Carolyn Graham’s father died on Christmas Day, 1971. She was just 7 years old at the time. As a minor, she was eligible to receive Social Security survivor benefits; her mother was a representative payee until Graham turned 18.
Last year, the 51 year old Graham, who works part-time at Pinkberry expected to receive a tax refund in the amount of $1,800. When the funds were deposited into her account, it was only $1,556.
Graham eventually received a notice from the Financial Management Service, a branch of the U.S. Department of Treasury, informing her that $244 of her federal tax refund had been intercepted. Why? Treasury advised that she owed a debt to the Social Security Administration (SSA). There was just one problem: Graham had no idea what they were talking about. She had never received a notice of the debt despite claims from SSA that they had sent notices to Graham at “the last address known to the Agency.” Graham has lived in the same home for the past 20 years – and had received Social Security benefits and tax refunds at that address.
Graham was eventually told that the debt was due to an overpayment on her survivor benefits – the same benefits that she began receiving at age 7 following the death of her father. She had, she claimed, no idea that there had been an overpayment.
At least 400,000 Social Security beneficiaries are thought to have similar stories: their tax refunds have been seized to repay old debts, some dating back to when they were children.
On their own, these seizures aren’t new. Government has long had the authority to take tax refunds to pay back certain obligations. Those obligations can include federal income tax delinquencies and student loan defaults. States also ask IRS to intercept federal tax refunds for state tax obligations or money owed to state agencies such as child support arrears. These seizures are often referred to as “offset” since the seizures are part of the Treasury Offset Program (TOP); the program is administered by Financial Management Service, the same agency that sent Graham notice after they seized her refund.
In 2008, as part of changes made to the Food, Conservation, and Energy Act of 2008 (or the “farm bill”), Congress affirmed that debts subject to refund seizure had no statute of limitations. In other words, the law made it so that Treasury can pretty much seize refunds indefinitely. SSA rewrote its own regulations shortly afterwards, expanding its own authority (fun how government can do that, right?).
With fresh laws and regulations in place, Treasury started pursuing debt collections fairly aggressively. In 2014 alone, they took in nearly $2 billion in refund seizures. Of those seizures, more than $75 million were linked to SSA overpayments dating back more than 10 years old. In some instances, the taxpayer never even had actual control over the monies: checks were paid on their behalf to an adult, as in Graham’s case.
As the stories became more sensational – in part due to reports filed by The Washington Post – SSA was forced to announce that it would stop trying to collect debts that were more than ten years old. But by “stop,” they apparently meant “slow down… a little.” A short while later, SSA was back at it, trying to collect those debts, according to The Washington Post. As a result, four plaintiffs filed suit in federal court challenging the SSA’s right to continue to try and collect from these old debts especially those related to overpayments made to children – children like Carolyn Graham.
For its part, SSA believes that it absolutely has the right to take those dollars, arguing that “the government has a right to collect from children if their parents received benefits meant for the well-being of those children.” SSA went on to argue that Congress intended for SSA to collect debts “as it sees fit.”
It kind of takes your breath away, doesn’t it?
Despite the lawsuit, the SSA debt collection machine keeps rolling on. Now, three more plaintiffs have filed suit to stop the seizures. Three Washington, D.C. residents filed suit in federal court this week against the Social Security Administration, the U.S. Treasury and the District of Columbia government, claiming that the seizures were in violation of federal law and without the due process required under the Constitution. They are hopeful that the lawsuit is granted class action status: estimates are that as many as 400,000 Social Security beneficiaries may have had their refunds seized to satisfy old debts. The plaintiffs are represented by the Legal Aid Society of the District of Columbia and McKenna Long & Aldridge LLP.
Those Washington, D.C. plaintiffs are Tina Heard and Pearline Snow, as well as Carolyn Graham. Each of the plaintiffs alleges that the first time they were advised that there were any funds owed to the government on their behalf was after a refund seizure. According to the complaint, none of the plaintiffs was ever issued notice about the debt and none of the plaintiffs received an explanation about why the debt existed, except that it was related to an alleged overpayment of Social Security benefits made more than 20 years ago.
What do the plaintiffs hope to accomplish? For one, they want tax refund offsets related to debts more than 10 years old declared unlawful. They also want it to be a requirement for SSA and/or Treasury to send notice (that’s actually supposed to happen anyway although it clearly doesn’t always happen) along with an explanation of the debt. Finally, the plaintiffs want the government to return any tax refunds that were unlawfully taken away from taxpayers: those seizures, they argue, can cause serious financial difficulties for taxpayers relying on those refunds with no idea that they might be on an offset list.
SSA has not commented publicly on the latest legal challenge and has shown no sign of slowing down its collection efforts for this tax season. Daniel G. Jarcho, a Washington-based partner at McKenna Long who also serves as President of the Board of Trustees of the Legal Aid Society, has referred to the behavior as “outrageous.”
For more information about the D.C. plaintiffs and the lawsuit, you can read the complaint here (downloads as a pdf).

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Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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