March 4, 2021

P.S. Docket No. IRS 20-66

In the Matter of the Debt Collection Act Petition

SCOTT E. SHAREK v INTERNAL REVENUE SERVICE

APPEARANCE FOR PETITIONER
Scott E. Sharek

APPEARANCE FOR RESPONDENT
Ariya McGrew, Esq.
Internal Revenue Service

FINAL DECISION UNDER THE DEBT COLLECTION ACT OF 1982

The Internal Revenue Service (IRS) assessed Scott E. Sharek with a debt for Federal Employee Group Life Insurance (FEGLI) premiums.  When he started at the IRS, Mr. Sharek elected Basic and Optional life insurance coverage.  The IRS deducted the Basic coverage premiums from Mr. Sharek’s pay during his 16-year tenure with the agency, but did not deduct premiums for the Optional coverage.  The assessed debt is for the Optional FEGLI premiums.  I rule in favor of the IRS which may collect $59,107.65 from Mr. Sharek. ¹

FINDINGS OF FACT

1. Mr. Sharek was employed by the IRS from November 17, 2003, until his retirement on February 29, 2020 (Resp. Exhs. 46, 455; see also Standard Form 50s, Notification of Personnel Action filed on October 21, 2020 (Service Computation Date)). ²
2. When he joined the IRS, Mr. Sharek completed several forms as part of his in-processing (Petition for Hearing). ³  One of these forms was a Standard Form 2817, Life Insurance Election, Federal Employees’ Group Life Insurance Program (June 2000), which he signed twice on November 17, 2003.  The form was then signed by an authorized agency employee on December 1, 2003.  The handwritten effective date of coverage was November 30, 2003.  (Resp. Exhs. at 27).
3. The form describes two types of coverage:  Basic and Optional. ⁴  The top of the SF 2817 provides:  “When you first become eligible for FEGLI, you may (1) elect Basic and any or all of the options, (2) elect Basic but waive all of the options, or (3) waive all life insurance coverage.”  (Resp. Exhs. at 27).
4. The first place where Mr. Sharek signed the SF 2817 was at block 3.  Block 3 provides:  “I want Basic.  I authorize deductions to pay my share of the cost.” (Resp. Exhs. at 27).
5. The second place Mr. Sharek signed the form was at block 4, “Option B, Additional.”  Under Option B, Mr. Sharek placed an “X” beside “5 times my pay.”  This means that he chose coverage for five times the amount of his salary and authorized deductions to pay the full cost.  (Resp. Exhs. at 27; Petition for Hearing; Pet. Exh. 1).
6. The SF 2817 also provides:  “The employee’s copy of this form, when completed by the employing office, together with the FEGLI booklet . . . constitute the employee’s Certificate of Insurance.”  (Resp. Exhs. at 27). 
7. Mr. Sharek planned on canceling the additional coverage shortly after he voluntarily chose to purchase the Optional coverage.  Mr. Sharek planned to then add the Optional coverage just before retirement without having to undergo a physical.  (Petition for Hearing; Pet. Exh. 1). 
8. Mr. Sharek’s first Statement of Earnings and Leave showed that the Basic premium was deducted, but not the Option B premium (Resp. Exhs. at 46; Pet. Exh. 1, ¶ 7).  Mr. Sharek’s Standard Form 50s (SF 50s), Statement of Personnel Action, also showed that only the premiums for Basic insurance, but not the Option B premiums, were being collected (SF 50s (filed on October 21, 2020); Pet. Exh. 1; Petition for Hearing at 1-2).
9. Mr. Sharek did not cancel the Optional coverage during his sixteen years of employment with the IRS (Pet. Exh. 1, ¶ 8; Petition for Hearing at 1).  During that time, the IRS collected the employee FEGLI premium for Basic coverage, but not the employee FEGLI premium for the additional Option B coverage.  More than 400 separate Statements of Earnings and Leave showed that the IRS deducted the premiums for Basic insurance, but not the additional premiums for Option B (Pet. Exh. 1; Resp. Exhs. at 46-456).
10. Every year from 2004 through 2019, the IRS provided Mr. Sharek with an Annual Statement of Benefits which stated that he had Basic coverage but not Option B coverage (Pet. Exh. 1, ¶ 11). ⁵
11. The IRS reviewed Mr. Sharek’s records as part of a review for retirement eligible employees.  During the review, the IRS discovered that it had not withheld the Option B premiums.  The IRS notified Mr. Sharek of this error by letter dated September 6, 2019.  (Petition for Hearing at 1; Pet. Exh. 6). 
12. The IRS issued Mr. Sharek two invoices for the unpaid Option B premiums.  The first invoice for $51,632.70 was manually generated and covered pay period 21-2003 through pay period 20-2018.  The second invoice for $7,484.40, which was generated by the IRS’s payroll system, covered pay period 21-2018 through pay period 17-2019.  In total, the IRS initially sought to collect $59,117.10.  Subsequently, the IRS found a $9.45 error and determined that the correct amount was $59,107.65.  (Resp. Exhs. at 3, 17, 472-84).
13. Mr. Sharek requested that his Option B coverage be cancelled retroactive to November 2003.  The IRS only partially approved the request, cancelling the coverage effective September 1, 2019.  (Petition for Hearing at 18-20).
14. Prior to collecting the money from Mr. Sharek, the IRS forwarded the premiums for Option B coverage to the Office of Personnel Management (OPM) (Resp. Exhs. at 485). ⁶ 
15. The IRS provided Mr. Sharek notice of its intention to collect the assessed debts (Petition for Hearing at 13).
16. Mr. Sharek filed a timely Petition challenging the assessed debts which was docketed as IRS 20-66.  Because the IRS issued two separate invoices, Mr. Sharek confirmed that he wanted to challenge both debts in his Revised Petition dated July 30, 2020.

