Category: Penalty

CBP Can Garnish Your Tax Refund for an Unpaid Penalty

Customs Penalties Can Trigger Tax Refund Garnishment: What Importers Need to Know

Posted by Jason P. Wapiennik on

If you’ve received a penalty from U.S. Customs and Border Protection (CBP)—especially for violations like importing counterfeit goods under 19 U.S.C. § 1526—you may be facing more than just a fine. Ignoring a customs penalty can result in aggressive collection efforts, including the interception of your federal income tax refund through the Treasury Offset Program (TOP).

This article explains how CBP collections work, the risks of inaction, and some potential strategies to protect your refund and resolve the debt. Instead of ignoring a penalty, file a Petition for Mitigation or Remission – Relief from Customs Decision to avoid this horrible scenario.

The Risk: CBP Can Garnish Your Tax Refund—and More

If you are thinking about ignoring a penalty from CBP, think again. CBP has the authority to refer unpaid debts—including fines and penalties for counterfeit imports—to the Department of the Treasury. Once referred, the Treasury Offset Program (TOP) can reduce or eliminate your federal tax refund to satisfy the debt.

But it doesn’t stop there. Treasury can also offset other federal payments owed to you, including:

  • Social Security benefits
  • Federal retirement payments
  • Vendor payments
  • Certain federal grants or reimbursements

This means that any money the federal government owes you could be intercepted to satisfy a customs-related debt. This applies even if:

  • You were unaware of the penalty, although you may have some basis to challenge it based on lack of constitutional due process
  • You live outside the U.S.
  • You file a joint tax return.

If you file jointly, your spouse may be able to protect their portion of the refund by submitting an Injured Spouse Claim and Allocation.

What Triggers Collection Action?

CBP may initiate collection for:

  • Unpaid fines and penalties under any customs law, but often seen under 19 U.S.C. § 1526 (e.g., for importing counterfeit goods).
  • Promissory notes or debit vouchers related to customs violations.
  • Failure to respond to a penalty notice or settle the debt within the required timeframe.
  • Once the debt is deemed “legally enforceable,” CBP can refer it for offset without further warning.

No Good Options To Respond

The CBP letter outlines three options that are not great, unless the penalty is in error:

  • Pay the Debt in Full
  • Request a Voluntary Repayment Agreement
  • Dispute the Debt (if it is issued in error/by mistake, or because the amount is wrong)

Consider an Offer in Compromise

It may be possible to submit an offer in compromise under 19 U.S.C. § 1617, asking CBP to settle the debt for less than the full amount. However, this route is untested and seems unlikely to succeed if CBP or Treasury believes the debt is collectible—even if it takes years for them to collect. The fact that the government is actively intercepting tax refunds suggests they view the debt as enforceable and recoverable. Still, for some individuals with long-term financial hardship, it may be worth exploring with legal counsel.

What Happens If You Ignore the Notice

Never ignore a CBP penalty. If you take no action:

  • Your tax refund will be intercepted.
  • You may face additional penalties under the False Claims Act or other federal statutes if you submit false information.
  • If the debt is discharged but not collected, it may be reported to the IRS as taxable income, increasing your tax liability.

How Can You Protect Your Refund?

You may be able to protect your refund using one potential—but not guaranteed—strategy: adjust your tax withholding so that you don’t expect a large refund. In theory, if there’s no refund to intercept, the Treasury Offset Program has nothing to collect.

This approach may work for some or for a time, but it’s not a one-size-fits-all solution and the government has its own way to respond. It’s important to consult with a customs penalty defense attorney or tax professional to determine what’s best for your situation.

⚖️Consult with a Customs Lawyer

Contact a customs lawyer to discuss your case, by reaching out to Great Lakes Customs Law by any method below.

📞 Call us at (734) 855-4999
💬 Text or WhatsApp us for quick support
📝 Fill out our contact form to get started

CBP Bill Notice of Debt

Why Did I Receive a Bill From CBP?

Posted by Jason P. Wapiennik on

Frequently, we are contacted by people who receive a bill from Customs by mail. By this, they literally mean a bill, with a spot on the bottom that you’re tear off and return with payment like your utility bill. Here’s an example:

CBP Bill Notice of Debt

As you can see, this is different from the notice of penalty or liquidated damages. A penalty or liquidated damage notice invites the recipient to file a petition for remission or mitigation. Here, there is no such offer; the debt is due, and you are given little time to pay.

Why did I get a bill from CBP?

Well, it means you owe money to CBP. It could be because of failure to pay duties for merchandise imported (regular duties, or anti-dumping or countervailing duties), or you failed to take action after receiving a penalty notice/liquidated damages notice by either not paying the mitigated penalty timely, or by not responding at all.

You can usually figure out what the nature of the debt is by looking carefully at the bill, even if it’s not easily determined at first glance.

If you have no idea why you’re receiving the bill from CBP, it may indicate you did not receive notice of the debt. It may also indicate you are a very, very inexperienced importer that is definitely in need of an education.

Notice of Penalty or Liquidated Damages Inccured by CBP

Failure to Report Arrival or Advance Electronic Cargo Information Penalty

Posted by Jason P. Wapiennik on

U.S. Customs & Border Protection enforces many laws and regulations that concern arriving at the border, presenting merchandise to Customs, filing advance cargo information, and unloaded merchandise or off-loading passengers without authorization.

For instance, 19 CFR 123.92 requires advance cargo information for commercial shipments from Canada and Mexico be sent to CBP electronically 30 minutes or 1 hour prior to the “carrier’s reaching the first port of arrival in the United States, or such lesser time as authorized . . .” even if the carrier is just transiting through the United States.

Similarly, 19 USC 1433 requires that any vessel, vehicle, and aircraft report their arrival, and present all person and merchandise for inspection to a customs officer.

What happens if fail to report arrival or violate CBP’s entry regulations?

If you fail to report arrival, present false documents or paperwork, violate regulations regarding the entry and arrival of vehicles, or discharge passengers or merchandise without Customs authorization, you are liable to a penalty of $5,000, and possibly seizure of the conveyance and the merchandise stored in it.

If you have a prior offense, the amount can increase to $10,000. In the case of an unreported or improperly entered conveyance, Customs can impose the value of the merchandise (or if they conveyance itself is the merchandise… the value of the conveyance) in addition to the $5,000 or $10,000 standard penalty.

If receive a penalty for these failures under 19 USC 1436, we can file a petition for mitigation and you can expect your mitigated penalty to be reduced. The reduction varies on the type of violation, who committed, and the presence of aggravating or mitigating factors.