Sorenson v. Secretary of the Treasury

Background

Marie Sorenson sued after the Internal Revenue Service withheld part of her family’s 1981 tax refund and sent $1,132 to the State of Washington. Her husband owed past-due child support that had been assigned to the State when his former wife applied for welfare. The Sorensons had claimed a refundable earned‑income credit on their joint return, which reduced tax liability and produced an overpayment. Petitioner argued that the portion of the refund attributable to the earned‑income credit could not be intercepted under the tax‑intercept provisions added by the Omnibus Budget Reconciliation Act of 1981. Lower courts and the Ninth Circuit rejected that argument and allowed interception.

Reasoning

The Court addressed whether excess earned‑income credits are “overpayments” payable as tax refunds and therefore subject to the Section 6402(c) offset that requires reduction of refunds to cover past‑due support. The majority relied on the Internal Revenue Code’s definition of an overpayment and on the interconnected refund procedures, concluding that refundable earned‑income credits are disbursed through the tax‑refund process and thus may be intercepted. The Court affirmed the Ninth Circuit and rejected the view that the intercept scheme should be read narrowly to protect the earned‑income credit’s welfare objectives.

Real world impact

The ruling resolves a split among federal appeals courts and allows states to collect assigned child‑support by redirecting refundable tax credits. Low‑income families who receive earned‑income credits may see part of their refunds applied to a former spouse’s support debt. Congress could change that outcome by revising the statutes, but the Court treated the statutory language as controlling.

Dissents or concurrances

Justice Stevens dissented, arguing Congress likely did not intend OBRA to divert earned‑income credit refunds from low‑income families to state treasuries and would have preferred the Second and Tenth Circuits’ narrower reading.