[Federal Register Volume 70, Number 169 (Thursday, September 1, 2005)]
[Rules and Regulations]
[Pages 52031-52032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-17349]
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DEPARTMENT OF DEFENSE
48 CFR Parts 232 and 252
[DFARS Case 2004-D033]
Defense Federal Acquisition Regulation Supplement; Levy on
Payments to Contractors
AGENCY: Department of Defense (DoD).
ACTION: Interim rule with request for comments.
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SUMMARY: DoD has issued an interim rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to address the effect of
Internal Revenue Service (IRS) levies on contract payments. The rule
requires DoD contractors to promptly notify the contracting officer if
a levy that will jeopardize contract performance is imposed on a
contract.
DATES: Effective date: September 1, 2005.
Comment date: Comments on the interim rule should be submitted to
the address shown below on or before October 31, 2005 to be considered
in the formation of the final rule.
ADDRESSES: You may submit comments, identified by DFARS Case 2004-D033,
using any of the following methods:
[cir] Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
[cir] Defense Acquisition Regulations Web Site: http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. Follow the instructions for
submitting comments.
[cir] E-mail: [email protected]. Include DFARS Case 2004-D033 in the
subject line of the message.
[cir] Fax: (703) 602-0350.
[cir] Mail: Defense Acquisition Regulations Council, Attn: Mr. Bill
Sain, OUSD(AT&L)DPAP(DAR), IMD 3C132, 3062 Defense Pentagon,
Washington, DC 20301-3062.
[cir] Hand Delivery/Courier: Defense Acquisition Regulations
Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA
22202-3402.
All comments received will be posted to http://emissary.acq.osd.mil/dar/dfars.nsf.
FOR FURTHER INFORMATION CONTACT: Mr. Bill Sain, (703) 602-0293.
SUPPLEMENTARY INFORMATION:
A. Background
The Debt Collection Improvement Act of 1996 authorized a
centralized program for the offset of Federal payments, including
contract payments to collect delinquent non-tax debts owed to the
Federal Government. To implement this authority, the Department of the
Treasury created the Treasury Offset Program (TOP). The Taxpayer Relief
Act of 1997 authorized the Internal Revenue Service to continuously
levy up to 15 percent of certain Federal payments, including contract
payments. To implement this authority, the Federal Payment Levy Program
(FPLP) was created. The FPLP is an automated process that uses the TOP
system to match delinquent tax debts with Federal payments. When a
match occurs, the payment is levied and applied to the tax debt. The
FPLP process works in tandem with a manual ``paper'' levy process
outlined in 26 U.S.C. 6331-6332.
Section 887, Modification of Continuing Levy on Payments to Federal
Vendors, of Public Law 108-357 amends Section 6331(h) of the Internal
Revenue Code by raising the amount of levy the Government may withhold
on Federal payments for goods or services sold or leased to the Federal
Government, from 15 percent to 100 percent.
This interim DFARS rule is intended to address contract non-
performance that may result from application of a levy.
New Contract Clause Stating Government Right To Assess Levy
While DoD has been participating in the levy program for a number
of years, neither the FAR nor the DFARS includes a clause addressing
levies. DoD believes that such a clause, along with implementing DFARS
language in Part 232, is needed to ensure that all parties understand
their rights and obligations related to the assessment of a levy.
Levies That Jeopardize Contract Performance
DoD is concerned that situations may arise in which the levy of a
contract payment could jeopardize contract performance. As such, the
DFARS needs to include coverage addressing the process to be followed
when such situations arise.
The levy process makes it impractical, in most cases, to identify
whether a levy will jeopardize contract performance prior to a contract
payment being levied. While the contractor may have received a notice
of potential levy, that notice does not identify which contract or
contracts to which the levy will be applied. Furthermore, it is the
contractor's responsibility for identifying a levy that will
significantly impact contract performance, since it is the contractor's
liability that has created the situation. Therefore, this interim rule
requires that the contractor notify the contracting officer when a levy
is imposed on a DoD contract payment and that the contractor state
whether it believes the levy jeopardizes contract performance. In
addition, the contractor is required to advise the contracting officer
if the contractor is aware of any adverse effect on national security
that may result from the inability to perform the contract. The
contracting officer will take appropriate action on the instant
contract.
When the contractor believes the levy jeopardizes contract
performance, it is important that DoD have a timely process for
addressing those cases. The interim rule requires the Government to
promptly review the contractor's assessment and either agree or
disagree that contract performance will be jeopardized. When the
Government disagrees with the contractor's assessment, the Government
will notify the contractor and no further action will be taken. When
the Government agrees with the contractor's assessment that the levy
will jeopardize contract performance and also believes that the lack of
performance will adversely affect national security, some or all of the
monies collected will be returned to the contractor. When the
Government
[[Page 52032]]
agrees with the contractor's assessment that the levy will jeopardize
contract performance but does not believe that the lack of performance
will impact national security, the Government will notify the
contractor and will recommend that the contractor promptly contact the
IRS to attempt to resolve the tax situation.
