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.
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