DECISION

Procedural Background
Mr. Sharek filed a motion for summary judgment.  After the parties and I discussed the motion, they agreed that the case should be decided on the written record without a hearing.  See Order and Memorandum of Telephone Conference dated August 7, 2020.
During a telephone conference with the parties, Mr. Sharek said that he had all the documents he needed to present his case.  Id.; see also 5 U.S.C. § 5514.  Later, however, Mr. Sharek argued that the IRS had not provided the SF 50s he had requested.  Notwithstanding Mr. Sharek’s earlier representation and his access to the SF 50s in his electronic personnel file, I stayed the proceedings and ordered the IRS to produce the SF 50s.  The IRS produced the SF 50s. 

During the pendency of these proceedings, Mr. Sharek asked for a stay so that he could retain legal counsel.  The stay was granted, but ultimately, Mr. Sharek did not retain legal counsel and continued to represent himself.
The IRS’s initial burden of proof
In a case involving FEGLI premiums, the IRS must establish that Mr. Sharek was enrolled during the period in which it seeks the premiums and that it failed to collect those premiums from Mr. Sharek during the same coverage period.  See, e.g., May Ferguson, O 13-369, 2014 WL 12807913 (April 21, 2014); George A. Santana, DCA 11-315, 2012 WL 13034246 (June 12, 2012).  For the Optional insurance, the applicable regulations provide:
When an agency withholds less than or none of the proper amount of Optional life insurance deductions from an individual’s pay, annuity, or compensation, the agency must submit an amount equal to the uncollected deductions required under 5 U.S.C. [§§] 8714a, 8714b, and 8714c to OPM for deposit in the Employees’ Life Insurance Fund. 

