Claims Collection, 66964-66975 [2021-23742]

Agencies

• National Foundation on the Arts and Humanities
• National Endowment for the Humanities

[Federal Register Volume 86, Number 224 (Wednesday, November 24, 2021)]
[Rules and Regulations]
[Pages 66964-66975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23742]


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NATIONAL FOUNDATION ON THE ARTS AND HUMANITIES

National Endowment for the Humanities

45 CFR Part 1177

RIN 3136-AA38


Claims Collection

AGENCY: National Endowment for the Humanities; National Foundation on 
the Arts and the Humanities.

ACTION: Direct final rule.

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SUMMARY: The National Endowment for the Humanities (NEH) is revising 
its Claims Collection regulation in accordance with the Debt Collection 
Improvement Act of 1996 (DCIA), as implemented by the Department of 
Justice (DOJ) and the Department of Treasury (Treasury) in the revised 
Federal Claims Collection Standards (FCCS). This final rule revises 
NEH's rules and procedures for administrative collection, offset, 
compromise, suspension, and termination of collection activity for 
civil claims for money, funds, or property. Additionally, this final 
rule revises the rules and procedures that NEH follows to refer civil 
claims to Treasury, Treasury-designated debt collection centers, or DOJ 
so that Treasury or DOJ may collect the civil claim through further 
administrative action or litigation, as applicable.

DATES: This rule is effective February 22, 2022 without further action, 
unless adverse comment is received by December 27, 2021. If adverse 
comment is received, NEH will publish a timely withdrawal of the rule 
in the Federal Register.

ADDRESSES: You may send comments by email to [email protected].
    Instructions: Include ``Claims Collection'' and RIN 3136-AA38 in 
the subject line of the email.

FOR FURTHER INFORMATION CONTACT: Elizabeth Voyatzis, Deputy General 
Counsel, Office of the General Counsel, National Endowment for the 
Humanities, 400 7th Street SW, Room 4060, Washington, DC 20506; (202) 
606-8322; [email protected].

SUPPLEMENTARY INFORMATION:

1. Background

    The original FCCS provided guidance for implementing the Debt 
Collection Act of 1982, Public Law 97-365 on a government-wide basis. 
NEH implemented the FCCS in 1986 in its Claims Collection regulation, 
set forth at 45 CFR 1177 et seq. As mandated by the DCIA, in 2000, DOJ 
and Treasury jointly promulgated the revised FCCS, set forth at 31 CFR 
900-904, to reflect the DCIA's legislative changes to federal debt 
collection procedures. The revised FCCS superseded the original FCCS. 
As a result, NEH is revising its Claims Collection regulation to 
conform with the DCIA and the current FCCS.

2. Basic Provisions

    In accordance with the requirements of the DCIA and the revised 
FCCS, this rule revises NEH's rules and procedures for the 
administrative collection, offset, compromise, suspension, and 
termination of collection activity for civil claims for money, funds, 
or property, as defined by 31 U.S.C. 3701(b). Additionally, this rule 
revises the rules and procedures that NEH will use to refer applicable 
civil claims to Treasury, Treasury-designated debt collection centers, 
or DOJ for collection by further administrative action or litigation. 
This rule affects NEH's debtors, but it does not apply to claims 
between federal agencies.
    This rule incorporates the following changes to NEH's current 
Claims Collection regulation (45 CFR 1177, et seq.):

A. Demand Letter

    One demand letter should be sufficient. The demand letter will 
include: (1) The applicable standards NEH follows for imposing any 
interest, penalties, or administrative costs; (2) NEH's policies 
regarding its use of collection agencies, federal salary offset, tax 
refund offset, administrative offset, and litigation; (3) any rights 
the debtor may have to seek review of NEH's determination of the debt 
and to enter into a reasonable repayment agreement; and (4) information 
regarding NEH's remedies to enforce payment of the debt.

[[Page 66965]]

B. Mutual Releases

    In all appropriate instances, NEH and debtors will exchange mutual 
releases of non-tax liabilities when compromising a claim.

C. Increase in Amount

    The principal claim amount for which NEH is authorized to 
compromise, suspend, or terminate collection activity--without 
concurrence by DOJ--will increase from $20,000 to $100,000. 
Additionally, the minimum claim amount that NEH may refer to DOJ for 
litigation will increase from $600 to $2,500.

D. Transferring or Referring Delinquent Debt

    There are new procedures for transferring or referring delinquent 
debt to Treasury or a Treasury-designated debt collection center for 
debt collection.

E. Centralized Administrative Offset

    There are new debt collection procedures for disbursing officials 
to follow when conducting mandatory centralized administrative offset.

F. Mandatory Credit Bureau Reporting

    There are new debt collection procedures for mandatory credit 
bureau reporting.

G. Prohibition Against Federal Financial Assistance

    There are new debt collection procedures prohibiting federal 
financial assistance, which includes grants, cooperative agreements, 
contracts, loans, loan guarantees, and loan insurance to debtors, 
unless waived by NEH's Chairperson (the ``Chairperson'') or the 
Chairperson's designee.

Executive Order 12866, Regulatory Planning and Review, and Executive 
Order 13563, Improving Regulation and Regulatory Review

    This action is not a significant regulatory action and was 
therefore not submitted to the Office of Management and Budget for 
review.

Executive Order 13771, Reducing Regulations and Controlling Regulatory 
Costs

    This action is not expected to be an Executive Order 13771 
regulatory action because this action is not significant under 
Executive Order 12866.

Executive Order 13132, Federalism

    This rulemaking does not have federalism implications. It will not 
have substantial direct effects on the states, on the relationship 
between the national government and the states, or on the distribution 
of power and responsibilities among the various levels of government.

Executive Order 12988, Civil Justice Reform

    This rulemaking meets the applicable standards set forth in section 
3(a) and 3(b)(2) of Executive Order 12988. Specifically, this 
rulemaking is written in clear language designed to help reduce 
litigation.

Executive Order 13175, Indian Tribal Governments

    Under the criteria in Executive Order 13175, NEH evaluated this 
rulemaking and determined that it will not have any potential effects 
on Federally recognized Indian Tribes.

Executive Order 12630, Takings

    Under the criteria in Executive Order 12630, this rulemaking does 
not have significant takings implications. Therefore, a takings 
implication assessment is not required.

Administrative Procedure Act of 1946

    NEH finds good cause to issue this regulation as a direct final 
rule, without prior notice and comment, because the agency views it as 
a noncontroversial amendment and anticipates no significant adverse 
comment. This rulemaking merely conforms NEH's claims collection 
regulation to the standards of agency practice and procedure previously 
jointly promulgated by DOJ and Treasury according to the DCIA. 
Therefore, under 5 U.S.C. 553(b)(3)(A), this rule is not subject to the 
Administrative Procedure Act's requirements for a notice of proposed 
rulemaking.

Regulatory Flexibility Act of 1980

    This rulemaking will not have a significant adverse impact on a 
substantial number of small entities, including small businesses, small 
governmental jurisdictions, or certain small not-for-profit 
organizations.

Paperwork Reduction Act of 1995

    This rulemaking does not impose an information collection burden 
under the Paperwork Reduction Act. This action contains no provisions 
constituting a collection of information pursuant to the Paperwork 
Reduction Act.

Unfunded Mandates Act of 1995

    This rulemaking does not contain a Federal mandate that will result 
in the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector of $100 million or more in any one 
year.

National Environmental Policy Act of 1969

    This rulemaking will not have a significant effect on the human 
environment.

Small Business Regulatory Enforcement Fairness Act of 1996

    This rulemaking will not be a major rule as defined in section 804 
of the Small Business Regulatory Enforcement Fairness Act of 1996. This 
rulemaking will not result in an annual effect on the economy of $100 
million or more, a major increase in costs or prices, significant 
adverse effects on competition, employment, investment, productivity, 
innovation, or the ability of United States-based companies to compete 
with foreign-based companies in domestic and export markets.

E-Government Act of 2002

    All information about NEH required to be published in the Federal 
Register may be accessed at www.neh.gov. The website https://www.regulations.gov contains electronic dockets for NEH's rulemakings 
under the Administrative Procedure Act of 1946.

Plain Writing Act of 2010

    To ensure this rulemaking was written in plain and clear language 
so that it can be used and understood by the public, NEH modeled the 
language of this rulemaking on the Federal Plain Language Guidelines.

List of Subjects in 45 CFR 1177

    Administrative practice and procedure, Claims, Debt, Government 
employees, Privacy.

