| Offset is the general right of one party to recover a debt owed by another through a deduction from monies owed by the first party to the second. Basically, there are two types of offsets: setoffs and recoupments. A setoff is an equitable right of offset where the mutually offsetting debts arise out of separate transactions. In contrast, a recoupment is the right of offset when the claim and the debt arise out of the same transaction.
The government possesses the same self-help right of recovery through offset as any other creditor. See United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947); Hilburn v. Butz, 463 F.2d 1207 (5th Cir. 1972), cert. denied, 410 U.S. 942 (1973); Burlington Northern Inc. v. United States, 462 F.2d 526 (Ct. Cl. 1972); Aetna Ins. Co. v. United States, 456 F.2d 773 (Ct. Cl. 1972); United States v. Cohen, 389 F.2d 689 (5th Cir. 1967). Thus, the United States can assert a right of offset independent of a statutory grant of authority. See, e.g., United States v. Tafoya, 803 F.2d 140, 141 (5th Cir. 1986). The United States is one party for mutuality purposes and can setoff claims held by different agencies. See, e.g., Cherry Cotton Mills v. United States, 327 U.S. 536 (1946); Bosarge v. U.S. Dept. of Education, 5 F.3d 1414, 1419 (11th Cir. 1993), cert. denied, 114 S.Ct. 2720 (1994).
In addition to our inherent right to offset, statutes and regulations sometimes provide for offset. See, e.g., 26 U.S.C. § 6402(a) (IRS may setoff taxpayer's overpayment of tax against tax liability for prior years); 31 U.S.C. § 3720A (federal agencies may refer past due debt to Treasury for offset against tax overpayment pursuant to 26 U.S.C. § 6402(d)); 31 U.S.C. § 3716(a) (administrative offset statute); 31 U.S.C. § 3716(c) (Treasury disbursing officer offset statute); 31 U.S.C. § 3728 (United States can setoff judgment against it to recover a debt plaintiff owes to the United States); 7 C.F.R. § 1951.103 (1995) (the Consolidated Farm Services Agency can setoff debts to the United States against ongoing Conservation Reserve Program payments); 13 C.F.R. § 140.5 (1993) (SBA offset); 41 C.F.R. § 101-41.102(a)(3) (GSA can setoff amounts due to the United States from ongoing payments to carriers); Federal Acquisition Regulation, 48 C.F.R. §§ 32.611, 32.612 (1992) (United States can setoff obligations between itself and parties contracting with the United States). See 4 C.F.R. § 102.3, as to the responsibility of client agencies to effect collection by offset.
A federal statute or regulation, of course, may limit offset rights of the United States. The Debt Collection Act of 1982, 31 U.S.C. § 3716, altered federal agencies' procedures in effecting administrative offsets. This statute, the Federal Claims Collection Standards, and, if necessary, the Commercial Litigation Branch should be consulted before advising agencies concerning administrative offset. See McCall Stock Farms, Inc. v. United States, 14 F.3d 1562, 1567 (Fed. Cir. 1993) ("Debt Collection Act was intended to supplement, not displace, the government's pre-existing offset rights under the common law"); Bosarge v. United States, supra; Cecile Indus., Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (offset of claims from different contracts not governed by Debt Collection Act, 31 U.S.C. § 3701 et seq.); Allied Signal, Inc. v. United States, 941 F.2d 1194 (Fed. Cir. 1991) (offset of claims from the same contract (recoupment) is not governed by the DCA); Cascade Pac. Int'l v. United States, 773 F.2d 287, 295-96 (Fed. Cir. 1985) (any procurement contract subsequent to 1979 containing CDA "all-disputes" clause reserved the common law right to offset money owed by defaulted contractor); Amoco Production Co. v. Fry, 904 F. Supp. 3 (D.D.C. 1995) (DCA merely supplements common law right to offset) with Allison v. Madigan, 951 F.2d 869 (8th Cir. 1991) (administrative setoff must comply with DCA).
When a claimant obtains a final judgment against the United States and presents it to the Treasury for payment, the Treasury may withhold such payment to offset a claim which the United States has against the claimant, and such further amount as will cover the government's legal charges and costs in pursuing the government's claim to judgment if the claimant does not assent to a setoff. See 31 U.S.C. § 3728. The policy of the statute is that claims against the United States are always subject to setoff. See Ozanic v. United States, 188 F.2d 228, 231 (2d Cir. 1951).
Updated February 19, 2015