Friday, April 11, 2014

Social Security, and some other agencies, recouping parents' and relatives old debts from current tax refunds!

Social Security has started garnishing tax refunds of taxpayers for relatives’ (usually parents but sometimes siblings or even step-siblings) overpayment debts. In some cases, other agencies are also taking refunds.   Mark Fisher has a front page story in the Washington Post on April 11, “Thousands losing tax refunds to parents’ decades-old debts” in print, but on line more specifically, “Social Security, Treasury target taxpayers for their parents’ decades-old debts”, link here.  The problem seems to have started in 2011 with the lifting of the statute of limitations at ten years on a farm bill.
Agencies are fingerpointing, saying they are doing what is required by law.  Social Security says it has a fiduciary duty to future beneficiaries to collect mainly overpayments it finds.  The news story talked about a Maryland woman who lost almost $3000 in refunds over a debt owed by her father to Social Security, after a complicated family history.  
Social Security seems to look for a descendant with the resources to pay the debt and whom it can find.
It does not seem to matter, in these garnishments, whether the taxpayer had actually inherited some of the relative’s estate.
This has led to litigation, explained in the article.
The Federal Trade Commission says that adult children are not responsible for debts owed by relatives or parents. (There is no federal “filial responsibility law”.)  But government debts, at least insofar as they can be recovered from tax refunds, seem to be an exception.  The FTC has a page here about the issue (link) with enough detail to need a future posting later, perhaps. 
However, if the current subject had set up a grantor trust with which to receive and manage an estate’s assets, then the person would be responsible for all old debts.  Grantor trusts can give enormous tax advantages in certain kinds of circumstances, like where there are uncovered medical or dental expenses, but can lead to higher reported income, and higher effective tax on social security benefits. The estate beneficiary should be as familiar as possible with the parents’ situation and finances before setting up such a trust.
Today, I got a bizarre email from Social Security inviting me to check my statement.  It appears legitimate, although I have to make sure it isn’t spam.  Maybe the email was motivated by this story. 

Update: April 12

The Post now reports (Mar Fisher, p. A4, Saturday) that Senators Barbara Boxer (D-CA) and Barbara Mikulski (D-MD) have asked the Social Security Administration to stop recoupments more than ten years old, and say that there is more evidence that people are even being chased for non-relatives. 

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