SORENSON v. SECRETARY OF TREASURY
Legal provision: Internal Revenue Code
ORAL ARGUMENT OF PETER GREENFIELD, ESQ., ON BEHALF OF THE PETITIONER
Chief Justice Burger: We will hear arguments next in Sorenson against the Secretary of the Treasury of the United States and the United States.
Mr. Greenfield, I think you may proceed whenever you are ready.
Mr. Greenfield: Thank you, Mr. Chief Justice, and may it please the Court, in this case the Court is asked to construe Section 2331 of the Omnibus Budget Reconciliation Act of 1981, or OBRA.
In OBRA, Congress established the tax intercept program for collecting child support owed to state welfare agencies, and it directed the Secretary of the Treasury to intercept "refunds of federal taxes paid" payable to certain individuals.
What this Court is asked to decide is whether Congress authorized the interception of earned income credit benefits when it directed the interception of refunds of federal taxes paid.
It is petitioner's contention that it did not authorize interception of earned income credit benefits, and that was also the holding of the Second Circuit in Nelson versus Regan and the Tenth Circuit in Bucker versus the Secretary of the Treasury.
We are here because the Ninth Circuit ruled the other way.
There are three points that I would like to emphasize this morning.
The first is that the statutory phrase "refunds of federal taxes paid" is a distinctive and unambiguous phrase which literally does not encompass earned income credit benefits.
The second is that the structure of Section 2331 of OBRA is inconsistent with the broad reading the Secretary has given to Section 6402(c) of the Internal Revenue Code.
And the third and perhaps most important point is that when Congress enacted Section 2331, it was concerned with support for children and with reducing the cost of the AFPC program, and it would have made no sense in that context to fund support for one group of needy children aided under the AFDC program by taking benefits from another group of children, perhaps as needy or more needy who because their parents were working were assisted under the earned income credit benefit program.
To start with the phrase "refunds of federal taxes paid"--
Unidentified Justice: What group of children do you say was in that latter category?
Mr. Greenfield: --Children, Justice White... in order to qualify for an earned income credit benefit, an applicant must reside with a dependent child, and the benefit only goes to low income families, so the children I am speaking about are children in families eligible for earned income credit benefits.
Unidentified Justice: And the problem is that the Secretary wants to take that credit and withhold it?
Mr. Greenfield: That's correct.
Unidentified Justice: For the benefit of some other group of children?
Mr. Greenfield: To help--
Unidentified Justice: To make the applicant pay his debts.
Mr. Greenfield: --To reduce the cost of the AFDC program.
As adopted in 1981, this would reflect an attempt to recoup the costs of support for needy children already paid.
Unidentified Justice: I see--
Mr. Greenfield: The expression "refund"--
Unidentified Justice: --Let me just be clear.
The money, though, if it is withheld and recouped, it doesn't go to the parents of... the first family; rather, it goes to the state, doesn't it?
Mr. Greenfield: --That was the only place that it could go in 1984.
Perhaps the most important of these, referred to in the government's brief, is in the Deficit Reduction Act of 1984, which adopts a parallel intercept program using virtually the same language to collect any debt owed to the federal government with a limited exception.
I think it is Social Security overpayments.
Unidentified Justice: Where do these withholdings go today?
Suppose we agree with the government, and they withhold.
Where does that money go that they intercept?
Mr. Greenfield: There are several different places it could go today.
One is to a state that is paid welfare benefits.
Another is to the federal government to recoup a student loan or debts of the Small Business Administration.
There is a limited circumstance in which a child support debt owed to an individual but assigned to a state could also be collected based on the Child Support Enforcement Amendments of 1984.
That was not the case in 1981.
Unidentified Justice: And would it redound to the benefit of the former parent or the--
Mr. Greenfield: In the limited situation in which a state was collecting for a non-welfare family, that could be the case, Justice White.
Unidentified Justice: --I see.
Mr. Greenfield: But that would be a situation in which presumably, since that child would not be on welfare, it would be taking funds from a needy child in an earned income credit benefit family to support a child that was less needy.
Now, the phrase "refunds of federal taxes paid" appears nowhere in the Internal Revenue Code.
So far as we are aware, it was used for the first time in a federal statute in Section 2331.
The term "refund", of course, is used frequently, and it is a term that is used to refer to any payment made through the tax refund process.
All such refunds, payments made through that process, correspond to federal taxes actually paid with one exception, and that exception is the earned income credit benefit.
One need not have owed any tax or paid any tax in order to be eligible for this cash payment, and as the government concedes, earned income credit benefits do not correspond to taxes actually paid.
Unidentified Justice: Well, it looks to me like the biggest problem for your position, Mr. Greenfield, is that Section 6401(b) specifically defines an earned income credit as an overpayment of taxes.
Mr. Greenfield: Yes, it does.
