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Model Report

Evaluating Claims of Inability to Pay from Individuals

Last Revision Date: 07/11/2011 View as PDF
General Information Back to Top
Model Abbreviated Name:

Model Extended Name:

Evaluating Claims of Inability to Pay from Individuals
Model Overview/Abstract:
Since its development in 1994, the INDIPAY computer model has been used extensively by EPA staff to evaluate claims from individuals that they cannot afford civil penalties. INDIPAY examines a party’s tax return data and additional financial data that the individual submits directly to the EPA. The model also requires the user to input a proposed civil penalty amount. INDIPAY determines how much available cash flow the party has and also determines how much money the party could afford to borrow. The user is directed use to the lower of these two numbers. The model does not require any knowledge of accounting, finance or computers. The model is designed for settlement negotiations. Should EPA and a party fail to agree on what the party can afford, the EPA would use an expert witness to testify about the party's ability to pay in a trial or hearing.
Keywords: Ability to pay
Model Technical Contact Information:
Agency Contact:
Jonathan D. Libber
Office of Enforcement and Compliance Assurance (OECA)
Office of Civil Enforcement
Special Litigation and Projects Division (SLPD)
U.S. EPA/OECA (Mail Code: 2248-A)
(202) 564-6102

Jonathan Libber of the US EPA/OECA supervised the model's development and supervises its revision and upgrades. Industrial Economics, Inc. of Cambridge, MA has been responsible for all development and improvement of the model.

Model Homepage: http://www.epa.gov/compliance/civil/econmodels/index.html
Substantive Changes from Prior Version: In late July 2008 we added a revised retiree analysis. The current version has something, but it is not particularly useful. The new approach should substantially improve its utility. We will also include our annual update of the model’s financial values at the same time.
Plans for further model development: Just an annual update of the financial values which should occur in about a year from now.

User Information Back to Top
Technical Requirements
Computer Hardware
Windows 95 or more recent version of Windows
Compatible Operating Systems
Windows 95 or more recent version of Windows
Other Software Required to Run the Model
Model has a GUI.
Download Information
INDIPAY is available to be downloaded from U.S. EPA, Office of Compliance and Enforcement Assurance (OECA), Office of Civil Enforcement, Special Litigation and Projects Division (SLPD).
Using the Model
Basic Model Inputs
All data is taken from the individual’s tax returns and form the individual fills out. Once the data is entered, the user evaluates the ability of the individual to pay a proposed civil penalty.
Basic Model Outputs
The model will determine, based upon the family’s extra cash and ability to borrow, what penalty or clean-up payment, if any, is affordable.
User Support
User's Guide Available?
Documentation can be downloaded.

The help system provides an overview of the model and provides a comprehensive explanation of the model’s inputs, related model issues, and how to understand the model’s outputs. The help system can be read in advance and/or accessed at any time the model is being used be pressing the F1 key. Once accessed, the help system will open up the topic most relevant to the part of the model the user is currently working on.

Availability of User Support
Federal, State and local enforcement agency personnel can contact the Helpline at 888 326-6778. Private parties can contact Jonathan Libber of the EPA at (202) 564-6102
User Qualifications
User needs only moderate level of technical education and/or modeling experience. While users can self teach themselves using the on-line help system. A 3.5-hour training course is recommended to ensure that inputs are correct and that output is understood, but this course is only available for Federal, State or local government personnel.

Model Science Back to Top
Problem Identification
Many of the defendants in our enforcement actions are individuals. Most of them will at some time claim that they cannot afford the penalties and/or environmental clean up. Since most of our enforcement professionals do not have the capability of reviewing an individual’s financial records to determine the validity of this inability to pay claim, EPA developed a relatively simple tool that can help us evaluate these claims.
Summary of Model Structure and Methods
The model first looks at the claimant’s financial resources and expenses to determine the family’s excess annual cash flow. Then it looks at the family’s ability to fund that penalty payment or clean up cost from the excess cash flow or by borrowing that same money over the next five years. It then takes the lesser of the two numbers as the maximum affordable amount.
Model Evaluation
Contractor verified that calculations were similar to those an independent financial analyst might perform.

Key Limitations to Model Scope
While the model is very helpful, it has some important limitations. First, it does very few data quality checks. All expenses are accepted at face value even if they might be unreasonable (e.g. family claims annual travel expenses of $30,000 to check on their condo in Aruba). Second, it only looks at cash flow and the ability to borrow for non retired applicants. It does not evaluate whether any family assets could be liquidated (e.g. a certificate of deposit for $300,000 would not be included in an INDIPAY analysis). For retired applicants, it does consider their assets. Third, it assumes the family income over the next 5 years will be substantially similar to the information submitted. If the main breadwinner lost his or her job after the last tax year closed, the model will give an ability to pay that is artificially high.

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