0
For the reasons set forth in the preamble, the National Endowment for 
the Humanities revises 45 CFR part 1177 to read as follows:

PART 1177--CLAIMS COLLECTION

Subpart A--Scope of Standards
Sec.
1177.1 Prescription of standards.
1177.2 Definitions and construction.
1177.3 Antitrust, fraud, and tax and interagency claims excluded.
1177.4 Compromise, waiver, or disposition under other statutes not 
precluded.
1177.5 Form of payment.
1177.6 Subdivision of claims not authorized.
1177.7 Required administrative proceedings.
1177.8 No private rights created.
Subpart B--Standards for the Administrative Collection of Claims
1177.9 Aggressive NEH collection activity.
1177.10 Demand for payment.
1177.11 Collection by administrative offset.
1177.12 Reporting debts.

[[Page 66966]]

1177.13 Contracting with private collection contractors and with 
entities that locate and recover unclaimed assets.
1177.14 Suspension or revocation of eligibility for federal 
financial assistance.
1177.15 Liquidation of collateral.
1177.16 Collection in installments.
1177.17 Interest, penalties, and administrative costs.
1177.18 Analysis of costs.
1177.19 Use and disclosure of mailing addresses.
1177.20 Exemptions.
Subpart C--Standards for the Compromise of Claims
1177.21 Scope and application.
1177.22 Bases for compromise.
1177.23 Enforcement policy.
1177.24 Joint and several liability.
1177.25 Further review of compromise offers.
1177.26 Consideration of tax consequences to the Government.
1177.27 Mutual releases of the debtor and the Government.
Subpart D--Standards for Suspending or Terminating Collection Activity
1177.28 Scope and application.
1177.29 Suspension of collection activity.
1177.30 Termination of collection activity.
1177.31 Exception to termination.
1177.32 Discharge of indebtedness; reporting requirements.
Subpart E--Referrals to the Department of Justice
1177.33 Prompt referral.
1177.34 Claims Collection Litigation Report.
1177.35 Preservation of evidence.
1177.36 Minimum amount of referrals to the Department of Justice.

    Authority:  31 U.S.C. 3711, 3716-3719; Pub. L. 104-134; 31 CFR 
900-904.

Subpart A--Scope of Standards


Sec.  1177.1  Prescription of standards.

    (a) The National Endowment for the Humanities (NEH) is issuing the 
regulation the regulations in this part pursuant to 31 CFR 900-904 and 
under the authority contained in 31 U.S.C. 3711(d)(2). The regulations 
in this part prescribe the standards that NEH will use in the 
administrative collection, offset, compromise, suspension, and 
termination of collection activity for civil claims for money, funds, 
or property, as defined by 31 U.S.C. 3701(b), unless specific Federal 
agency statues or regulations apply to such activities or, as provided 
for by Title 11 of the United States Code, when the claims involve 
bankruptcy. Federal agencies include agencies of the executive, 
legislative, and judicial branches of the Government, including 
Government corporations. The regulations in this part also prescribe 
standards for referring debts to the Department of Justice (DOJ) for 
litigation. Additional guidance is contained in the Office of 
Management and Budget's circular A-129 (Revised), ``Policies for 
Federal Credit Programs and Non-Tax Receivables,'' the Department of 
the Treasury's (Treasury) ``Managing Federal Receivables,'' and other 
publications concerning debt collection and debt management. These 
publications are available from the Debt Management Services, Financial 
Management Service, Department of the Treasury, 401 14th Street SW, 
Room 151, Washington, DC 20227.
    (b) Additional rules governing centralized administrative offset 
and the transfer of delinquent debts to Treasury or Treasury-designated 
debt collection centers for collection (cross-servicing) under the Debt 
Collection Improvement Act of 1996, Public Law 104-134, 110 Stat. 1321, 
1358 (April 26, 1996) (DCIA), are issued in separate regulations by 
Treasury. Rules governing the use of certain debt collection tools 
created under the DCIA, such as administrative wage garnishment, also 
are issued in separate regulations by Treasury. See generally 31 CFR 
285.
    (c) NEH is not limited to the remedies contained in this part and 
may use all authorized remedies, including alternative dispute 
resolution and arbitration, to collect civil claims, to the extent that 
such remedies are not inconsistent with the Federal Claims Collection 
Act, as amended, Public Law 89-508, 80 Stat. 308 (July 19, 1966), the 
Debt Collection Act of 1982, Public Law 97-365, 96 Stat. 1749 (October 
25, 1982), the DCIA, or other relevant statutes. The regulations in 
this part are not intended to impair NEH's common law rights to collect 
debts.
    (d) Standards and policies regarding the classification of debt for 
accounting purposes (for example, write off of uncollectible debt) are 
contained in the Office of Management and Budget's Circular A-129 
(Revised), ``Policies for Federal Credit Programs and Non-Tax 
Receivables.''


Sec.  1177.2  Definitions and construction.

    (a) For the purposes of the standards in this part, the terms 
``claim'' and ``debt'' are synonymous and interchangeable. They refer 
to an amount of money, funds, or property that an agency official has 
determined to be due the United States from any person, organization, 
or entity, except another Federal agency. For the purposes of 
administrative offset under 31 U.S.C. 3716, the terms ``claim'' and 
``debt'' include an amount of money, funds, or property owed by a 
person to a State (including past-due support being enforced by a 
State), the District of Columbia, American Samoa, Guam, the United 
States Virgin Islands, the Commonwealth of the Northern Mariana 
Islands, or the Commonwealth of Puerto Rico.
    (b) ``Chairperson'' means the Chairperson of NEH or the 
Chairperson's designee.
    (c) A debt is ``delinquent'' if it has not been paid by the date 
specified in the initial written demand for payment or applicable 
agreement or instrument (including a post-delinquency payment 
agreement), unless other satisfactory payment arrangements have been 
made.
    (d) Words in the plural form shall include the singular and vice 
versa, and words signifying the masculine gender shall include the 
feminine and vice versa. The terms ``includes'' and ``including'' do 
not exclude matters not listed but do include matters that are in the 
same general class.
    (e) ``Recoupment'' is a special method for adjusting debts arising 
under the same transaction or occurrence. For example, obligations 
arising under the same contract generally are subject to recoupment.
    (f) Unless otherwise stated, ``Secretary'' means the Secretary of 
the Treasury or the Secretary's delegate.


Sec.  1177.3  Antitrust, fraud, and tax and interagency claims 
excluded.

    (a) The standards in this part relating to compromise, suspension, 
and termination of collection activity do not apply to any debt based 
in whole or in part on conduct that violates the antitrust laws or to 
any debt involving fraud, the presentation of a false claim, or 
misrepresentation on the part of the debtor or any party having an 
interest in the claim. Only DOJ has the authority to compromise, 
suspend, or terminate collection activity on such claims. The standards 
in this part relating to the administrative collection of claims do 
apply, but only to the extent authorized by DOJ in a particular case. 
Upon identification of a claim based in whole or in part on conduct in 
violation of the antitrust laws or any claim involving fraud, the 
presentation of a false claim, or misrepresentation on the part of the 
debtor or any party having an interest in the claim, NEH shall promptly 
refer the case to DOJ for action. At its discretion, DOJ may return the 
claim to NEH for further handling, in accordance with the standards in 
this part.
    (b) This part does not apply to tax debts.
    (c) This part does not apply to claims between Federal agencies. 
NEH will attempt to resolve interagency claims by negotiation in 
accordance with

[[Page 66967]]

Executive Order 12146 (3 CFR, 1979 Comp., pp. 409-412).


Sec.  1177.4  Compromise, waiver, or disposition under other statutes 
not precluded.

    Nothing in this part precludes NEH's disposition of any claim under 
statutes and implementing regulations other than 31 U.S.C. 37, 
subchapter II (Claims of the United States Government). See e.g., the 
Federal Medical Care Recovery Act, Public Law 87-693, 76 Stat. 593 
(September 25, 1962) (codified at 42 U.S.C. 2651 et seq.), and 
applicable regulations, 28 CFR 43. In such cases, the laws and 
regulations that are specifically applicable to NEH's claims collection 
activities generally take precedence over this part.


Sec.  1177.5  Form of payment.

    Debtors may pay claims in the form of money or, when a contractual 
basis exists, the Government may demand the return of specific property 
or the performance of specific services.


Sec.  1177.6  Subdivision of claims not authorized.

    NEH will not subdivide debts in order to avoid the monetary ceiling 
established by 31 U.S.C. 3711(a)(2). NEH will consider a debtor's 
liability arising from a particular transaction or contract as a single 
debt in determining whether the debt is one of less than $100,000 
(excluding interest, penalties, and administrative costs) or such 
higher amount as the Attorney General shall from time to time prescribe 
for purposes of compromising, suspending, or terminating collection 
activity.