Unidentified Justice: And it is subject to interception then under Section 6402(c).
Mr. Greenfield: Let me address the relationship between Section 6402(c) of the Internal Revenue Code and Section 464 of the Social Security Act, which is our response to this argument made by the Secretary.
And to help do that, I have asked the clerk to distribute to you on the eight-and-a-half-by-fourteen page the full text of Section 2331 in which both of these provisions originated.
Now, you will notice that in Subsection (a) of 2331 Congress established the tax intercept program.
We contend that this is really the basic text of the program, and it is an unambiguously limited authorization.
That is, it only applies to refunds of federal taxes paid.
In Subsection (b) of 2331, Congress imposed an obligation on states to participate in the tax intercept program.
Now, having done that much, the program was in place, and I have been asked before in this case why was it necessary to go and add Subsection (c).
The reason it was necessary is that at that point there would have been conflicting obligations imposed on the Secretary of the Treasury.
That is, the Secretary was told in the Social Security Act as amended to intercept certain refunds whereas under Section 6402, prior to its amendment, these same refunds were to be paid through a taxpayer, and so it was necessary in order to reconcile the Internal Revenue Code to amend the part of the quote that dealt with overpayments, namely, 6402.
However, there is no reason to read Section 6402 as granting authority that is any broader than that which is included in 464 of the Social Security Act, Subsection (a), and the express language of 6402(c) as emphasized by the Courts of Appeal, with the exception of the Ninth Circuit, says that overpayments are to be reduced, but in accordance with Section 464 of the Social Security Act.
Unidentified Justice: Mr. Greenfield, I have a little trouble with all of the sections.
Section 2331 refers to a section of the OBRA, right?
Mr. Greenfield: That's correct.
Unidentified Justice: And Section 6401 and 6402 refer to sections of the Internal Revenue Code?
Mr. Greenfield: That's correct.
Unidentified Justice: And there are some other... 454 is a section of the Social Security Act.
Mr. Greenfield: That's correct, Your Honor.
Section 2331 of OBRA created in Subsection (a) 464 of the Social Security Act.
It amended in Subsection (b) Section 454 of the Social Security Act, and it amended in Subsection (c) Section 6402 of the Internal Revenue Code.
Let me turn to the issue of Congressional purpose.
As I said earlier, when Congress adopted 2331 of OBRA, it was concerned about support of children.
It was also concerned with reducing the cost of the AFDC program, but this was not clearly its exclusive concern because the easiest way to do that would have been to simply cut back the AFDC program.
It would have made no sense in considering how to fund a program designed to help needy children to simply dip into benefits that Congress only a few years earlier had established for another group of needy children whose parents worked, and rob those children to fund a program for another set of children.
It would have frustrated all of the purposes of the earned income credit benefit program.
The work incentive purpose elaborated in the Senate report referred to in our briefs obviously would be eliminated if earned income credit benefits were interceptable, because, of course, AFDC benefits are exempt, and the less emphasized purpose of stimulating the economy would also have been lessened if the money wasn't paid to these needy families, and presumably promptly used.
We are talking about not a large benefit.
The maximum in 1982 was $ [= 500].
But for many families this was approximately 10 percent of their annual income, and it came in the winter at a time when fuel bills were at their highest.
The legislative history reflects Congressional concern about rising fuel costs and rising food costs and the particularly severe impact of these phenomena on working poor families, and allowing the interception of these benefits would simply frustrate the purposes of that program.
Now, the language which Congress chose in adopting the tax intercept program is very limited and very clear.
It applies to refunds of federal taxes paid.
Earned income credit benefits are not refunds of federal taxes paid, so in reading the authorization as broadly as he has done, the Secretary has simply ignored the plain language used by Congress.
Unidentified Justice: Would you just let me ask this one further question about the language?
Of course, it is troubling because it says payable as refunds of federal taxes paid, and I guess your opponent's argument is that the manner of payment of the earned income credit is as a refund of a federal tax paid, and therefore that it fits right into the language.
Now, how do you deal with the problem of the literal language?
Mr. Greenfield: Justice Stevens--
Unidentified Justice: I understand your point about purpose and so forth.
Mr. Greenfield: --Justice Stevens, if you look at the language as it appears in the statute, and it is underscored in Subsection (a)--
Unidentified Justice: Right.
Mr. Greenfield: --it doesn't say payable as refunds for federal taxes paid.
What it says is, "any amount, as"--
Unidentified Justice: So you take the--
Mr. Greenfield: "# refunds of federal taxes paid, payable to such individual. "
So the word "payable" and the phrase "payable to such individual" was Congress's way of explaining whose refund of federal taxes paid was at issue.
Now, the Ninth Circuit took the word "payable" and stuck it before "as" and came up with a very different argument, but that isn't the language used by Congress.
