Jahn v. Regan

• Decision Date: 18 April 1984
• Docket Number: Civ. A. No. 82-72012,82-73045.
• Citation: 584 F. Supp. 399
• Parties: Patrick JAHN and Melba Jahn, on behalf of themselves and all others similarly situated, Plaintiffs, v. Donald REGAN, Secretary of the Department of Treasury, United States of America, Defendant. Patrick JAHN and Melba Jahn, on behalf of themselves and all others similarly situated, Plaintiffs, v. Noble P. KHEDER and the State of Michigan, Defendants.
• Court: U.S. District Court — Western District of Michigan

584 F. Supp. 399

Patrick JAHN and Melba Jahn, on behalf of themselves and all others similarly situated, Plaintiffs, v. Donald REGAN, Secretary of the Department of Treasury, United States of America, Defendant.

Patrick JAHN and Melba Jahn, on behalf of themselves and all others similarly situated, Plaintiffs, v. Noble P. KHEDER and the State of Michigan, Defendants.

Civ. A. Nos. 82-72012, 82-73045.

United States District Court, E.D. Michigan, S.D.

April 18, 1984.

COPYRIGHT MATERIAL OMITTED

Riley P. Richard, Birmingham, Mich., for plaintiffs.

Ronald F. Fischer, Trial Atty., Tax Div. U.S. Dept. of Justice, Washington, D.C., Erica Weiss Marsden, Asst. Atty. Gen., Lansing, Mich., for defendants.

MEMORANDUM OPINION AND ORDER

PHILIP PRATT, District Judge.

Plaintiffs are husband and wife who have instituted two actions, one against the Secretary of the Department of Treasury of the United States and the other against the Director of the Department of Social Services of the State of Michigan, challenging the validity of the Internal Revenue Service's transmittal of plaintiffs' 1981 joint tax refund to the State pursuant to the Omnibus Budget Reconciliation Act of 1981, 42 U.S.C. § 664, and 26 U.S.C. § 6402 to apply on the plaintiff husband's debt to the State for child support. Plaintiffs claim that the tax refund or overpayment is held by them as tenants by the entireties and cannot be used to satisfy the debts of the husband. Plaintiffs also assert that the procedure used by both agencies amounts to an unlawful taking of property without due process of law or just compensation in violation of the Fifth and Fourteenth Amendments.

Defendant Secretary of the Treasury has moved for dismissal of plaintiffs' complaint under Federal Rules of Civil Procedure (F.R.C.P.) 12(b)(6) for failure to state a cause of action. Defendant Director of Social Services has filed a motion pursuant to F.R.C.P. 12(c) or, alternatively a motion for summary judgment under F.R.C.P. 56, claiming that plaintiffs' complaint should be dismissed as a matter of law because it does not state a cause of action. Since the defendants' motions concern identical factual settings, the Court will treat both motions in this single opinion.

I. FACTS

The Aid to Families with Dependent Children ("AFDC") program establishes a fund to enable each state "to furnish financial assistance and rehabilitation and other services ... to needy dependent children and the parents or relatives" with whom they live. 42 U.S.C. § 601. The statute establishing this program provides that among the conditions of eligibility for aid, each applicant or recipient is required: "to assign the State any rights to support from any other person such applicant may have (i) in his own behalf or in behalf of any other family member for whom the applicant is applying for or receiving aid, and (ii) which have accrued at the time such assignment is executed." 42 U.S.C. § 602(a)(26). Presumably, this measure is to ensure that those owing child support will not avoid their obligation because of their families' participation in the AFDC. More importantly, by permitting the state to collect these payments, the AFDC program will be properly funded and its integrity and purpose maintained.

Although Congress intended that the states be responsible for the collection of child support payments, to facilitate state efforts Congress established methods to enable the states to utilize federal resources. See S.Rep. No. 93-1356, 93rd Cong., 2nd Sess., reprinted in 1974 U.S. Code Cong. & Adm.News 8133, 8150.¹ One of these methods enables the state to receive the tax overpayment of a person owing child support to the state directly from the Internal Revenue Service. 42 U.S.C. § 664.² The plaintiffs challenge the propriety of the collection of this property as well as the legitimacy of the procedures used by the Internal Revenue Service (IRS) and the State of Michigan in retaining plaintiffs' 1981 joint tax refund.

The essential facts as to the procedure used by the IRS and the State are not in dispute. Each State participating in the AFDC program is required to operate a child support enforcement program in accordance with Title IV-D of the Social Security Act, 42 U.S.C. § 601 et seq. and 42 U.S.C. § 651 et seq. In 1981 and 1982, Michigan complied with Title IV-D and sought the 1981 tax refunds of those who were delinquent in child support payments by implementing the following procedures in cooperation with the Federal Office of Child Support Enforcement (FOCSE) and the IRS.