Sec.  1177.7  Required administrative proceedings.

    NEH is not required to omit, foreclose, or duplicate administrative 
proceedings required by contract or other laws or regulations.


Sec.  1177.8  No private rights created.

    The standards in this part do not create any right or benefit, 
substantive or procedural, enforceable at law or in equity by a party 
against the United States, its agencies, its officers, or any other 
person, nor shall NEH's failure to comply with any of the provisions of 
this part be available to any debtor as a defense.

Subpart B--Standards for the Administrative Collection of Claims


Sec.  1177.9  Aggressive NEH collection activity.

    (a) NEH will aggressively collect all debts that arise out of its 
activities, or that are referred or transferred for collection services 
to NEH. NEH will promptly undertake collection activities and take 
follow-up action as necessary. Nothing in 31 CFR 900 through 904 
requires DOJ, Treasury, or other Treasury-designated debt collection 
centers to duplicate collection activities previously undertaken by NEH 
or to perform collection activities that NEH should have undertaken.
    (b) Debts that NEH refers or transfers to Treasury or Treasury-
designated debt collection centers under the authority of 31 U.S.C. 
3711(g) will be serviced, collected, or compromised, or the collection 
action will be suspended or terminated, in accordance with the 
statutory requirements and authorities applicable to the collection of 
such debts.
    (c) NEH will cooperate with other agencies in debt collection 
activities.
    (d) NEH will consider referring debts that are less than 180 days 
delinquent to Treasury or to Treasury-designated debt collection 
centers to accomplish efficient, cost effective debt collection. 
Treasury is a debt collection center, is authorized to designate other 
Federal agencies as debt collection centers based on their performance 
in collecting delinquent debts, and may withdraw such designations. 
Referrals to debt collection centers are at the discretion of, and for 
a time period acceptable to, the Secretary. Referrals may be for 
servicing, collection, compromise, suspension, or termination of 
collection action.
    (e) NEH will transfer to the Secretary any debt that has been 
delinquent for a period of 180 days or more so that the Secretary may 
take appropriate action to collect the debt or terminate collection 
action. See 31 CFR 285.12 (Transfer of Debts to Treasury for 
Collection). This requirement does not apply to any debt that:
    (1) Is in litigation or foreclosure;
    (2) Will be disposed of under an approved asset sale program;
    (3) Has been referred to a private collection contractor for a 
period of time acceptable to the Secretary;
    (4) Is at a debt collection center for a period of time acceptable 
to the Secretary (see paragraph (d) of this section);
    (5) Will be collected under internal offset procedures within three 
years after the debt first became delinquent; or
    (6) Is exempt from this requirement based on a determination by the 
Secretary that exemption for a certain class of debt is in the best 
interests of the United States. NEH may request that the Secretary 
exempt specific classes of debts.
    (e) Agencies operating Treasury-designated debt collection centers 
are authorized to charge a fee for services rendered regarding referred 
or transferred debts. NEH may pay the fee out of amounts it collects 
and may add the fee to the debt as an administrative cost (see Sec.  
1177.18).


Sec.  1177.10  Demand for payment.

    (a) NEH will promptly make a written demand, as described in 
paragraph (b) of this section, upon a debtor of the United States in 
terms that inform the debtor of the consequences of failing to 
cooperate with NEH to resolve the debt. The specific content, timing, 
and number of demand letters will depend upon the type and amount of 
the debt and the debtor's response, if any, to NEH's letters or 
telephone calls. Generally, one demand letter should suffice. In 
determining the timing of the demand letter(s), NEH will give due 
regard to the need to refer debts promptly to DOJ for litigation, in 
accordance with Sec.  1177.33 or otherwise. When necessary to protect 
the Government's interest (for example, to prevent a statute of 
limitations from running), NEH may precede written demand by other 
appropriate actions under this part, including immediate referral for 
litigation.
    (b) Demand letters will inform the debtor of:
    (1) The basis for the indebtedness and the rights, if any, the 
debtor may have to seek review within NEH;
    (2) The applicable standards for imposing any interest, penalties, 
or administrative costs;
    (3) The date by which the debtor should make payment in order to 
avoid late charges (i.e., interest, penalties, and administrative 
costs) and enforced collection, which generally should not be more than 
thirty (30) days from the date that NEH mails or hand-delivers the 
demand letter; and
    (4) The name, address, and phone number of a contact person or 
office within NEH.
    (c) NEH will exercise care to ensure that demand letters are mailed 
or hand-delivered on the same day that they are dated. There is no 
prescribed format for demand letters. NEH will utilize demand letters 
and procedures that will lead to the earliest practicable determination 
of whether the agency can resolve the debt administratively or must 
refer it for litigation.
    (d) NEH will include in demand letters such items as the agency's 
willingness to discuss alternative methods of payment; its policies 
with respect to the use of credit bureaus, debt collection centers, and 
collection agencies; its remedies to enforce payment of the debt 
(including

[[Page 66968]]

assessment of interest, administrative costs and penalties, 
administrative garnishment, the use of collection agencies, Federal 
salary offset, tax refund offset, administrative offset, and 
litigation); the requirement that any debt delinquent for more than 180 
days be transferred to Treasury for collection; and, depending on 
applicable statutory authority, the debtor's entitlement to 
consideration of a waiver.
    (e) NEH will respond promptly to communications from debtors, 
within thirty (30) days whenever feasible, and will advise debtors who 
dispute debts to furnish available evidence to support their 
contentions.
    (f) Prior to initiating the demand process, or at any time during 
or after completing the demand process, if NEH determines to pursue, or 
is required to pursue, offset, it will follow the offset procedures in 
Sec.  1177.11. The availability of funds or money for debt satisfaction 
by offset, and NEH's determination to pursue collection by offset, will 
release NEH from further compliance with paragraphs (a), (b), (c), and 
(d) of this section.
    (g) Prior to referring a debt for litigation, NEH will advise each 
person it determines to be liable for the debt that, unless the agency 
can collect the debt administratively, it may initiate litigation. This 
notification will comply with Executive Order 12988 (3 CFR, 1996 Comp., 
pp. 157-163) and may be given as part of a demand letter under 
paragraph (b) of this section or in a separate document. NEH will 
notify DOJ that it has given this notice.
    (h) When NEH learns that a bankruptcy petition has been filed with 
respect to a debtor, before proceeding with further collection action, 
the agency will immediately seek legal advice from its Office of the 
General Counsel concerning the impact of the Bankruptcy Code on any 
pending or contemplated collection activities. Unless NEH determines 
that the automatic stay imposed at the time of filing pursuant to 11 
U.S.C. 362 has been lifted or is no longer in effect, in most cases NEH 
will immediately stop collection activity against the debtor.
    (1) After seeking legal advice, in most cases NEH will file a proof 
of claim with the bankruptcy court or the Trustee. NEH will refer to 
the provisions of 11 U.S.C. 106 relating to the consequences on 
sovereign immunity of filing a proof of claim.
    (2) If NEH is a secured creditor, it may seek relief from the 
automatic stay regarding its security, subject to the provisions and 
requirements of 11 U.S.C. 362.
    (3) In most cases, offset is stayed by the automatic stay. However, 
NEH will seek legal advice from its Office of the General Counsel to 
determine whether it may freeze its payments to the debtor, and other 
agencies' payments that are available for offset, until it can obtain 
from the bankruptcy court relief from the automatic stay. NEH will also 
seek legal advice from its Office of the General Counsel to determine 
whether recoupment is available.


Sec.  1177.11  Collection by administrative offset.