Unidentified Justice: --Are you saying in effect, then, that the common clause, or whether it is a phrase, "as refunds federal taxes paid" modifies amounts, "which precedes it"--
Mr. Greenfield: That's correct.
Unidentified Justice: --rather than the word "payable", which follows it.
Mr. Greenfield: That's correct.
Unidentified Justice: If it did modify payable, then you would have a much more difficult case, an ambiguity.
That is correct.
Mr. Greenfield: And there is a reason.
Unidentified Justice: Because you are saying it is really a qualification of the substantive amount rather than a description of the procedure of payment.
Mr. Greenfield: That's correct, Justice Stevens, and the reason for this seemingly rather awkward phrasing, and that is that while the money is held by the Treasury it isn't yet a refund, so it is an amount that would be a refund if it were paid, but while held by the Treasury it is technically simply an accounting item.
So, it was appropriate to refer to amounts as refunds of federal taxes paid payable to such individual.
Now, earlier in this case, the government characterized the phrase "refunds of federal taxes paid" as ambiguous.
Our position is, it is not ambiguous.
The phrase is clear.
It is simply inconsistent with the government's position, and especially in light of the purpose of the earned income credit benefit program, it would be extremely inappropriate to stretch this statutory language to reach out and intercept earned income credit benefits.
If there are no further questions at this point, I will reserve the rest of my time.
Chief Justice Burger: Very well.
ORAL ARGUMENT OF RICHARD FARBER, ESQ., ON BEHALF OF THE RESPONDENTS
Mr. Farber: Thank you, Mr. Chief Justice, and may it please the Court, there are three points I would like to make this morning.
The first one is that the decision below is in accord with both the language of the Social Security Act and the concurrent provisions in the Internal Revenue Code.
Moreover, the decision below is the only one that makes sense in light of the overall statutory scheme enacted by Congress for dealing with this increasing problem of non-payment of child support obligations, and finally, there are no considerations of social policy that provide any basis for ignoring the clear mandate of the statutory provisions involved.
The petitioner in this case has tried hard to read the intercept provisions as applying only to actual refunds of taxes paid.
Now, if that were the language and the intent of Congress, there wouldn't be much to argue about this morning, because it is quite clear that earned income credits are not actual refunds of taxes paid.
However, the language employed by Congress does not say refunds of taxes paid.
The petitioner tries very hard to ignore the provisions of the Internal Revenue Code which form part of the intercept provision.
They were enacted concurrently with the Social Security Act.
The provisions of the Internal Revenue Code speak in terms of overpayment.
Any overpayment may be intercepted.
That is what Section 6402(c) says.
Section 6401(b) expressly defines an excess earned income credit, meaning the extent to which the credit exceeds the tax liability, as an overpayment.
When you put these two sections together, the obvious conclusion is that earned income credits may be intercepted because they are overpayments, and Section 6402(c) by its express terms refers to any overpayment.
The position taken by the petitioner also results in an inconsistency within Section 6402 itself.
6402(a) is the provision which authorizes the Commissioner to make refunds of overpayments.
In fact, it directs the Secretary to refund any overpayment.
Now, if an earned income credit were not an overpayment, it couldn't be refunded at all, and this issue could never have arisen, so it must be conceded, and both the Second and Tenth Circuits have conceded that earned income credits are overpayments for purposes of Subsection (a) of Section 6402 and therefore may be refunded.
However, when Congress enacted the intercept program in 1981, it specifically amended Section 6402(a) to provide that the Secretary's obligation to refund an overpayment under that subsection is subject to the provisions of Subsection (c).
Now, that is the express cross reference.
And Subsection (c), of course, specifically says that in the case of any overpayment due to a person who is indebted for past due child support, the amount of the overpayment is to be reduced by the amount of the past due support.
In light of this integrated statutory scheme, there is simply no way to maneuver out of the conclusion that earned income credits, since they are overpayments under the code, are subject to interception.
Unidentified Justice: What section of the code again is it that makes earned income credit overpayment?
Mr. Farber: Section 6401(b).
All the relevant statutes are set out in the appendix to the government's brief.
Unidentified Justice: And that was not included in the sheet that was handed out?
Mr. Farber: I believe, that the petitioner passed out.
Unidentified Justice: Yes.
Mr. Farber: The Second and Tenth Circuits--
Unidentified Justice: Would you help me a little, because I want to coordinate.
Section 6401(b) was enacted when?
Mr. Farber: --It was part of the '54 Code.
Unidentified Justice: Well, this is long... how could the reference to earned income credits be in the '54 Code.
Mr. Farber: It was amended when... the earned income credit was enacted in 1975 as part of the Tax Reduction Act.
At that time Congress amended 6401(b) to make earned income credits one of the few credits that are treated as overpayments.
Most credits are not overpayments, and if they exceed your tax liability, they are gone.
Certain credits are considered to be... are treated as refundable credits, and are treated as if you overpaid your tax.