5 C.F.R. § 870.402(f).  In addition, the applicable statute provides:  “If the agency does not collect the Optional life insurance and waives the debt, the agency must submit an amount equal to the uncollected premiums to the Office of Personnel Management for deposit in the Employees’ Life Insurance Fund.”  5 U.S.C. § 8714a(d)(2).  OPM “has the overall responsibility for administration of the FEGLI program.”  See FEGLI Handbook at 15 (June 2019), found at https://www.opm.gov/healthcare-insurance/life-insurance/reference-materials/publications-forms/feglihandbook.pdf; ⁷ see also 5 C.F.R. Part 870.  OPM specifically addresses several possible errors, including underdeductions for Optional insurance (FEGLI Handbook at 71-72).
The FEGLI Handbook provides:
When too little money – or no money – has been withheld from your pay, your payroll office must remit the payment to OPM no later than 60 calendar days after the date it determines the amount of the underdeduction.  This payment must be made to OPM regardless of whether or when your employing office recovers the underdeduction from you.
You [the employee] had coverage which would have been payable if you had died.
OPM then gives examples of underdeductions:
Example # 1
Angie was a new employee hired into a FEGLI-eligible position.  She did not submit a SF 2817 “Life Insurance Election.”  She is automatically eligible, however, for Basic, but her employing agency erroneously failed to enroll her or to withhold premiums.
Several years later she dies, and the agency discovers the error.  The agency should certify the Basic insurance to OFEGLI [Office for FEGLI] and recover the premiums from her last pay period of pay, her lump sum annual leave, or her estate.
Example # 2
Dave has Basic and Option A coverage.  During an open season he newly elects Basic and 5x Option B.  Seven years later his employing agency conducts an audit of his coverage and discovers they did not process the Option A cancellation or the newly elected 5X Option B coverage.
Dave has Basic, Option A, and 5X Option B.  He has Option A because incontestability applies; he had erroneous Option A coverage for which he continued to pay premiums.  He also has 5X Option B because he validly elected the coverage seven years ago.  His agency should calculate the Amount of Option B withholding and send it to OPM within 60 days of the discovery of the error.  The agency can offer due process rights to Dave before beginning collection of the retroactive Option B premiums from his pay.  Option A also can be cancelled, but only prospectively, not retroactively. 
FEGLI Handbook at 71 (italics in original, bold emphasis added).  Here, the agency provided evidence showing that it forwarded the premiums to OPM thus establishing a debt.
Mr. Sharek does not contest that he signed SF 2817 which was also signed by an authorized IRS representative.  Grooms v. Office of Personnel Management, 154 F3d. 181, 185 (4th Cir. 1998)(“the SF 2817 is conclusive and there is no reason for us to look beyond it.”).  Mr. Sharek agrees that on the day he signed the form he intended to be bound by it.  Accord Grooms, 154 F3d. at 184-85 (not selecting optional coverage on the SF 2817 will bind the employee and their heirs to the plain language).  The signed FEGLI form represents an enforceable agreement between the parties; thus, he was enrolled.  See Ferguson, O 13-369; Santana, DCA 11-315; In Re (Redacted) Claimant, No. 2010-WV-061002.2, 2010 WL 5775307 (D.O.H.A.C.A.B., Sept. 23, 2010)(erroneous underdeduction of FEGLI premiums results in a debt to the government because the employee received the benefit of the FEGLI coverage), recon. denied; accord Meehan v. United States Postal Service, 792 F. Supp. 18 (E.D.N.Y. 1992)(employee is bound by waiver of coverage on signed SF 2817).  The record also shows that the IRS did not collect the FEGLI premiums due for Option B, 5 times salary coverage.  Mr. Sharek’s situation is like FEGLI Handbook Example # 2.  He had a valid election for Option B.  The election remained valid until he either waived or canceled the coverage.  5 C.F.R. §§ 870.502(a), 870.505(a).
In Example # 2, the agency did not collect the FEGLI premiums for seven years.  Even though there is a difference between seven years and sixteen years, the difference does not change the rule.  As a matter of law, the employee owed the premiums. 