    (a) Scope. (1) The term ``administrative offset'' has the meaning 
provided in 31 U.S.C. 3701(a)(1).
    (2) This section does not apply to:
    (i) Debts arising under the Social Security Act, except as provided 
in 42 U.S.C. 404;
    (ii) Payments made under the Social Security Act, except as 
provided for in 31 U.S.C. 3716(c) (see 31 CFR 285.4, Federal Benefit 
Offset);
    (iii) Debts arising under, or payments made under, the Internal 
Revenue Code (see 31 CFR 285.2, Tax Refund Offset) or the tariff laws 
of the United States;
    (iv) Offsets against Federal salaries to the extent these standards 
are inconsistent with regulations published to implement such offsets 
under 5 U.S.C. 5514 and 31 U.S.C. 3716 (see 5 CFR part 550, subpart K, 
and 31 CFR 285.7, Federal Salary Offset);
    (v) Offsets under 31 U.S.C. 3728 against a judgment that a debtor 
obtained against the United States;
    (vi) Offsets or recoupments under common law, State law, or Federal 
statutes specifically prohibiting offsets or recoupments of particular 
types of debts; or
    (vii) Offsets in the course of judicial proceedings, including 
bankruptcy.
    (3) Unless otherwise provided for by contract or law, NEH may 
collect debts or payments that are not subject to administrative offset 
under 31 U.S.C. 3716 by administrative offset under the common law or 
other applicable statutory authority.
    (4) Unless otherwise provided by law, NEH will not collect a debt 
by administrative offset under the authority of 31 U.S.C. 3716 more 
than ten (10) years after the Government's right to collect the debt 
first accrued, unless facts material to the Government's right to 
collect the debt were not known and could not reasonably have been 
known by the Government official or officials who were charged with the 
responsibility to discover and collect such debts. This limitation does 
not apply to debts reduced to a judgment.
    (5) In bankruptcy cases, NEH will seek legal advice from its Office 
of the General Counsel concerning the impact of the Bankruptcy Code, 
particularly 11 U.S.C. 106, 362, and 553, on pending or contemplated 
collections by offset.
    (b) Mandatory centralized administrative offset. (1) NEH is 
required to refer past due, legally enforceable nontax debts which are 
over 180 days delinquent to the Secretary for collection by centralized 
administrative offset. NEH may also refer debts which are less than 180 
days delinquent to the Secretary for this purpose. See paragraph (b)(5) 
of this section for debt certification requirements.
    (2) The names and taxpayer identifying numbers (TINs) of debtors 
who owe debts which NEH referred to the Secretary as described in 
paragraph (b)(1) of this section will be compared to the names and TINs 
on payments to be made by Federal disbursing officials. Federal 
disbursing officials include disbursing officials of Treasury, the 
Department of Defense, the United States Postal Service, other 
Government corporations, and United States disbursing officials 
designated by the Secretary. When a debtor's name and TIN match a 
payee's name and TIN and all other requirements for offset have been 
met, the payment will be offset to satisfy the debt.
    (3) Federal disbursing officials will notify the debtor/payee in 
writing that an offset has occurred to satisfy, in part or in full, a 
past due, legally enforceable delinquent debt. The notice will include 
a description of the type and amount of the payment from which the 
offset was taken, the amount of offset that was taken, the identity of 
the creditor agency requesting the offset, and a contact point within 
the creditor agency who will respond to questions regarding the offset.
    (4) NEH will initiate offsets only after:
    (i) Sending the debtor written notice of the type and amount of the 
debt, NEH's intention to use administrative offset to collect the debt, 
and an explanation of the debtor's rights under 31 U.S.C. 3716; and
    (ii) Giving the debtor the opportunity:
    (A) To inspect and copy NEH records related to the debt;
    (B) For a review within NEH of its determination of indebtedness; 
and
    (C) To make a written agreement to repay the debt.
    (5) NEH may omit the procedures set forth in paragraph (b)(4) of 
this section when:
    (i) The offset is in the nature of a recoupment;
    (ii) The debt arises under a contract as set forth in Cecile 
Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and 
other procedural protections

[[Page 66969]]

set forth in 31 U.S.C. 3716(a) do not supplant or restrict established 
procedures for contractual offsets accommodated by the Contracts 
Disputes Act); or
    (iii) In the case of non-centralized administrative offsets 
conducted under paragraph (c) of this section, NEH first learns of the 
amount owed by the debtor when there is insufficient time before 
payment would be made to the debtor/payee to allow for prior notice and 
an opportunity for review. When NEH omits prior notice and an 
opportunity for review, it will give the debtor such notice and an 
opportunity for review as soon as practicable, and it will promptly 
refund any money which it ultimately finds the debtor did not owe to 
the Government.
    (6) When an agency has previously given a debtor any of the 
required notice and review opportunities with respect to a particular 
debt (see e.g., Sec.  1177.10), NEH need not duplicate such notice and 
review opportunities before initiating administrative offset.
    (7) When referring delinquent debts to the Secretary, NEH will 
certify, in a form acceptable to the Secretary, that:
    (i) The debt(s) is (are) past due and legally enforceable; and
    (ii) NEH has complied with all due process requirements under 31 
U.S.C. 3716(a) and paragraphs (b)(4), (b)(5), and (b)(6) of this 
section.
    (8) Payments that are prohibited by law from being offset are 
exempt from centralized administrative offset. The Secretary will 
exempt payments under means-tested programs from centralized 
administrative offset when the head of the payment certifying or 
authorizing agency requests in writing that the Secretary do so. Also, 
the Secretary may exempt other classes of payments from centralized 
offset upon the head of the payment certifying or authorizing agency's 
written request.
    (9) NEH may offset benefit payments made under the Social Security 
Act (42 U.S.C. 301, et seq.), part B of the Black Lung Benefits Act (30 
U.S.C. 921, et seq.), and any law administered by the Railroad 
Retirement Board (other than tier two (2) benefits), only in accordance 
with Treasury regulations, issued in consultation with the Social 
Security Administration, the Railroad Retirement Board, and the Office 
of Management and Budget. See 31 CFR 285.4.
    (10) In accordance with 31 U.S.C. 3716(f), the Secretary may waive 
the Computer Matching and Privacy Protection Act of 1988's provisions 
concerning matching agreements and post-match notification and 
verification (5 U.S.C. 552a(o) and (p)) for centralized administrative 
offset upon receipt of a certification from NEH, as the creditor 
agency, that it has met the due process requirements enumerated in 31 
U.S.C. 3716(a). NEH's certification in accordance with paragraph (b)(7) 
of this section will satisfy this requirement. If the Secretary grants 
such a waiver, only Treasury's Data Integrity Board is required to 
oversee any matching activities, in accordance with 31 U.S.C. 3716(g). 
This waiver authority does not apply to offsets conducted under 
paragraphs (c) and (d) of this section.
    (c) Non-centralized administrative offset. (1) Generally, NEH will 
conduct non-centralized administrative offsets at its discretion on an 
ad hoc case-by-case basis, internally or in cooperation with the agency 
certifying or authorizing payments to the debtor. Unless otherwise 
prohibited by law, when centralized administrative offset is not 
available or appropriate, NEH may collect past due, legally enforceable 
non-tax delinquent debts through non-centralized administrative offset. 
In these cases, a creditor agency may make a request directly to a 
payment authorizing agency to offset a payment due a debtor in order to 
collect a delinquent debt. For example, it may be appropriate for a 
creditor agency to request that the Office of Personnel Management 
(OPM) offset a Federal employee's lump sum payment upon leaving 
Government service in order to satisfy an unpaid advance.
    (2) Before requesting that a payment authorizing agency conduct a 
non-centralized administrative offset, NEH will provide:
    (i) The debtor with due process as set forth in paragraphs (b)(4) 
through (6) of this section; and
    (ii) The payment authorizing agency with written certification that 
the debtor owes past due, legally enforceable delinquent debt in the 
amount stated, and that NEH has fully complied with its regulations 
concerning administrative offset.
    (3) Payment authorizing agencies will comply with offset requests 
by creditor agencies to collect debts owed to the United States, unless 
the offset would not be in the best interests of the United States with 
respect to the authorizing agency's program, or would otherwise be 
contrary to law. NEH will make appropriate use of other agencies' 
cooperative efforts in effecting collection by administrative offset.
    (4) When collecting multiple debts by non-centralized 
administrative offset, NEH will apply the recovered amounts to those 
debts in accordance with the best interests of the United States, as 
determined by the facts and circumstances of the specific case, 
particularly the applicable statute of limitations.
    (d) Requests to OPM to offset a debtor's anticipated or future 
benefit payments under the Civil Service Retirement and Disability 
Fund. Upon providing OPM written certification that a debtor has been 
afforded the procedures provided in paragraphs (b)(4) through (6) of 
this section, NEH may request that OPM offset a debtor's anticipated or 
future benefit payments under the Civil Service Retirement and 
Disability Fund (Fund) in accordance with regulations codified at 5 CFR 
831.1801-831.1808. Upon receipt of such a request, OPM will identify 
and ``flag'' a debtor's account in anticipation of the time when the 
debtor requests, or becomes eligible to receive, payments from the 
Fund. This will satisfy any requirement that NEH initiate offset prior 
to the expiration of the time limitations referenced in paragraph 
(a)(4) of this section.
    (e) Review Requirements. (1) For purposes of this section, whenever 
NEH is required to afford a debtor a review, it will provide the debtor 
with a reasonable opportunity for an oral hearing when the debtor 
requests reconsideration of the debt and NEH determines that the 
question of indebtedness cannot be resolved by reviewing the 
documentary evidence; for example, when the validity of the debt turns 
on an issue of credibility or veracity.
    (2) Unless otherwise required by law, an oral hearing under this 
section is not required to be a formal evidentiary hearing, although 
NEH will carefully document all significant matters discussed at the 
hearing.
    (3) This section does not require an oral hearing with respect to 
debt collection systems in which a determination of indebtedness rarely 
involves issues of credibility or veracity and NEH has determined that 
the review of the written record is ordinarily an adequate means to 
correct prior mistakes.
    (4) In those cases when an oral hearing is not required by this 
section, NEH will accord the debtor a ``paper hearing;'' that is, a 
determination of the request for reconsideration based upon a review of 
the written record.