Unidentified Justice: I really am asking a very elementary question.
Section 6401(b) in the form in which it appears in the appendix to your brief was enacted when?
Mr. Farber: Well, it was last amended as relevant here in 1975.
That was the time when Congress passed the earned income credit, and in order to make that a refundable credit, it was necessary to define an earned income credit as an overpayment, and to do that, they amended Section 6401(b).
Unidentified Justice: So that was done in '75, before there was any intercept program.
Mr. Farber: Yes, that's correct.
They have been overpayments since--
Unidentified Justice: So this set up the procedure by which the earned income credit would be paid to the person who needed it.
Mr. Farber: --That is exactly correct, because in 1975 when Congress amended 6401(b) to define earned income credit as an overpayment, 6402(a) already provided that in the case of any overpayment, the Secretary was required to refund it.
Unidentified Justice: What happened in the case for a person who was entitled to an earned income credit but didn't earn enough money to file a tax return?
How did he get it, if at all?
Mr. Farber: I don't believe they would get the credit unless they filed a return and claimed it.
Unidentified Justice: What were the requirements for being eligible for earned income credit?
I am still a little unclear about this?
Mr. Farber: Well, to be an eligible individual, you either have to be a head of household, a surviving spouse, or a married individual supporting a dependent child who lives with you.
Those are the categories.
Then there are income limitations.
You must have... it only applies to earned income, 10 percent of earned income up to a maximum of 5,000, so that would be a maximum credit of $500.
It decreases... the credit decreases proportionately to the extent your earned income is more than $6,000, and at $10,000 there is no more credit.
But basically up to $5,000 it is the first 10 percent of earned income, and if you have no tax liability whatsoever, you filed a return and claimed a credit and you receive a check.
It is treated as if you have overpaid your taxes, even though in fact you may have paid no taxes whatsoever.
Unidentified Justice: If you file a joint tax return, as true in this case, is the $500 limit applicable, or does it go up to $1,000?
Mr. Farber: I believe only one person would be eligible because in order to be eligible you have to be the one entitled to claim a dependency exemption, meaning you have to provide more than half the support, so only one of the spouses would be eligible to claim the credit.
Unidentified Justice: The $10,000 income limit applies only to the person entitled to claim the credit?
Mr. Farber: That is--
Unidentified Justice: Even if the spouse earned a lot more than that?
Mr. Farber: --Well, presumably if the spouse earned a lot more, the person claiming the credit might find it difficult to prove that they provided half the support of the dependent, and then they wouldn't be eligible for the credit in the first place.
Unidentified Justice: May I ask just one other question to get the sequence in order, if I may.
The next statutory enactment of significance is the 1981 enactment, and that is fully before us in this typewritten thing.
Is that right?
Mr. Farber: That's correct.
Unidentified Justice: Now, that text itself doesn't refer to the earned income credit.
I mean, I understand you think it does by picking up through the word "payment".
Is there anything in the legislative history in 1981 that indicates one way or another whether Congress even mentioned earned income credit--
Mr. Farber: As far as I am aware, Justice Stevens, Congress did not mention earned income credit one way or the other when it passed the intercept program.
Our position, of course, is that its language was so all-encompassing that it necessarily includes earned income credits because of the way that the code is set up.
The position of the petitioner and of the Second and Tenth Circuits in the Nelson and Bucker cases is based exclusively on the language of a parallel provision, Section 464 of the Social Security Act, which was enacted concurrently with Section 6402(c) of the Code.
They read this provision as authorizing only interceptions of actual tax refunds, and they say that is... and earned income credit is not an actual tax refund, and that is the end of the case.
Of course, their position requires ignoring the parallel provisions of the Internal Revenue Code, which speaks clearly in terms of overpayment, so their position requires creating an inconsistency between two concurrent provisions which were part of the same program.
In our view, the interpretation of the court below is correct and avoids any inconsistencies.
The court below read Section 464 as applied not to just tax refunds.
The section says, in the case of any amounts as refunds of taxes paid which are payable, and in our view the only logical interpretation, judging in light of the concurrent provisions of Section 6402(c) is, is that Congress meant that any amounts payable as refunds of taxes paid are subject to interception, and there is no question that earned income credits are payable as refunds of taxes paid.
That is the only way they can be refunded.
There is no other authority under which the Secretary could make a refund of an earned income credit other than the fact that it is treated under the code as an overpayment of tax.
In our view, there is no inconsistency between these two provisions.
They both apply to amounts payable as refunds.
Earned income credits are payable as refunds.
We think this conclusion becomes even more apparent when one looks at an antecedent provision enacted in 1975, and that is Section 6305 of the Code.
That was enacted as part of the Social Services Amendment of 1974.
Under that provision, Congress authorized and directed the Secretary of the Treasury upon receiving certification from HHS through the states to collect child support that had been assigned to a state as if it were a delinquent federal employment tax.