Initially, child support payments are determined by the state circuit courts in adversary hearings, which may or may not be part of a divorce decree. Mich.Comp.Laws Ann. §§ 552.16, & 722.24. Michigan has established a "friend of the court" in each circuit who acts under the supervision and direction of the circuit court and who is responsible for, among other duties, determining the amount of child support arrearages and enforcing payment of delinquent court-ordered support payments. Mich. Comp.Laws Ann. §§ 552.251 & 552.252.³ When a participant has assigned her right to child support from a particular private individual to the State as required by the AFDC, the friend of the Court is also responsible to ensure that such support payments are made pursuant to the circuit court order to the State. When a person is appreciably in arrears to the State for support payments, the friend of the court can initiate procedures to obtain any tax refund to apply towards the arrearage.⁴

To procure a tax refund, the friend of the court submits data to the State Office of Child Support within the Department of Social Services regarding persons with overdue support obligations owed to AFDC recipients. The friend of the court must certify: (i) that the amount of the arrearage reported is accurate; (ii) that the arrearage is owed to the State; (iii) that the arrearage is at least three months old; and (iv) that reasonable efforts have been made to collect the arrearage amount.⁵ The certification is an attempt to comply with regulations issued by the Secretary of Treasury, pursuant to 42 U.S.C. § 664(b).⁶ 45 C.F.R. § 303.72(b) (1982) states:

Past-due support qualifies for offset of a tax refund if:

(1) There has been an assignment of the support obligation under 45 C.F.R. 232.11 of this title to the State making the request for offset and that State has made reasonable efforts to collect the amount of the obligation;

(2) Amount of the past-due support is not less than $150;

(3) The support has been delinquent for three months or longer; and

(4) A notification of liability for past-due support has been received by the Secretary of the Treasury ...

The purpose behind these requirements is to ensure the accuracy of the arrearage and "to avoid treating IRS collection as the primary method of enforcement where, in fact, other effective means are readily available for the State to use." 47 Fed. Reg. 7427 (1982).

The State Office of Child Support forwards the information to the FOCSE who, in turn prepares and submits the requests to the IRS. The IRS then determines if a tax refund is due to any of the persons reported to them through this procedure and withholds any refund up to the amount of reported arrearage as directed by 42 U.S.C. § 664 and 26 U.S.C. § 6402.⁷ As required by statute 26 U.S.C. § 6402,⁸ the IRS then sends notices to taxpayers that a refund was withheld to satisfy an obligation for past-due support owed to the State.⁹ The notice contains the name and telephone number of the State Office of Child Support. The notice informs taxpayers that if they have any question about support obligations or believe that the stated amount is in error, they should contact the State agency at the telephone number listed on the notice.¹⁰ Upon calling the State agency, the caller would hear a recorded message that they have reached the Michigan Office of Child Support and that the IRS is offsetting tax refunds for past-due child support. The message further explains that the friend of the court certified the arrearage. Among other basic information, the message relayed: "If you feel the tax offset was made in error or resulted in an overpayment, you must contact the Friend of the Court." Regarding joint tax returns, the message stated that a Form 1040X may be filed with the IRS and that: "This is a federal tax issue which does not involve the friend of the court or the Office of Child Support." The message concluded with the phone number of the Office of Child Support.

Those who contact the State Department of Social Services, through the recorded message or their own initiative, receive a form letter explaining procedures for questioning the amount of arrearage certified by the friend of the court and for obtaining a refund. For spouses who are not indebted to the State and who had filed a joint income tax a similar procedure is followed. If the individual questions the amount of arrearage, the notice provides the name and address of the friend of the court responsible for overseeing the debt. If the case was submitted in error, the friend of the court sends a correction notice to the State. The letter further advises: "If any refund is due, it will be processed as soon as possible."

If the individual is an unobligated spouse desiring to have a portion of the joint tax refunded, he or she was advised to complete various forms and send them to the Department of Social Services where "the refund requested will be processed as soon as possible."

In 1982, plaintiffs filed a joint federal income tax return with IRS. The return indicated that Melba Jahn's total wages were $6,891.63 with $658.38 withheld for tax purposes. The return also stated that Patrick Jahn's total wages were $12,994.36 with $2,494.03 withheld. Under these figures the plaintiffs had overpaid $1,696.33 of income tax and were entitled to that amount as a refund. On April 30,...