Sec.  1177.12  Reporting debts.

    (a) NEH procedures for reporting delinquent debts to credit bureaus 
and other automated databases will comply with the Bankruptcy Code and 
the Privacy Act of 1974, 5 U.S.C. 552a, as amended. The provisions of 
the Privacy Act do not apply to credit bureaus.

[[Page 66970]]

    (b) NEH procedures for reporting delinquent consumer debts to 
credit bureaus will be consistent with the due process and other 
requirements contained in 31 U.S.C. 3711(e). When an agency has given a 
debtor any of the required notice and review opportunities with respect 
to a particular debt, NEH need not duplicate such notice and review 
opportunities before reporting that delinquent consumer debt to credit 
bureaus.
    (c) NEH will report delinquent debts to the Department of Housing 
and Urban Development's Credit Alert Interactive Voice Response System 
(CAIVRS). NEH will contact the Director of Information Resources 
Management Policy and Management Division, Office of Information 
Technology, Department of Housing and Urban Development, 451 7th Street 
SW, Washington, DC 20410 for information about the CAIVRS program.


Sec.  1177.13  Contracting with private collection contractors and with 
entities that locate and recover unclaimed assets.

    (a) Subject to the provisions of paragraph (b) of this section, NEH 
may contract with private collection contractors, as defined in 31 
U.S.C. 3701(f), to recover delinquent debts, provided that:
    (1) NEH retains the authority to resolve disputes, compromise 
debts, suspend or terminate collection activity, and refer debts for 
litigation;
    (2) The private collection contractor is not allowed to offer the 
debtor, as an incentive for payment, the opportunity to pay the debt 
less the private collection contractor's fee unless NEH has granted 
such authority prior to the offer;
    (3) The contract provides that the private collection contractor is 
subject to the Privacy Act of 1974, to the extent specified in 5 U.S.C. 
552a(m), and to applicable Federal and state laws and regulations 
pertaining to debt collection practices, including but not limited to 
the Fair Debt Collection Practices Act, 15 U.S.C. 1692; and
    (4) The private collection contractor is required to account for 
all amounts collected.
    (b) NEH will use government-wide debt collection contracts to 
obtain debt collection services provided by private contractors. 
However, NEH may refer debts to private collection contractors pursuant 
to a contract with the private collection contractor only if such debts 
are not subject to the requirement to transfer debts to Treasury for 
collection. See 31 U.S.C. 3711(g); 31 CFR 285.12(e).
    (c) NEH may fund private collection contractor contracts in 
accordance with 31 U.S.C. 3718(d), or as otherwise permitted by law.
    (d) NEH may enter into contracts for locating and recovering United 
States assets, such as unclaimed assets. NEH will establish procedures 
that are acceptable to the Secretary before entering into contracts to 
recover United States assets held by a state government or a financial 
institution.
    (e) NEH may enter into contracts for debtor asset and income search 
reports. In accordance with 31 U.S.C. 3718(d), such contracts may 
provide that the fee a contractor charges NEH for such services may be 
payable from the amounts recovered, unless otherwise prohibited by 
statute.


Sec.  1177.14   Suspension or revocation of eligibility for federal 
financial assistance.

    (a) Unless waived by the Chairperson (or the Chairperson's 
designee), NEH will not extend financial assistance, which includes 
grants, cooperative agreements, contracts, loans, loan guarantees, or 
loan insurance to any person delinquent on a nontax debt owed to a 
Federal agency. NEH may extend credit after the delinquency has been 
resolved. The Secretary may exempt classes of debts from this 
prohibition and has prescribed standards defining when a 
``delinquency'' is ``resolved'' for purposes of this prohibition. See 
31 CFR 285.13 (Barring Delinquent Debtors from Obtaining Federal Loans 
or Loan Insurance or Guarantees).
    (b) In non-bankruptcy cases, when NEH is seeking the collection of 
statutory penalties, forfeitures, or other types of claims, it will 
consider suspending or revoking a debtor's licenses, permits, grants, 
cooperative agreements, contracts, or other privileges for inexcusable 
or willful failure to pay such a debt in accordance with NEH's 
regulations or governing procedures. In its written demand for payment, 
NEH will advise the debtor of the agency's ability to suspend or revoke 
licenses, permits, grants, cooperative agreements, contracts, or other 
privileges. In instances where NEH is making, guaranteeing, insuring, 
acquiring, or participating in grants, cooperative agreements, 
contracts, or loans, it will consider suspending or disqualifying any 
lender, contractor, grantee, partner, counterparty, broker, or 
participant from doing further business with NEH or engaging in 
programs, agreements, or activities that are sponsored, co-sponsored or 
otherwise supported by NEH if such lender, contractor, grantee, 
partner, counterparty, broker, or participant fails to pay its debts to 
the Government within a reasonable time or if such lender, contractor, 
grantee, partner, counterparty, broker, or participant has been 
suspended, debarred, or disqualified from participation in a program, 
agreement, or activity by another Federal agency. NEH will report to 
Treasury the failure of any surety to honor its obligations in 
accordance with 31 U.S.C. 9305. The Treasury will forward to all 
interested agencies a notification that a surety's certificate of 
authority to do business with the Government has been revoked by 
Treasury.
    (c) NEH will also extend the suspension or revocation of licenses, 
permits, grants, cooperative agreements, contracts, or other privileges 
to Federal programs, agreements, or activities that are administered by 
the states or other third parties on behalf of the Federal Government, 
to the extent that they affect the Federal Government's ability to 
collect money or funds owed by debtors. Therefore, states or other 
third parties that manage Federal programs, agreements, or activities, 
pursuant to NEH approval, should ensure that appropriate steps are 
taken to safeguard against issuing licenses, permits, grants, 
cooperative agreements, contracts, or other privileges to debtors who 
fail to pay their debts to the Federal Government.
    (d) In bankruptcy cases, before advising the debtor of its 
intention to suspend or revoke licenses, permits, grants, cooperative 
agreements, contracts, or other privileges, NEH will seek legal advice 
from its Office of the General Counsel concerning the impact of the 
Bankruptcy Code, particularly 11 U.S.C. 362 and 525, which may restrict 
such action.


Sec.  1177.15  Liquidation of collateral.

    (a) NEH will liquidate security or collateral through the exercise 
of a power of sale in the security instrument or a nonjudicial 
foreclosure, and apply the proceeds to the applicable debt(s), if the 
debtor fails to pay the debt(s) within a reasonable time after demand 
and if such action is in the best interest of the United States. 
Collection from other sources, including liquidation of security or 
collateral, is not a prerequisite to requiring payment by a surety, 
insurer, or guarantor unless such action is expressly required by 
statute or contract.
    (b) When NEH learns that a bankruptcy petition has been filed with 
respect to a debtor, the agency will seek legal advice from its Office 
of the General Counsel concerning the impact of the Bankruptcy Code, 
including but not limited to 11 U.S.C. 362, to

[[Page 66971]]

determine the applicability of the automatic stay and the procedures 
for obtaining relief from such stay prior to proceeding under paragraph 
(a) of this section.


Sec.  1177.16   Collection in installments.

    (a) Whenever feasible, NEH will collect the total amount of a debt 
in one lump sum. If a debtor is financially unable to pay a debt in one 
lump sum, NEH may accept payment in regular installments. NEH will 
obtain financial statements from debtors who represent that they are 
unable to pay in one lump sum and independently verify such 
representations whenever possible (see Sec.  1177.22(g) of this part). 
If NEH agrees to accept payments in regular installments, it will 
obtain a legally enforceable written agreement from the debtor that 
specifies all of the terms of the arrangement and that contains a 
provision accelerating the debt in the event of default.
    (b) The size and frequency of installment payments will bear a 
reasonable relation to the size of the debt and the debtor's ability to 
pay. If possible, the installment payments should be sufficient in size 
and frequency to liquidate the debt in three years or less.
    (c) NEH will obtain security for deferred payments, in appropriate 
cases. NEH may accept installment payments notwithstanding the debtor's 
refusal to execute a written agreement or to give security, at the 
agency's option.