This rule was not subject to Office of Management and Budget review
under Executive Order 12866, dated September 30, 1993.
B. Regulatory Flexibility Act
DoD does not expect this rule to have a significant economic impact
on a substantial number of small entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule
only applies to those contractors that have a delinquent tax debt.
Therefore, DoD has not performed an initial regulatory flexibility
analysis. DoD invites comments from small businesses and other
interested parties. DoD also will consider comments from small entities
concerning the affected DFARS subpart in accordance with 5 U.S.C. 610.
Such comments should be submitted separately and should cite DFARS Case
2004-D033.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the rule does
not contain any information collection requirements that require the
approval of the Office of Management and Budget under 44 U.S.C. 3501,
et seq. Although the rule requires contractors to provide certain
information to the Government when levies are imposed on DoD contract
payments, the number of contractors that will be subject to this
requirement is expected to be less than 10 per year.
D. Determination To Issue an Interim Rule
A determination has been made under the authority of the Secretary
of Defense that urgent and compelling reasons exist to publish an
interim rule prior to affording the public an opportunity to comment.
This interim rule establishes DoD policy regarding levies on contract
payments. The IRS has begun implementing its legislative authority to
levy up to 100 percent of contract payments, up to the amount of tax
debt. Such levies could jeopardize contract performance and adversely
affect national security. Therefore, it is necessary to ensure that all
parties understand their rights and obligations related to the
assessment of a levy. Comments received in response to this interim
rule will be considered in the formation of the final rule.
List of Subjects in 48 CFR Parts 237 and 252
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
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Therefore, 48 CFR parts 237 and 252 are amended as follows:
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1. The authority citation for 48 CFR parts 237 and 252 continues to
read as follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
PART 232--CONTRACT FINANCING
0
2. Subpart 232.71 is added to read as follows:
Subpart 232.71--Levies on Contract Payments
Sec.
232.7100 Scope of subpart.
232.7101 Policy and procedures.
232.7102 Contract clause.
232.7100 Scope of subpart.
This subpart prescribes policies and procedures concerning the
effect of levies pursuant to 26 U.S.C. 6331(h) on contract payments.
The Internal Revenue Service (IRS) is authorized to levy up to 100
percent of all payments made under a DoD contract, up to the amount of
the tax debt.
232.7101 Policy and procedures.
(a) The contracting officer shall require the contractor to--
(1) Promptly notify the contracting officer when a levy that will
jeopardize contract performance is imposed on a DoD contract; and
(2) Advise the contracting officer whether the inability to perform
may adversely affect national security.
(b) The contracting officer shall promptly notify the Director,
Defense Procurement and Acquisition Policy (DPAP), when the
contractor's inability to perform will adversely affect national
security or will result in significant additional costs to the
Government. Follow the procedures at PGI 232.7101(b) for reviewing the
contractor's rationale and submitting the required notification.
(c) The Director, DPAP, will promptly review the contractor's
rationale and will notify the IRS, the contracting officer, and/or the
payment office in accordance with the procedures at PGI 232.7101(c).
The contracting officer shall then notify the contractor in accordance
with paragraph (c) of the clause at 252.232-7010.
232.7102 Contract clause.
Use the clause at 252.232-7010, Levies on Contract Payments, in all
solicitations and contracts.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
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3. Section 252.232-7010 is added to read as follows:
252.232-7010 Levies on Contract Payments.
As prescribed in 232.7102, use the following clause:
Levies on Contract Payments (SEPT 2005)
(a) 26 U.S.C. 6331(h) authorizes the Internal Revenue Service
(IRS) to continuously levy up to 100 percent of contract payments,
up to the amount of tax debt.
(b) When a levy is imposed on a payment under this contract and
the levy will jeopardize contract performance, the Contractor shall
promptly notify the Procuring Contracting Officer and provide--
(1) The total dollar amount of the levy;
(2) A statement that the levy will jeopardize contract
performance, including rationale and adequate supporting
documentation; and
(3) Advice as to whether the inability to perform may adversely
affect national security, including rationale and adequate
supporting documentation.
(c) DoD shall promptly review the Contractor's assessment and
provide a notification to the Contractor including--
(1) A statement as to whether DoD agrees that the levy
jeopardizes contract performance; and
(2) If the levy jeopardizes contract performance and the lack of
performance will adversely affect national security, the total
amount of the monies collected that should be returned to the
Contractor; or
(3) If the levy jeopardizes contract performance but will not
impact national security, a recommendation that the Contractor
promptly notify the IRS to attempt to resolve the tax situation.
(d) Any DoD determination under this clause is not subject to
appeal under the Contract Disputes Act.
(End of clause)
[FR Doc. 05-17349 Filed 8-31-05; 8:45 am]
BILLING CODE 5001-08-P