In addition, the IRS complied with the applicable regulations, 5 C.F.R. § 870.402(f) and Handbook Example # 2, by forwarding the premiums to OPM once it discovered the error.
The FEGLI Handbook leads to the conclusion that Mr. Sharek owes for the Option B insurance he voluntarily elected and did not cancel.  Based on the record, the IRS has met its initial burden of proof.
Mr. Sharek’s defenses
Mr. Sharek raises several arguments in his filings challenging the assessed debt. ⁸ 
First, Mr. Sharek argues that there was no contract between him and the government for the Option B coverage.  He argues that because he did not want the coverage, the contract was not formed.  An express contract “must be manifested by words, either oral or written, which contains agreement and/or mutual assent.”  Essen Mall Props. v. United States, 21 Cl. Ct. 430, 439 (1990).  The basic elements of contract formation are offer and acceptance.  See, e.g., Frankel v. United States, 118 Fed. Cl. 332, 335 (2014)(citing Restatement (Second) of Contracts § 22 (1981)).  The objective evidence shows that the government offered to sell insurance and Mr. Sharek accepted the offer. 
Mr. Sharek argues that he also had to receive notice from the IRS that a contract was formed, otherwise there was no contract.  The plain language of the SF 2817 provides:  “The employee’s copy of this form, when completed by the employing office, together with the FEGLI booklet . . . constitute the employee’s Certificate of Insurance.”  The form which identifies when a contract begins, does not say that Mr. Sharek had to receive a copy for there to be a contract.  Mr. Sharek does not explain why the plain language is inapplicable.
To support his notice argument, Mr. Sharek relies on the Restatement (Second) Contracts (1981), Section 56, Acceptance by Promise; Necessity of Notification to Offeror.
Section 56 provides:
Except as stated in § 69 [Acceptance by Silence or Exercise of Dominion] or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.
The Restatement’s Section 56 Comment provides:  “a. Necessity of notification.  Where the offeree has performed in whole or in part, notification to the offeror is not essential to acceptance, although failure to notify may discharge the offeror’s duty of performance. . . .”  Basically, Mr. Sharek argues that as the offeror his duty to pay is discharged because the IRS, as the offeree, did not provide notice of its acceptance.  Mr. Sharek flips the Restatement Section 56 on its head because he is not the offeror.
The preamble to the Federal Employee Group Life Insurance Act of 1954 (FEGLI Act) shows that Mr. Sharek was the offeree.  The preamble provides:  “To authorize the Civil Service Commission to make available group life insurance for civilian officers and employees in the Federal service, and for other purposes.”  68 Stat. 736 (August 17, 1954).  The preamble provides that the government is making insurance available (i.e., offering) insurance.  The employee is not offering insurance.
Consistent with the FEGLI Act, the SF 2817 provides:  “When you first become eligible for FEGLI, you may (1) elect Basic and any or all options, (2) elect Basic but waive all of the options, or (3) waive all life insurance coverage.”  The term “elect” is synonymous with acceptance.  The government is the offeror, and Mr. Sharek is the offeree.  Mr. Sharek therefore needed to notify the IRS that he accepted its offer to sell insurance, which he did when he signed the SF 2817.  The agency did not have to notify Mr. Sharek. ⁹
Contrary to Mr. Sharek’s notice argument, the FEGLI Act also provides that the employee shall provide notice if they do not want coverage.  5 U.S.C. § 8702(b).  Additionally, the regulations provide that “Optional insurance is effective the first day an employee is on duty in pay status after the employing office receives the election.”  5 C.F.R. § 870.504(d).  By the terms of the SF 2817 and the regulations, Mr. Sharek had to provide notice of his acceptance.  The regulations do not require an agency to notify the employee that a contract has been formed.  The IRS received the form as shown by the signature by the authorized agency official on December 1, 2003.  Even if Mr. Sharek did not receive a copy of the completed SF 2817, a contract was still formed.  In summary, Mr. Sharek’s contract and notice arguments are not persuasive. 