Sec.  1177.17  Interest, penalties, and administrative costs.

    (a) Except as provided in paragraphs (g), (h), and (i) of this 
section, NEH will charge interest, penalties, and administrative costs 
on debts owed to the United States pursuant to 31 U.S.C. 3717. NEH will 
mail or hand-deliver a written notice to the debtor, at the debtor's 
most recent address available to NEH, explaining the agency's 
requirements concerning these charges, except where these requirements 
are included in a contractual or repayment agreement. These charges 
shall continue to accrue until the debt is paid in full or otherwise 
resolved through compromise, termination, or waiver of the charges.
    (b) NEH will charge interest on debts owed the United States as 
follows:
    (1) Interest will accrue from the date of delinquency, or as 
otherwise provided by law.
    (2) Unless otherwise established in a grant, cooperate agreement, 
contract, repayment agreement, or by statute, the rate of interest that 
NEH charges will be the rate that the Secretary establishes annually in 
accordance with 31 U.S.C. 3717. Pursuant to 31 U.S.C. 3717, NEH may 
charge a higher rate of interest if it reasonably determines that a 
higher rate is necessary to protect the rights of the United States. 
NEH will document the reason(s) for its determination that the higher 
rate is necessary.
    (3) The rate of interest that NEH initially charges will remain 
fixed for the duration of the indebtedness. When a debtor defaults on a 
repayment agreement and seeks to enter into a new agreement, NEH may 
require payment of interest at a new rate that reflects the Treasury's 
value of funds at the time the new agreement is executed. NEH will not 
compound interest; that is, it will not charge interest on interest, 
penalties, or administrative costs required by this section. If, 
however, a debtor defaults on a previous repayment agreement, NEH will 
add to the principal under the new repayment agreement any charges that 
accrued but which NEH did not collect under the defaulted agreement.
    (c) NEH will assess administrative costs it incurred for processing 
and handling delinquent debts. NEH will base its calculation of 
administrative costs on the actual costs it incurred or upon its 
estimated costs.
    (d) Unless otherwise established in a contract, repayment 
agreement, or by statute, NEH will charge a penalty, pursuant to 31 
U.S.C. 3717(e)(2), not to exceed six (6) percent a year on the amount 
due on a debt that is delinquent for more than ninety (90) days. This 
charge shall accrue from the date of delinquency.
    (e) NEH may increase an ``administrative debt'' by the cost-of-
living adjustment in lieu of charging interest and penalties under this 
section. ``Administrative debt'' includes but is not limited to a debt 
based on fines, penalties, and overpayments, but does not include a 
debt based on the extension of Government credit, such as those arising 
from loans and loan guaranties. The cost-of-living adjustment is the 
percentage by which the Consumer Price Index for the month of June of 
the calendar year preceding the adjustment exceeds the Consumer Price 
Index for the month of June of the calendar year in which the debt was 
determined or last adjusted. NEH will annually compute increases to 
administrative debts. NEH will use this alternative only when there is 
a legitimate reason to do so, such as when calculating interest and 
penalties on a debt would be extremely difficult because of the debt's 
age.
    (f) When a debtor pays a debt in partial or installment payments, 
the Government will first apply the amount it receives to any 
contingency fees added to the debt, second to outstanding penalties, 
third to administrative costs other than contingency fees, fourth to 
interest, and last to principal. For purposes of this paragraph (f), 
``contingency fees'' are administrative costs resulting from fees paid 
by a Federal agency to other Federal agencies or private collection 
contractors for collection services rendered when the fees are paid 
from the amounts collected from a debtor.
    (g) NEH will waive the collection of interest and administrative 
costs imposed pursuant to this section on the portion of the debt that 
the debtor pays within thirty (30) days after the date on which 
interest began to accrue. NEH may extend this thirty-day period on a 
case-by-case basis. In addition, NEH may waive interest, penalties, and 
administrative costs charged under this section, in whole or in part, 
without regard to the amount of the debt, either under the criteria set 
forth in these standards for the compromise of debts, or if NEH 
determines that collection of these charges is against equity and good 
conscience or is not in the best interest of the United States.
    (h) NEH will not suspend the assessment of interest, penalties, and 
administrative costs during the administrative review of a debt, except 
for periods during which it has suspended collection activity under 
Sec.  1177.29 of this part.
    (i) NEH is authorized to impose interest and related charges on 
debts not subject to 31 U.S.C. 3717, in accordance with the common law.


Sec.  1177.18  Analysis of costs.

    NEH will periodically compare costs incurred and amounts collected. 
NEH will use data on costs and corresponding recovery rates for debts 
of different types and in various dollar ranges to compare the cost 
effectiveness of alternative collection techniques, establish 
guidelines with respect to points at which costs of further collection 
efforts are likely to exceed recoveries, assist in evaluating 
compromise offers, and establish minimum debt amounts below which 
collection efforts need not be taken.


Sec.  1177.19  Use and disclosure of mailing addresses.

    (a) When attempting to locate a debtor in order to collect or 
compromise a debt under this part or other authority, NEH may send a 
request to the Secretary to obtain a debtor's mailing address from the 
Internal Revenue Service's records.
    (b) NEH is authorized to use mailing addresses it obtained under 
paragraph

[[Page 66972]]

(a) of this section to enforce collection of a delinquent debt and may 
disclose such mailing addresses to other agencies and to collection 
agencies for collection purposes.


Sec.  1177.20  Exemptions.

    (a) The preceding sections of this part, to the extent that they 
reflect remedies or procedures prescribed by the Debt Collection Act of 
1982 and the DCIA, such as administrative offset, use of credit 
bureaus, contracting for collection agencies, and interest and related 
charges, do not apply to debts arising under, or payments made under, 
the Internal Revenue Code of 1986, as amended (26 U.S.C. 1, et seq.); 
the Social Security Act (42 U.S.C. 301, et seq.), except to the extent 
provided under 42 U.S.C. 404 and 31 U.S.C. 3716(copyright); or the 
tariff laws of the United States. These remedies and procedures, 
however, may be authorized with respect to debts that are exempt from 
the Debt Collection Act of 1982 and the DCIA, to the extent that they 
are authorized under some other statute or the common law.
    (b) NEH does not construe this section as prohibiting its use of 
these authorities or requirements when collecting debts owed by persons 
employed by agencies administering the laws cited in paragraph (a) of 
this section, unless the debt arose under those laws.

Subpart C--Standards for the Compromise of Claims


Sec.  1177.21  Scope and application.

    (a) The standards set forth in this subpart apply to the compromise 
of debts pursuant to 31 U.S.C. 3711. NEH may exercise such compromise 
authority for debts that arise out of its activities, or that are 
referred or transferred to it for collection services, when the amount 
of the debt then due, exclusive of interest, penalties, and 
administrative costs, does not exceed $100,000 or any higher amount 
authorized by the Attorney General. The Chairperson may designate 
officials within NEH to exercise the authorities in this section.
    (b) Unless otherwise provided by law, when the principal balance of 
a debt, exclusive of interest, penalties, and administrative costs, 
exceeds $100,000 or any higher amount authorized by the Attorney 
General, the authority to accept the compromise rests with DOJ. NEH 
will evaluate the compromise offer, using the factors set forth in this 
subpart. If NEH finds that an offer to compromise a debt in excess of 
$100,000 is acceptable, it will refer the debt to the Civil Division or 
other appropriate litigating division in DOJ using a Claims Collection 
Litigation Report (CCLR). NEH may obtain the CCLR from DOJ's National 
Central Intake Facility. The referral will include appropriate 
financial information and a recommendation for the acceptance of the 
compromise offer. DOJ approval is not required if NEH rejects a 
compromise offer.


Sec.  1177.22  Bases for compromise.

