition the taxpayer shall receive notice that if the refund is intercepted
in error through no fault of the taxpayer, the taxpayer is entitled to the full refund
plus interest and penalties from the agency or court as provided by subsection O of this
section.

G. The basis for a request for review as provided by subsection E of this section
shall not include the validity of the claim if its validity has been established at an
agency hearing, by judicial review in a court of competent jurisdiction in this or any
other state or by final administrative decision and shall state with specificity why the
taxpayer claims the obligation does not exist or why the amount of the obligation is
incorrect.

H. If, within thirty days of the mailing of the notice, the taxpayer requests a
review by the agency or provides the agency with proof that an appeal has been taken to
the appropriate court, the agency shall immediately notify the department and the setoff
procedure shall be stayed pending resolution of the review or appeal.

I. If the department does not receive notice of a timely appeal, it shall draw and
deliver a warrant in the amount of the available refund up to the amount of the debt in
favor of the agency and notify the taxpayer of the action by mail.

J. Subsections E, G, H and I of this section do not apply to a debt imposed by a
court except that the taxpayer shall receive notice of the intent to set off the debt
against the refund due and the right to appeal to the court that imposed the debt within
thirty days of the mailing of the notice. The basis for the request for review shall not
include the validity of the claim and shall state with specificity why the taxpayer
claims the obligation does not exist or why the obligation is incorrect.

K. If the setoff accounts for only a portion of the refund due, the remainder of
the refund shall be sent to the taxpayer. A court shall not use this section to satisfy a
judgment or payment of a fine or civil penalty until the judgment has become final or
until the time to appeal the imposition of a fine or civil penalty has expired.

L. A revolving fund is established to recover and pay the cost of operating the
setoff program under this section. The department may prescribe a fee to be collected
from each agency or court utilizing the setoff procedure or from the taxpayer, and the
amount shall be deposited in the fund. The amount of the fee shall reasonably reflect
the actual cost of the service provided. Monies in the revolving fund are subject to
legislative appropriation.

M. If agencies or courts have two or more delinquent accounts for the same
taxpayer, the refund may be apportioned among them pursuant to rules prescribed by the
department of revenue, except that a setoff to the department of economic security for
overdue support has priority over all other setoffs.

N. If the refund is insufficient to satisfy the entire debt, the remainder of the
debt may be collected by the agency or court as provided by law or resubmitted for setoff
against subsequent refunds.

O. In the case of a refund that is intercepted in error through no fault of the
taxpayer under this section, the taxpayer shall be reimbursed by the agency or court with
interest pursuant to section 42-1123. In addition, if all or part of a refund is
intercepted in error due to an agency or court incorrectly identifying a taxpayer as a
debtor through no fault of the taxpayer, the agency or court shall also pay the taxpayer
a penalty as follows:

1. If the agency or court reimburses the taxpayer sixteen through one hundred
eighty days after the agency or court receives notification that the refund was
erroneously intercepted and the refund was received by the agency or court, the penalty
is equal to ten per cent of the amount of the refund that was intercepted.

2. If the agency or court reimburses the taxpayer one hundred eighty-one through
three hundred sixty-five days after the agency or court receives notification that the
refund was erroneously intercepted and the refund was received by the agency or court,
the penalty is equal to fifteen per cent of the amount of the refund that was
intercepted.

3. If the agency or court fails to reimburse the taxpayer within three hundred
sixty-five days after the agency or court receives notification that the refund was
erroneously intercepted and the refund was received by the agency or court, the penalty
is equal to twenty per cent of the amount of the refund that was intercepted.

P. The time periods set forth in subsection O of this section shall be stayed
during a review of an agency decision pursuant to section 25-522.

Q. Except as is reasonably necessary to accomplish the purposes of this section,
the department shall not disclose under this section any information in violation of
chapter 2, article 1 of this title.

R. An agency or court shall not enter into an agreement with a debtor for:

1. The assignment of any prospective refund to the agency or court in satisfaction
of the debt.

2. Payment of the debt if the debt has been confirmed to the department for setoff
under subsection C, paragraph 2 of this section.

S. If a tax refund is based on a joint income tax return and the department of
economic security receives a written claim from the nonobligated spouse within forty-five
days after the notice of a setoff for overdue child support, the setoff only applies to
that portion of the refund due to the obligor. The nonobligated spouse shall provide to
the department of economic security copies of both the obligated and nonobligated
spouse's federal W-2 forms and evidence of estimated tax payments supporting the
proportionate share of each spouse's payment of tax. The department of economic security
shall retain the amount of the set off refund due to the obligated spouse determined by a
proration based on the tax payments of each spouse by estimated tax payment or tax
withheld from wages.

T. For the purposes of this section:

1. "Agency" means a department, agency, board, commission or institution of this
state. Agency also means a corporation that is under contract with this state and that
provides a service that would otherwise be provided by a department, agency, board,
commission or institution of this state, if the contract specifically authorizes
participation in the liability setoff program and the attorney general's office has
reviewed the contract and approves such authorization. The participation in the
liability setoff program shall be limited to debt related to the services the corporation
provides for or on behalf of this state.

2. "Court" means all courts of record, justice courts, municipal courts and police
courts.

3. "Debt" means an amount over fifty dollars owed to an agency or court by a
taxpayer and may include a judgment in favor of this state or a political subdivision of
this state, interest, penalties, charges, costs, fees, fines, civil penalties,
surcharges, assessments, administrative charges or any other amount. Debt also includes
monies owed by a taxpayer for overdue support and referred to the department of economic
security or the clerk of the court for collection.

4. "Overdue support" means a delinquency in court ordered payments for spousal
maintenance or support of a child or for spousal maintenance to the parent with whom the
child is living if child support is also being enforced pursuant to an assignment or
application filed under 42 United States Code section 654(6) or other applicable law.