A group of plaintiffs are suing the Treasury Department, the Social Security Administration, and the District of Columbia, claiming the federal government is continuing to hold onto their tax refunds to pay for supposed overpayments of Social Security benefits decades ago.

After reports of the seizures emerged last year, the Social Security Administration came under pressure from lawmakers in Congress and announced a halt to the practice (see Senators Convince Social Security to Stop Seizing Tax Refunds for Decades-old Overpayments). However, the lawsuit, which was filed Wednesday, contends that the Social Security Administration is continuing to demand the money, in some cases even after the tax refunds have been returned.

The Legal Aid Society and the law firm McKenna Long & Aldridge brought suit against the U.S. Treasury, the Social Security Administration and the District of Columbia government on behalf of three D.C. residents, Tina Heard, Pearline Snow and Carolyn Graham. They are seeking class-action status in the suit, and believe the case could affect up to 400,000 Social Security beneficiaries who had $75 million taken from their tax refunds. They claim the government confiscated the refund payments in violation of federal law and without the due process required under the Constitution. In most cases, the alleged debt to the Social Security Administration had been incurred by their parents or other relatives.

The three D.C. residents who are plaintiffs contend they were never notified of the alleged overpayments. As a result, they were unable to challenge the offsets before they occurred. 

Heard, Snow and Graham claim they originally learned of the debts they allegedly owed the government when some or all of the 2013 tax refunds they were expecting in early 2014 never arrived. They contend that they received no notice from the SSA before the Treasury Department seized their refunds. Only after they went to significant effort to determine why their refunds were withheld did they learn that the Treasury’s actions were based on the SSA’s findings that they had each been overpaid Social Security benefits decades before.

Despite multiple attempts to communicate with the agency, none of the plaintiffs has received a clear explanation of what exactly was owed or why, according to their attorneys.

Heard, for example, received Social Security benefits as a child for a number of years after her mother passed away in 1970, but the payments stopped more than 30 years ago. According to Heard, she was unaware of any overpayments and had no idea why she did not receive her expected 2013 tax refund.

After multiple attempts to obtain an explanation (including two visits to her local SSA office), an SSA supervisor told her that the agency could not provide any information beyond the amount of the alleged overpayment and when it occurred (between 1978 and 1981) because the overpayment occurred before 2005 and the agency’s system did not contain information that old.

"It doesn’t seem fair that the government can withhold my tax refund just because it thinks I was overpaid Social Security benefits more than 30 years ago," Heard said in a statement. "It seems especially wrong that the government never told me that I owed it anything before taking my money."

Snow and Graham’s experiences were similar: both stopped receiving benefits more than 20 years ago, did not receive any notice about an overpayment before money was deducted from their 2013 tax refunds, and could not get an adequate explanation from the SSA despite repeated efforts.

Even though the Social Security Administration was supposed to have stopped the practice last year, the plaintiffs’ attorneys contend that the problem never went away.

"It's our understanding that they have suspended this prospectively but are still going after tax refunds that they had already identified when they suspended the program," said 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. "We are also aware that in some cases while they have returned refund money, it has come with a notice that the recipient is not off the hook for the debt. It is apparently a temporary return of the money, but not absolving them of the debt."

"It's still continuing to be a problem based on what we see," said Nina Wu, a Legal Aid staff attorney. It isn't clear whether Social Security is claiming it made overpayments to the plaintiffs' parents or not.

"Part of the problem is that they have yet to provide an adequate explanation of what these overpayments are for in our clients' cases," said Wu. "So in one our clients' cases, we're not sure if the overpayment stems from a widow's benefit or if it stems from a child’s benefit. That's part of the issue here too—not just the lack of notice, but also the lack of any type of adequate explanation of what the overpayment is for, despite our clients' efforts to try to figure out more information."

In some cases, the money has been refunded to the taxpayers, but the government is still asking for it back.

"That’s what happened in a Maryland case that’s going on right now," said Wu. "In terms of one of our cases, that’s what Social Security has also said. They have yet to refund the money. However, they have said they will refund the money in one our cases. They just haven’t done that yet. They also still indicate that the money will be owed to them in the future."

In recent years, both the SSA and the Treasury Department amended their regulations to revoke a limitations period that had prevented the government from offsetting tax refunds to collect overpayment debts more than 10 years old.

Recent public statements by SSA officials suggest that roughly 400,000 individuals were affected by the regulatory changes, and at least $75 million has already been taken from them. It is unclear how many of these individuals, all of whom could be members of the proposed class action, received actual and proper notice prior to their tax refunds being seized.

"We are not sure about numbers," said Wu. "When the Washington Post reported on this last year, they said this is affecting more than 400,000 people who owed debt to the Social Security Administration through the debts of their ancestors. So, assuming that's true, it would be at least that amount."

Wu doesn't know of anybody for whom the situation was resolved, even the taxpayer whose story was highlighted last year in the Washington Post, Mary Grice, whose tax refund was seized by the U.S. government to repay an overpayment of benefits made to an unknown member of her family in 1977.

"We are not aware of any that have been resolved so far," said Wu. "In the one case that has been publicized in Maryland, they reimbursed the refund that they took, but then they later sent her a notice saying you still owe us this money and to pay it back. So in some ways they were acknowledging they did not take the money properly because they did not send her a notice, so they gave her back the money, However, they were still saying she owed the money to them now that she has received proper notice."

"It's pretty clear that the reason that refund occurred was because of the litigation," said Jarcho. "But for the thousands and thousands of people who have not litigated, we don't have any reason to believe that refunds have been returned to them."

The lawsuit requests that the court declare the tax refund offsets to be unlawful and to set them aside. It also seeks to enjoin the SSA, the Treasury Department and the District of Columbia government from continuing to collect these old debts without adequate prior notice and explanation, and to have the government return any funds that it has unlawfully seized from affected individuals.

"We're seeking a number of things—setting aside these tax refund offsets, an injunction prohibiting the process in the future when there has been inadequate notice and when it reaches back so far in time, and we're hopeful that the entire notice system, which is in disarray, will be remedied as a result of this lawsuit," Jarcho explained.

So far, only the three named plaintiffs have joined the lawsuit, but Jarcho and Wu are hopeful that more will join, especially once it receives class action certification.

"It's filed as a class action, which means you identify a small number of people to act as the representatives and then they stand in the stead of a very large number of other people," said Jarcho. "We have the three people who have been identified as the class representatives, and then establishing the size of the class that they represent will be something that happens later in the lawsuit."

So far, they have not heard a response from the government to the lawsuit.

"If, as we anticipate, the court certifies the class and we're able to prove our clients' claims, we can bring an end to an unlawful and harmful practice that has serious consequences for individuals living in poverty who depend on their tax refunds," said Jarcho. "We also hope that the government will follow its own procedures and stop engaging in this wrongful conduct in the future."

Mike Cohn is the Editor-in-Chief of AccountingToday.com.

 

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