Delinquent taxes may be collected out of any property or rights to property belonging to the taxpayer and may be collected from any means, including levy and... liens, tax sales, and other means available to the IRS.
Although there are few exemptions of property interests that may not be collected for federal taxes, there is no exemption for earned income credits.
Thus, it is perfectly clear that when Congress enacted 6305, it authorized the collection, the seizure, if the Court will, of earned income credits.
Once they have been actually paid out by the Treasury and are in the hands of the recipient, the IRS could turn around once the matter was certified and seize those credits back.
Unidentified Justice: --Mr. Farber, you have in your brief some indication of the amounts of money involved.
To what extent has the IRS done this?
Did they exercise the power you now describe by collecting from earned income credit?
Mr. Farber: Section 6305 has not been widely used.
Unidentified Justice: Has it been used at all?
Mr. Farber: My understanding is, it has been used several thousand times, but it is not very cost efficient, and requires locating the person who is indebted, locating its assets, and then using somewhat cumbersome means to actually reduce those assets to possession.
In fact, the reason Congress passed the intercept program was that it felt that existing authority was just too cumbersome, wasn't cost effective.
Unidentified Justice: A moment ago you said they hadn't even mentioned the earned income credit at the time of the 1981--
Mr. Farber: They didn't focus in on earned income.
Unidentified Justice: --I am asking you about use of this power as a means of collecting from earned income credits.
You say that has been done thousands of times.
Mr. Farber: Excuse me, Your Honor.
They have used Section 6305 to collect past due supports several thousands of times.
There is nothing in the record and I am not aware of any--
Unidentified Justice: I know it is not in the record, but you do go outside the record from time to time.
I am asking you if that power was ever used to levy unearned--
Mr. Farber: --I have no specific indication as to whether it has ever been used.
Unidentified Justice: --Yet you rely heavily on the fact that that power was there for several years.
Mr. Farber: What I am saying is that the power is there, that it could be used, and that if the Court were to hold that these earned income credits couldn't be intercepted, it would not be immunizing these credits from collections for past due support, as petitioners suggest, because they still could be subject to collection.
It just would require that a more costly method be used.
For whatever reason these other methods have not been used, and I would suggest the principal reason is the cost.
The fact remains that they could be collected that way, and so it makes little sense to say that when Congress passed the intercept provisions, which it intended to enhance existing collection authority, it intended to immunize earned income credits from this new streamlined cost effective procedure and to require if--
Unidentified Justice: Unless it thought there was a federal interest in having the earned income credit go to the people who had these dependent children who needed money.
Mr. Farber: --Well, Your Honor, except that it didn't... when it authorized collection of child support as delinquent taxes, it didn't pass any exemption for earned income credit, and so there is no limitation to stop the states from seeking to use this power, and so Congress has not protected earned income credits in this earlier broad power, and so there is no reason to believe that it intended to do so when it enhanced this collection authority.
Unidentified Justice: What I am suggesting is, it didn't really need to, because the practice was so clear that they never even tried to invoke it.
Mr. Farber: --Well, I don't believe there is any indication of that.
Unidentified Justice: Well, you have acknowledged that to the best of your knowledge they never tried to invoke it.
Mr. Farber: I am not aware of any instances in which they collected that way.
I would point out that when Congress passed the predecessor provision, Section 6305, not only didn't it exempt earned income credits from its scope, but it eliminated certain of the exemptions that already are available for tax collection, most notably unemployment benefits.
Unemployment benefits by statute may not be collected for past due taxes.
However, when Congress enacted Section 6305, it specifically eliminated that exemption, so that unemployment benefits may be collected for past due support.
Now, there was no need to get rid of any exemption for earned income credits, because there wasn't one in the first place, but that shows the depth of Congress's interest in seeing that these child support debts are collected.
Unidentified Justice: Mr. Farber, perhaps I have been around too long, but years and years ago, wasn't there another federal earned income credit in the Code, perhaps the '39 Code, by which one obtained a deduction for earned income as contrasted with unearned income such as dividends, interest, capital gains?
Mr. Farber: I am not familiar with that specific provision, Justice Blackmun, but there have been many provisions in the code dealing with earned income.
At one point in time there was a maximum tax on earned income of 50 percent as opposed to dividends and other types of passive income which were subject to rates in excess of 70 percent.
So, the term "earned income" is one of art that has been used throughout the years in the Internal Revenue Code.
Unidentified Justice: I think I have been around too long, but I am sure there was one back in the thirties and forties.
Mr. Farber: I don't doubt it, Justice Blackmun.
Unidentified Justice: That I have been around too long?
Mr. Farber: No, I didn't mean that.
