Don't look for an income-tax refund this year if you have defaulted on a federal student loan. And don't expect any money back if you stiffed the government on a loan from the Veterans Administration, the Department of Housing and Urban Development, the Agriculture Department or the Small Business Administration.
Those agencies have put the names of scofflaw debtors on a list and forwarded it to the Internal Revenue Service.
Under a new law, the IRS now is required to grab any tax refund you're due. That money will be applied to the government debt you've refused to pay.
Around 750,000 debtors are on the list this year -- individuals, partnerships and sole proprietorships.
In the program's first six weeks, the government nicked 49,000 of them for $26.2 million.
Four important things to know about this program if you or anyone in your family has been caught in the net:
*You can avoid the assessment by paying up, or by making an agreement to repay, your loan over a period of time. When the first notices went out last year, more than 50,000 defaulters suddenly came across with $22 million, according to the Office of Management and Budget.
*You can dispute the assessment if you think it's wrong. But don't complain to the IRS, a spokesman told my associate, Virginia Wilson. Take your arguments to the agency that says you owe the money and settle it there. You get a 60-day warning notice before your case is turned over to the IRS.
*If you're sick, nearly broke or unemployed -- and meet with government representatives to explain your situation -- you might be able to get your case put off a little longer. (But if your debt is written off as uncollectible, it will be reported to the IRS as a form of income, and you might owe taxes on it.)
*You may be able to reclaim part of the seized tax refund if you're the debtor's spouse and the two of you filed a joint tax return. The IRS can seize money only from the person who actually defaulted on the loan. In community property states, the spouse may own half of the refund and can get it back. In noncommunity property states, a spouse can claim whatever portion of the refund is attributable to his or her income. Information on how to do this should be included in the notice you get from the IRS.
Some debtors will be solving this problem another way: By making sure that no tax refund is owed. If there's nothing to seize, the government has no quick way of getting any of its money back. This and other tactics are troubling the IRS, which is afraid that its new job as debt cop will clash with its old -- and more essential -- job of getting Americans to pay their taxes.
Back in l982, the IRS began to seize tax refunds from delinquent parents (mostly fathers) who refused to pay child support and whose families had to depend on welfare. A preliminary study of the effects of those seizures should give pause to anyone concerned about the high and rising level of tax cheating in America. Delinquent parents who lost their tax refunds were more than twice as likely to quit filing tax returns as were other delinquent parents who were left alone. They were almost twice as prone to filing returns without paying all the taxes owed, and three times as likely to wind up in the IRS' files of refusniks who ignored their taxes due.
So at least part of the gains have been dissipated in lost revenue from people who otherwise would have paid their tax and in a higher cost of collecting taxes from those who have had refunds seized. For now, the government is plowing ahead with plans to expand the IRS' role as cop. This year, it will start cross-checking the names and Social Security numbers of applicants for welfare, unemployment compensation, food stamps and Medicaid, in a search for hidden income.
Child-support seizures are being expanded to cover families not on welfare. And new legislation is being prepared to cover such programs as veterans benefits and student aid.
In theory, there's nothing wrong with using tax data to trap debtors and screen out cheats. It remains to be seen whether the gains will justify the costs.