1. 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 reports and 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. 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. 3 Write-off  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. WHEN SHOULD AN AGENCY WRITE-OFF A DEBT?

4. 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. 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 offset when 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. 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. 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. 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 -