In our view, the provisions are clear on their face, and there is nothing in the legislative history which shows that Congress didn't mean what it said--
Unidentified Justice: Don't you have to concede that there is somewhat of an ambiguity in that provision of the Social Security Act as to what that phrase modifies as payable, what payable applies to?
Mr. Farber: --Yes, Your Honor, I would concede that, because if there wasn't an ambiguity there, I don't think we would have lost this case in the Second and Tenth--
Unidentified Justice: Exactly.
Well, now, let's assume we don't agree with you as to how 464 should be read.
Then there is a conflict between the two sections.
And how do we resolve that?
Mr. Farber: --Well, that is the problem, Your Honor, is that these two sections, 6402(c) and Section 464 were both passed concurrently in 1981 as part of OBRA.
So it doesn't make any sense that Congress intended these two concurrent and parallel provisions to have different meanings.
Now, if there is an ambiguity in Section 464, our view is that, well, let's look at the Internal Revenue Code, and there is no ambiguity over there.
I don't think petitioner has even tried to suggest one.
Certainly the Second and Tenth Circuits haven't.
They just ignored it.
But if you look at the language over there, the technical language about overpayments are subject to interception, and earned income credits are expressly defined as overpayments, there is no ambiguity--
Unidentified Justice: Yes, but that expressly defines as overpayments... that provision was passed in '75.
Mr. Farber: --Yes.
Unidentified Justice: And wasn't changed at all in '80.
Mr. Farber: That is true, Your Honor.
Unidentified Justice: So it may be you should ignore it.
Congress just didn't even think of it.
Mr. Farber: Well, but the language it used is all encompassing, because when it chose to add this intercept provision, it amended Section A, which directs the refunds of overpayment to say the Secretary shall, subject to Subsection (c), refund the amount of any overpayment, and then in Subsection (c) it says, in the case of any overpayment the amount of past due support is to be applied against that overpayment.
So, its language is all-encompassing.
There is absolutely not a word in the legislative history which indicates that Congress went too far, didn't mean what it said when it used that broad language, that had it thought about it, it would have excluded--
Unidentified Justice: Don't the courts ordinarily give some deference to the construction of the Secretary in the event there is an ambiguity?
Mr. Farber: --Well, certainly when regulations have been promulgated there is great deference, but I suppose it might be viewed as somewhat bootstrapping if we came here and said we are right because we said we are right.
Unidentified Justice: Well, you have been doing it for years.
That is the constant refrain from agencies.
Mr. Farber: Maybe I haven't been here enough to get the party line.
Unidentified Justice: You will.
Mr. Farber: In our view, if the decision below were to be reversed, you would be creating this conflict among concurrent sections, and I again would emphasize--
Unidentified Justice: Well, we would just be saying that we will construe the Internal Revenue Code in the light of the Social Security--
Mr. Farber: --Well, except that the Internal Revenue Code provision purports to be an independent authority.
It mandates the interception of any overpayment.
It doesn't say, you know, as provided in Section [= 464].
It doesn't purport to be limited by Section 464.
And once again, I would emphasize that Congress has already authorized the collection of earned income credits through various means once they have been paid out, and in light of that authorization, it doesn't make any sense to say that Congress intended when it enacted the intercept provision to carve out an exception for earned income credits and say you can't--
Unidentified Justice: --Mr. Farber, you keep relying on an authorization that they never used for six years.
I don't find that at all persuasive, in all candor, but let me just ask you this.
Does it really make any sense for the federal government to appropriate to subsidize a certain category of our society and say, you need some money, and then say, yes, but we want to intercept that and give it to the states?
That is what is happening.
Mr. Farber: --Well, Congress may work at cross purposes sometimes, but I don't think it is quite--
Unidentified Justice: Clearly here if you are right.
Mr. Farber: --Well, I don't think it is that clear, Justice Stevens.
Unidentified Justice: Isn't it true that this is subsidy for a group of needy people that the federal government is financing, and if it is diverted, it goes to the states to pay off some debts by the same group of people.
And does it seem likely the federal government intended to subsidize the state's collection of obligations of this kind?
Mr. Farber: Well, I think... yes, Your Honor, I think so because over the past 35 years it has expressed increasing concern about the rapid growth of people, families on AFDC.
The principal cause of families on AFDC has been identified as the problem of deserting parents, most notably fathers, and Congress has taken stringent efforts to collect these past due supports.
Now, in this case--
Unidentified Justice: In the past it has collected them out of the assets of the people who owe the money, their own tax money.
Mr. Farber: --Well, Justice Stevens, what happens here is that because someone like petitioner's husband did not pay his child support, and it is undisputed he is in debt for child support, his former wife had to go on welfare.
As a condition to going on welfare, she was required to assign her support rights to the state, and now the state is seeking to try and reimburse its costs to a certain extent, but the point remains that Mr. Sorenson failed to honor his support obligations.
