[Federal Register: September 1, 2005 (Volume 70, Number 169)]
[Rules and Regulations]               
[Page 52031-52032]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01se05-16]                         

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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: dfars@osd.mil. 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.

0
Therefore, 48 CFR parts 237 and 252 are amended as follows:
0
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 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

0
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]

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