    (a) NEH may compromise a debt if the Government cannot collect the 
full amount because:
    (1) The debtor is unable to pay the full amount in a reasonable 
time, as verified through credit reports or other financial 
information;
    (2) The Government is unable to collect the debt in full by 
enforced collection proceedings within a reasonable time;
    (3) The cost of collecting the debt does not justify the enforced 
collection of the full amount; or
    (4) There is significant doubt concerning the Government's ability 
to prove its case in court.
    (b) NEH will consider the following relevant factors when 
determining the debtor's inability to pay:
    (1) The debtor's age and health;
    (2) The debtor's present and potential income;
    (3) The debtor's inheritance prospects;
    (4) The possibility that the debtor has concealed or improperly 
transferred assets; and
    (5) The availability of assets or income that may be realized by 
enforced collection proceedings.
    (c) NEH will verify the debtor's claim of inability to pay by using 
a credit report and other financial information as provided in 
paragraph (g) of this section. NEH will consider the applicable 
exemptions available to the debtor under state and Federal law in 
determining the Government's ability to enforce collection. NEH also 
may consider uncertainty as to the price that collateral or other 
property will bring at a forced sale in determining the Government's 
ability to enforce collection. A compromise that NEH effects under this 
section will be for an amount that bears a reasonable relation to the 
amount that can be recovered by enforced collection procedures, with 
regard to the exemptions available to the debtor and the time that 
collection will take.
    (d) If there is significant doubt concerning the Government's 
ability to prove its case in court for the full amount claimed, either 
because of the legal issues involved or because of a bona fide dispute 
as to the facts, then the amount that NEH accepts in compromise of such 
cases should fairly reflect the probabilities of successful prosecution 
to judgment, with due regard given to the availability of witnesses and 
other evidentiary support for the Government's claim. In determining 
the litigative risks involved, NEH will consider the probable amount of 
court costs and attorney fees pursuant to the Equal Access to Justice 
Act, 28 U.S.C. 2412, that may be imposed against the Government if it 
is unsuccessful in litigation.
    (e) NEH may compromise a debt if the cost of collecting the debt 
does not justify the enforced collection of the full amount. The amount 
NEH accepts in compromise in such cases may reflect an appropriate 
discount for the administrative and litigative costs of collection, 
with consideration given to the time it will take to effect collection. 
Collection costs may be a substantial factor in the settlement of small 
debts. In determining whether the cost of collecting justifies enforced 
collection of the full amount, NEH will consider whether continued 
collection of the debt, regardless of cost, is necessary to further an 
enforcement principle, such as the Government's willingness to pursue 
aggressively defaulting and uncooperative debtors.
    (f) NEH generally will not accept compromises payable in 
installments. This is not an advantageous form of compromise in terms 
of time and administrative expense. If, however, payment of a 
compromise in installments is necessary, NEH will obtain a legally 
enforceable written agreement providing that, in the event of default, 
the debtor's full original principal balance prior to compromise, less 
sums paid thereon, will be reinstated. Whenever possible, NEH also will 
obtain security for repayment in the manner set forth in subpart B of 
this part.
    (g) To assess the merits of a compromise offer based in whole or in 
part on the debtor's inability to pay the full amount of a debt within 
a reasonable time, NEH will obtain a current financial statement from 
the debtor, executed under penalty of perjury, showing the debtor's 
assets, liabilities, income, and expenses. NEH also may obtain credit 
reports or other financial information to assess compromise offers. NEH 
may use its own financial information form or may request suitable 
forms from DOJ or the local United States Attorney's Office.

[[Page 66973]]

Sec.  1177.23  Enforcement policy.

    Pursuant to this subpart, NEH may compromise statutory penalties, 
forfeitures, or claims that it established as an aid to enforcement and 
to compel compliance, if NEH's enforcement policy in terms of 
deterrence and securing compliance, present and future, will be 
adequately served by the agency's acceptance of the compromise offer.


Sec.  1177.24  Joint and several liability.

    a. When two or more debtors are jointly and severally liable, NEH 
will pursue collection activity against all debtors, as appropriate. 
NEH will not attempt to allocate the burden of payment between the 
debtors but will proceed to liquidate the indebtedness as quickly as 
possible.
    b. NEH will ensure that a compromise agreement with one debtor does 
not release the agency's claim against the remaining debtors. The 
amount of a compromise with one debtor will not be considered a 
precedent or binding in determining the amount that will be required 
from other debtors jointly and severally liable on the claim.


Sec.  1177.25  Further review of compromise offers.

    If NEH is uncertain whether to accept a firm, written, substantive 
compromise offer on a debt that is within the agency's delegated 
compromise authority, it may refer the offer to the Civil Division or 
other appropriate litigating division in DOJ, using a CCLR accompanied 
by supporting data and particulars concerning the debt. DOJ may act 
upon such an offer or return it to NEH with instructions or advice.


Sec.  1177.26  Consideration of tax consequences to the Government.

    In negotiating a compromise, NEH will consider the tax consequences 
to the Government. In particular, NEH will consider requiring a waiver 
of the debtor's tax-loss-carry-forward and tax-loss-carry-back rights. 
For information on discharge of indebtedness reporting requirements, 
see Sec.  1177.32.


Sec.  1177.27  Mutual releases of the debtor and the Government.

    In all appropriate instances, NEH will implement acceptable 
compromises by means of a mutual release, in which the debtor is 
released from further non-tax liability on the compromised debt in 
consideration of payment in full of the compromise amount and the 
Government and its officials, past and present, are released and 
discharged from any and all of the debtor's claims and causes of action 
arising from the same transaction. In the event NEH does not execute a 
mutual release when it compromises a debt, unless prohibited by law, 
the debtor is still deemed to have waived any and all claims and causes 
of action against the Government and its officials related to the 
transaction that gave rise to the compromised debt.

Subpart D--Standards for Suspending or Terminating Collection 
Activity


Sec.  1177.28  Scope and application.

    (a) The standards set forth in this subpart apply to the suspension 
or termination of collection activity, pursuant to 31 U.S.C. 3711, on 
debts that do not exceed $100,000, or such other amount as the Attorney 
General may direct, exclusive of interest, penalties, and 
administrative costs, after deducting the amount of partial payments or 
collections, if any. Prior to referring a debt to DOJ for litigation, 
NEH may suspend or terminate collection under this subpart with respect 
to debts that arise out of its activities, or that are referred or 
transferred to it for collection services.
    (b) If, after deducting the amount of any partial payments or 
collections, the principal amount of a debt exceeds $100,000, or such 
other amount as the Attorney General may direct, exclusive of interest, 
penalties, and administrative costs, the authority to suspend or 
terminate rests solely with DOJ. If NEH believes that suspension or 
termination of any debt in excess of $100,000 may be appropriate, it 
will refer the debt to the Civil Division or other appropriate 
litigating division in DOJ, using the CCLR. The referral will specify 
the reasons for NEH's recommendation. If, prior to referral to the DOJ, 
NEH determines that a debt is plainly erroneous or clearly without 
legal merit, NEH may terminate collection activity without obtaining 
DOJ concurrence, regardless of the amount involved.


Sec.  1177.29  Suspension of collection activity.

    (a) NEH may suspend collection activity on a debt when:
    (1) NEH cannot locate the debtor;
    (2) NEH expects the debtor's financial condition to improve; or
    (3) The debtor has requested a waiver or review of the debt.
    (b) NEH may suspend collection activity on a debt when, based on 
the debtor's current financial condition, the debtor's future prospects 
justify retention of the debt for periodic review and collection 
activity and:
    (1) The applicable statute of limitations has not expired; or
    (2) Future collection can be effected by administrative offset, 
notwithstanding the expiration of the applicable statute of limitations 
for litigation of claims, with due regard to the ten-year limitation 
for administrative offset prescribed by 31 U.S.C. 3716(e)(1); or
    (3) The debtor agrees to pay interest on the amount of the debt on 
which collection will be suspended, and such suspension is likely to 
enhance the debtor's ability to pay the full amount of the debt with 
interest at a later date.
    (c)(1) NEH will suspend collection activity during the time 
required to consider the debtor's request for waiver or administrative 
review of the debt, if the statute under which the debtor makes the 
request prohibits NEH from collecting the debt during that time.
    (2) If the statute under which the debtor makes the request does 
not prohibit collection activity pending consideration of the debtor's 
request, NEH may use discretion, on a case-by-case basis, to suspend 
collection. Further, NEH ordinarily will suspend collection action upon 
a request for waiver or review if a statute or regulation prohibits NEH 
from issuing a refund of amounts it collected prior to considering the 
debtor's request. However, NEH should not suspend collection when it 
determines that the request for waiver or review is frivolous or was 
made primarily to delay collection.
    (d) If NEH learns that a bankruptcy petition has been filed with 
respect to a debtor, in most cases it must suspend the collection 
activity on that debtor's debt, pursuant to the provisions of 11 U.S.C. 
362, 1201, and 1301, unless NEH can clearly establish that the 
automatic stay has been lifted or is no longer in effect. NEH will 
immediately seek legal advice from its Office of the General Counsel 
and, if legally permitted, take the necessary legal steps to ensure 
that the agency does not pay any funds or money to the debtor until it 
obtains relief from the automatic stay.