Unidentified Justice: And to the extent that you are successful here the honoring of the support will be financed by the federal government.
Mr. Farber: Well, that might well--
Unidentified Justice: Isn't that true?
The earned income credit money all comes out of the federal treasury?
And you are saying that money should be devoted to pay off this man's past due debts.
Mr. Farber: --That same argument could be made with respect to unemployment benefits, and as I have pointed out, when Congress enacted Section 6305, it specifically repealed the exemption for unemployment benefits.
Now, those are paid by the federal government, but Congress said we want those benefits available for seizure for payment of past due supports that have assigned to a state.
Now, in view of that specific action, I see no inconsistency with Congress drawing the same conclusion with earned income credits, another benefit provided by the federal government.
Unidentified Justice: Except that here the benefit title really was intended for the children rather than for the man, as in the case of the unemployment compensation.
Mr. Farber: Well, I am not sure that that is entirely true.
Unidentified Justice: He can't get it if he doesn't have children.
Mr. Farber: --That is true, Your Honor, but it really was an incentive for low income people to work rather than to receive welfare.
It was intended to negate the impact of social security taxes that they would incur by working, and so it was intended really as a refund of social security taxes more than anything else.
Unidentified Justice: That incentive is somewhat removed by this intercept.
Mr. Farber: Well, not entirely, Justice White.
In the first place, the earned income credit isn't simply covered into the state treasury.
It reduces their existing lawful debt dollar for dollar, so they do get a direct economic benefit from this... well, let's say a $500 credit.
It reduces their debt that they owe to a state, so they do get a benefit from it.
It is not like it just is collected as a tax and it is lost to them and they have received no benefits.
Unidentified Justice: Well, if one of the purposes is to get people to pay their obligations in the future, it certainly isn't very... this intercept program certainly isn't very effective.
Mr. Farber: I don't think I follow that.
Unidentified Justice: Is one of the purposes to urge these debtors to pay their debts in the future as they accrue?
Mr. Farber: I believe it is, but maybe more principally to try and collect against those people who have no intention of voluntarily paying, and there is a huge amount out there.
I would give the Court some figures.
During the first three and a half years of the intercept program, the total amount of tax refunds that have been intercepted are approaching or may be slightly in excess of $900 million.
Of this amount, the earned income credit component is estimated to be somewhere between 15 to 20 percent.
So, the intercept program has been quite successful.
We are only talking about one small part of it here, the earned income credit component, but the overall program has collected some $900 million that otherwise may not have been collected, and the figures indicate that the amount of the interceptions are increasing at an increasing rate each year, so in future years the collections may be even greater.
One other point I would like to make, that this case has been painted sort of as a battle against a poor individual versus the state, but in 1984, Congress has expanded the intercept program to allow collection, interception of refunds on behalf of children who aren't on AFDC.
Now, these children may be quite needy and it may well be that if these collections are made they won't have to go on AFDC, and these amounts that will be collected beginning in January of '86 will not go to the state.
The state will receive them from the IRS, but they will pay them out to individual families, and the court's decision here will directly impact on this later amendment.
If the court should hold that earned income credits are immune under the intercept program, then they couldn't be paid for these individuals as well as paid to the states.
So the decision here is quite far-reaching, but the expansion to individual cases once again shows Congress's concern in this area to stop the... or put a halt to the increasing problem of non-payment of child support and to stop the growth of AFDC.
It is felt that by enforcing child support payments from people who have not yet gone on AFDC, that it may stop them from having to apply for welfare.
I don't believe I have anything else.
Chief Justice Burger: Very well.
Do you have anything further, counsel?
ORAL ARGUMENT OF PETER GREENFIELD, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL
Mr. Greenfield: Please.
To first briefly address the question raised by Justice Powell, a married person who applies for an earned income credit benefit must file a joint return, and in 1981 if there was adjusted gross income in excess of $10,000, then there was no eligibility for the benefit, so this is a program that only will benefit poor families with children.
I would like to talk a little bit more about Section 6402(c) of the Internal Revenue Code, because I think the problem of reconciling that with what we take to be the clear provision of 464 of the Social Security Act seems to have been the focus of some discussion, and there is a phrase in 6402(c) that has simply been ignored by the Secretary, and that is the phrase,
"in accordance with Section 464 of the Social Security Act. "
So, it says, that is, 6402(c) says, "overpayments shall be reduced", and we acknowledge that it is probably appropriate to treat in this context earned income credit benefits as overpayments.
It is possible to distinguish two classes of overpayments, but it is not necessary, because it goes on to say, they shall be reduced in accordance with Section 464 of the Social Security Act, so if--
Unidentified Justice: You say... I see in the copy of the section I've got where... the requirement, the Secretary has been notified by a state in accordance with Section... does it use, in accordance with the Social Security somewhere else in that--
Mr. Greenfield: --That is the only place it appears, Justice Rehnquist, and as we explain in more detail in the briefs, at first reading one would think that the phrase
"in accordance with Section 464 of the Social Security Act. "
refers to the notice language that comes immediately before it.