Second, Mr. Sharek argues that he was not enrolled in FEGLI, and therefore he should not owe the premiums.  This argument is inconsistent with the regulations.  When Mr. Sharek accepted the IRS’s offer, and the IRS then signed the SF 2817, he was enrolled effective the first day in pay status.  5 C.F.R. § 870.504(d).  As discussed above, the FEGLI Handbook recognizes the difference between being enrolled and the collection of premiums.  See also Chanda v. District of Columbia, No. Civ. 90-2187, 1992 WL 212373 (D.D.C., Aug. 20, 1992) (the incorrect collection of premiums does not prove enrollment). ¹⁰  Under the regulations, if Mr. Sharek died without paying the premiums, his heirs would receive the insurance payment, including the Optional coverage (minus the premiums as shown in Example 1 above).  The IRS’s failure to collect the Option B premiums did not affect his enrollment.
Third, Mr. Sharek argues that the contract is only valid as to Basic coverage but not the Optional coverage because the IRS only collected the Basic premiums.  Mr. Sharek does not identify any legal authority supporting his argument that the IRS’s failure to collect Optional premiums would negate that part of the contract for life insurance.  The statutes and regulations make no such distinction between types of premiums, and as stated above, the failure to collect premiums does not affect coverage. 
Fourth, Mr. Sharek argues that under the doctrine of equitable estoppel the IRS is precluded from collecting the debt because of its repeated errors in sending him notices and his detrimental reliance on the errors in those notices.  Mr. Sharek argues that he was entitled to rely on the more than 400 notices showing that he was not enrolled in Option B.  This argument, however, is not supported by the law.  A debt created by administrative error, even without the knowledge of the debtor, is collectible under the Debt Collection Act.  See, e.g., Nancy L. Petitti, DCA 09-449, 2010 WL 11570303 (April 30, 2010).  And while the number of notices seems large, it was based on the initial administrative error of failing to enter the Optional coverage into the personnel system, which resulted in the error continuing for 16 years. 
To the extent Mr. Sharek says the IRS is totally to blame, the argument is unpersuasive.  He voluntarily chose the Optional coverage and then failed to withdraw the election.  I am unpersuaded by his detrimental reliance argument. ¹¹
To the extent Mr. Sharek may be arguing that collecting the debt is fundamentally unfair and inequitable, I consider the argument to mean that collecting the debt is “against equity and good conscience” which is referenced in the FEGLI statute.  5 U.S.C. § 8714a(d)(2).  More specifically,
If an agency fails to withhold the proper cost of optional insurance from an individual’s salary, compensation or retirement annuity, the collection of amounts properly authorized may be waived by the agency if, in the judgment of the agency, the individual is without fault and recovery would be against equity and good conscience.  However, if the agency so waives the collection of any unpaid amount, the agency shall submit an amount equal to the uncollected amount to [OPM] for deposit to the Employees’ Life Insurance Fund.
Id.
The Department of Treasury (of which the IRS is part) has implemented regulations for collecting debts under the Debt Collection Act and waiver of debts.  Compare 5 U.S.C. § 5514 with § 5584; see also 5 C.F.R. § 5.12; Treasury Directive 34-01 (April 22, 2015); Internal Revenue Manual 1.35.113.2 (March 29, 2016). ¹²  The authority to grant a waiver is separate and distinct from the legal authority a hearing officer has under the Debt Collection Act.  5 U.S.C. § 5514; 5 C.F.R. § 5.12(f); Karen M. Ennis, DCA-33, 1989 WL 1843894 (August 29, 1989); Joyce Ann v. United States Postal Service, AO 14-160, 2015 WL 13647612 (January 7, 2015).  The Debt Collection Act does not authorize me to waive a debt based on equity.  Young v. United States Postal Service, AO 13-327, 2018 WL 3439193 (June 13, 2018); Lofton v. United States Postal Service, AO 13-313, 2018 WL 2688562 (May 18, 2018).  Rather, waiver is a decision for the IRS itself.

ORDER

The Petition is denied.  The IRS may collect the $59,107.65 debt by involuntary administrative offset.

Peter F. Pontzer
Administrative Judge