Sec.  1177.30  Termination of collection activity.

    (a) NEH may terminate collection activity when:
    (1) NEH is unable to collect any substantial amount through its own 
efforts or through the efforts of others;
    (2) NEH is unable to locate the debtor;
    (3) NEH anticipates that the costs of collection will exceed the 
amount recoverable;
    (4) The debt is legally without merit or enforcement of the debt is 
barred by any applicable statute of limitations;
    (5) NEH cannot substantiate the debt; or

[[Page 66974]]

    (6) The debt against the debtor has been discharged in bankruptcy.
    (b) Before terminating collection activity, NEH will have pursued 
all appropriate means of collection and determined, based upon the 
results of the collection activity, that the debt is uncollectible. 
Terminating collection activity ceases active collection of the debt 
but does not preclude NEH from retaining a record of the account for 
purposes of:
    (1) Selling the debt, if the Secretary determines that such sale is 
in the best interests of the United States;
    (2) Pursuing collection at a subsequent date in the event there is 
a change in the debtor's status or a new collection tool becomes 
available;
    (3) Offsetting against future income or assets not available at the 
time the agency terminated collection activity; or
    (4) Screening future applicants for prior indebtedness.
    (c) Generally, NEH will terminate collection activity on a debt 
that has been discharged in bankruptcy, regardless of the amount. NEH 
may continue collection activity, however, subject to the provisions of 
the Bankruptcy Code, for any payments provided under a plan of 
reorganization. Offset and recoupment rights may survive the discharge 
of the debtor in bankruptcy and, under some circumstances, claims also 
may survive the discharge. For example, if NEH is a known creditor of 
the debtor, its claims may survive a discharge if it did not receive 
formal notice of the proceedings. NEH will seek legal advice from its 
Office of the General Counsel if it believes it has claims or offsets 
that may survive the discharge of a debtor.


Sec.  1177.31  Exception to termination.

    When a significant enforcement policy is involved, or recovery of a 
judgment is a prerequisite to the imposition of administrative 
sanctions, NEH may refer debts for litigation even though termination 
of collection activity may otherwise be appropriate.


Sec.  1177.32  Discharge of indebtedness; reporting requirements.

    (a) Before discharging a delinquent debt (also referred to as a 
close out of the debt), NEH will take all appropriate steps to collect 
the debt in accordance with 31 U.S.C. 3711(g), including, as 
applicable, administrative offset; tax refund offset; Federal salary 
offset; referral to Treasury, Treasury-designated debt collection 
centers, or private collection contractors; credit bureau reporting; 
wage garnishment; litigation; and foreclosure. Discharge of 
indebtedness is distinct from termination or suspension of collection 
activity under this subpart and is governed by the Internal Revenue 
Code. When NEH suspends or terminates collection action on a debt, the 
debt remains delinquent and NEH may pursue further collection action at 
a later date, in accordance with the standards set forth in this part. 
When NEH discharges a debt in full or in part, further collection 
action is prohibited. Therefore, NEH will make the determination that 
collection action is no longer warranted before discharging a debt. NEH 
must also terminate debt collection action before discharging a debt.
    (b) Section 3711(i), title 31, United States Code, requires NEH to 
sell a delinquent nontax debt upon termination of collection action if 
the Secretary determines such a sale is in the best interests of the 
United States. Since the discharge of a debt precludes any further 
collection action (including the sale of a delinquent debt), NEH may 
not discharge a debt until it meets the requirements of 31 U.S.C. 
3711(i).
    (c) Upon discharge of an indebtedness, NEH must report the 
discharge to the IRS in accordance with the requirements of 26 U.S.C. 
6050P and 26 CFR 1.6050P-1. NEH may request Treasury or Treasury-
designated debt collection centers to file such a discharge report to 
the IRS on NEH's behalf.
    (d) When discharging a debt, NEH must request that litigation 
counsel release any liens of record securing the debt.

Subpart E--Referrals to the Department of Justice


Sec.  1177.33  Prompt referral.

    (a) NEH will promptly refer to DOJ for litigation any debts on 
which it has taken aggressive collection activity in accordance with 
subpart B of this part and that it cannot compromise, or on which it 
cannot suspend or terminate collection activity, in accordance with 
subparts C and D of this part. NEH may refer those debts arising out of 
its activities, or that were referred or transferred to it for 
collection services. NEH will refer debts for which the principal 
amount is over $1,000,000, or such other amount as the Attorney General 
my direct, exclusive of interest and penalties, to the Civil Division 
or other division responsible for litigating such debts at DOJ, 
Washington, DC. NEH will refer debts for which the principal amount is 
$1,000,000 or less, or such other amount as the Attorney General may 
direct, exclusive of interest or penalties, to DOJ's Nationwide Central 
Intake Facility as required by the CCLR instructions. NEH will refer 
debts as early as possible, consistent with aggressive agency 
collection activity and the standards contained in this part, and, in 
any event, well within the period for initiating timely lawsuits 
against the debtors. NEH will make every effort to refer delinquent 
debts to DOJ for litigation within one year of the date that such debts 
last became delinquent.
    (b) DOJ has exclusive jurisdiction over the debts NEH refers to it, 
pursuant to this section. As the referring agency, NEH will immediately 
terminate its administrative debt collection activities at the time it 
refers the debt to the DOJ. NEH will advise DOJ of the collection 
activities it has utilized to date, and their result. NEH will refrain 
from having any contact with the debtor and shall direct all debtor 
inquiries concerning the debt to DOJ. NEH will immediately notify DOJ 
of any payments it credited to the debtor's account after it referred a 
debt under this section. DOJ will notify NEH, in a timely manner, of 
any payments it receives from the debtor.


Sec.  1177.34  Claims Collection Litigation Report.

    (a) Unless excepted by DOJ, NEH will complete the CCLR (see Sec.  
1177.21(b)), accompanied by a signed Certificate of Indebtedness, to 
refer all administratively uncollectible claims to DOJ for litigation. 
As a referring agency, NEH will complete all sections of the CCLR that 
are appropriate to each claim, as required by the CCLR instructions, 
and furnish such other information as may be required in specific 
cases.
    (b) NEH will indicate clearly on the CCLR the actions it wishes DOJ 
to take with respect to the referred claim. The CCLR permits NEH to 
indicate specifically any of a number of litigative activities which 
DOJ may pursue, including enforced collection, judgment lien only, 
renew judgment lien only, renew judgment lien and enforce collection, 
program enforcement, foreclosure only, and foreclosure and efficiency 
judgment.
    (c) NEH also will use the CCLR to refer claims to DOJ to obtain 
approval of any proposals to compromise the claims or to suspend or 
terminate NEH collection activity.


Sec.  1177.35  Preservation of evidence.

    When NEH refers claims to DOJ, it will take care to preserve all 
files and records that DOJ may need to prove its claims in court. NEH 
ordinarily will include certified copies of the documents that form the 
basis for its

[[Page 66975]]

claims in the packages it creates to refer its claims to DOJ for 
litigation. NEH will provide originals of such documents immediately 
upon DOJ's request.


Sec.  1177.36  Minimum amount of referrals to the Department of 
Justice.

    (a) NEH will not refer to DOJ for litigation any claims of less 
than $2,500, exclusive of interest, penalties, and administrative 
costs, or such other amount as the Attorney General shall from time to 
time prescribe. DOJ will promptly notify NEH if the Attorney General 
changes this minimum amount.
    (b) NEH will not refer claims of less than the minimum amount 
unless:
    (1) Litigation to collect such smaller claims is important to 
ensure compliance with NEH's policies or programs;
    (2) NEH is referring the claim solely for the purpose of securing a 
judgment against the debtor, which will be filed as a lien against the 
debtor's property pursuant to 28 U.S.C. 3201 and returned to NEH for 
enforcement; or
    (3) The debtor has the clear ability to pay the claim and the 
Government can effectively enforce payment, with due regard for the 
exemptions available to the debtor under state and Federal law and the 
judicial remedies available to the Government.
    (c) NEH will consult with the Executive Office for United States 
Attorneys' Financial Litigation Staff at the DOJ prior to referring 
claims valued at less than the minimum amount.

    Dated: October 27, 2021.
Samuel Roth,
Attorney-Advisor, National Endowment for the Humanities.
[FR Doc. 2021-23742 Filed 11-23-21; 8:45 am]
BILLING CODE 7536-01-P