Unidentified Justice: --One certainly would, yes.
Mr. Greenfield: However, there is a good reason for it not staying with that conclusion, and that is that Section 464 does not impose any notice obligation on states.
The obligation that is imposed on states appears in Section 454 of the Social Security Act.
Section 464 only imposes obligations on the Secretary of the Treasury.
So it is entirely appropriate for this Court to read the phrase
"in accordance with Section 464 of the Social Security Act. "
as modifying the main verb in that sentence, "reduced".
And read that way, there is no difficulty in reconciling these two sections.
Unidentified Justice: Would the Secretary ever be notified by a state so that your construction would make sense there?
Mr. Greenfield: Yes.
There is a requirement in Section 454 that states participate in the intercept program.
So there is elsewhere a requirement imposed on states to take actions, and there are also regulations requiring the states to give notice.
But Section 464 itself does not require states to give notice.
Unidentified Justice: And that is the section that requires the reduction?
Mr. Greenfield: Section 464 of the Social Security Act requires interception of refunds of federal taxes paid.
That is correct.
It requires the Secretary to intercept such refunds of federal taxes paid.
Let me speak a little bit about Section 6305.
As Justice Stevens correctly observed, there is no indication that it has ever been used to take an earned income credit benefit.
There is another important difference between Section 6305, which we have called the alternative collection method, and the intercept method, and that is that states are required to use the intercept method.
That is, if a debt is owed to a state, it is required to certify the name of a debtor to the Secretary of the Treasury, regardless of whether the state would want to collect against the individual.
For example, in petitioner's case, while it is true there is no dispute that petitioner's husband owed child support to the state, it is also undisputed that he was disabled, and that he and his wife and a dependent child living on very low income, it would have been entirely appropriate for the state to determine that that isn't an appropriate case to pursue collection in.
However, they were required to use the intercept program.
They were not required to use the alternative method.
Unidentified Justice: Mr. Greenfield, I understood your response about Section 6402(c) as to which phrase was modified by the notice requirement in there to be in part that Section 464 didn't deal with notification by the state.
Mr. Greenfield: It does not impose an obligation on the state.
Unidentified Justice: But it does say... 464 says at the beginning, upon receiving notice from a state agency administering... so it certainly refers to it.
Mr. Greenfield: It refers to notice several times; also at the end of 464(a) it refers to notice, but 464(a) is imposing an obligation on the Secretary, and when the Secretary complies with that obligation, he is acting in accordance with Section 464(a).
When a state gives notice to the Secretary, the state is acting in accordance with Section 454, and in accordance with whatever regulations require notice, but it is not acting in accordance with 464 because no obligation is imposed by 464.
Now, if there were no other way of making sense out of this statute, it might be tempting to strain to say that is... that these oblique references to notice are what was referred to in 6402(c), but there is no need to strain in that way, because there is a perfectly acceptable interpretation which gives meaning to the primary text in Section 2331 of OBRA, that is, Subsection (a), which creates and establishes the tax intercept program.
There has been reference also in respect to 6305 to its being more cumbersome, and that is the reason that it isn't used, and as this Court very well knows, the collection methods available to the IRS are perhaps among the least cumbersome collection methods known in this country.
They are extraordinary powers.
And the reason, we submit, that it is not so frequently used is that in many respects it is simply duplicative of state procedures.
States have programs to collect child support, and if the debtor is in the state, it is rarely necessary to invoke the assistance of the Secretary of the Treasury in order to garnish wages or seize property or use any of those kinds of remedies.
So, 6305 would simply be used, for example, if the debtor were out of state.
But it also, since it is discretionary, since a state need not use it, it allows the state to do its collection business in what we would submit is a more appropriate way.
And to give one example, one of the class members in this case filed a declaration explaining that her husband had an agreement with the state to make payments toward a child support obligation, and he was current in his obligation.
Now, nonetheless, he had an outstanding debt, so the state was required to certify his name, and his refund was intercepted.
However, the state would not be required... in that case I should emphasize it was only a refund of federal taxes paid.
It was not under an income credit benefit.
However, the state would not have been required and surely would not have asked the Secretary to use the 6305 procedure because in exercise of its discretion and also its responsibility under the agreement it would have made its arrangement with the debtor and it would follow it.
So, there are many good reasons for the relative little use of Section 6305.
In conclusion, let me simply say that there is a clear statutory provision before the Court.
It is in the first section of 2331.
It authorizes the interception of refunds of federal taxes paid.
As the Secretary concedes, earned income credit benefits are not refunds of federal taxes paid.
There is no need to strain the statutory language when the only result is to take benefits from a particularly needy group of children.
Thank you very much.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.