Write-off

1. Write-off WHAT IS WRITE-OFF? • Write-off is an accounting action that occurs when the agency determines that the debt has no value for accounting purposes. As a result, the agency no longer records the debt as having any value as an asset on its accounting reportsand reflected on certain management reports such as the Treasury Report on Receivables. • Rules for writing off debts are contained in OMB Circular No. A-129.

2. Write-off - Classification WHAT ARE THE CLASSIFICATIONS OF WRITE-OFF? • After write-off, a debt must be classified based on whether collection action will continue. • The two classifications of write-off are: • Currently Not Collectible (CNC) - This means cost-effective collection action will continue. • Close-out - This means that the agency does not intend to take any further collection action (passive or active)on the debt.

3. Write-off WHEN SHOULD AN AGENCY WRITE-OFF A DEBT? • Generally, write-off is mandatory for debts delinquent for more than 2 years (OMB Circular A-129). • In those cases where material collections can be documented to occur after two years, the debt cannot be written off until the estimated collections become immaterial. • Write-off is not directly tied to termination of collection action. Write-off may occur before, concurrently with, or after termination of collection action.

4. Write-off HOW IS WRITE-OFF ACCOUNTED FOR BY THE AGENCY? • Write-off of debts must be made through the allowance account. Debts may not be written off directly to expense.

5. Write-off – Currently Not Collectible (CNC) WHAT SHOULD AN AGENCY DO REGARDING DEBTS THAT HAVE BEEN WRITTEN OFF AND CLASSIFIED AS CNC? • The agency should continue cost-effective measures to collect the debt, including referral of debts to FMS for cross-servicing and referral of debts to FMS for collection through offsetwhen appropriate. • The agency may consider if termination of collection action is appropriate, under the rules governing termination of collection action. • If material, the agency should disclose in a note to its financial statements, the amount of written-off debt under collection and the amount it expects to collect. • The agency should also have established accounting procedures to account for collections on written-off debt.

6. Write-off – Close Out • The classification of a written of debt as close-out may occur at the time of the initial write-off, or at a time after the debt has been written off and classified as CNC. • The agency must have taken all appropriate steps to collect a debt prior to close-out including, as applicable, referral to FMS for TOP and cross-servicing. WHAT ARE THE RULES CONCERNING WRITTEN OFF DEBT CLASSIFIED AS CLOSE-OUT?

7. Write-off – Close Out • The agency must have terminated collection action(both passive and active) on the debt or is terminating collection action simultaneously with the classification of close-out. • The agency must determine if written-off/closed-out debt must be reported to the IRS as potential income to the debtor on form 1099-C. The requirements and the procedures to report potential income to the debtor is outlined in IRS regulations (26 CFR 1.6050P-1). WHAT ARE THE RULES CONCERNING WRITTEN OFF DEBT CLASSIFIED AS CLOSE-OUT? (Continued)

8. Write-off – Close Out Congratulations, Students! You now are experts at writing- off debts. You can now be called “Terminators/Writer-offers”. To complete your education you must learn about Discharge of Indebtedness. PROCEED TO THE NEXT PART OF THE TUTORIAL -