B-121975, JUNE 13, 1955, 34 COMP. GEN. 672

B-121975: Jun 13, 1955

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ALTHOUGH PROCEEDS DERIVED FROM LIQUIDATED CAPITAL ASSETS ARE NOT CONSIDERED INCOME AVAILABLE FOR THE PARENT'S SUPPORT. THE MEMBER'S CONTRIBUTION IS LESS THAN ONE-HALF OF SUCH EXPENSES. SUCH DEPRECIATION RESERVES RECEIVED BY THE PARENTS OF A SERVICEMAN WHO IS CLAIMING BASIC ALLOWANCE FOR QUARTERS ON ACCOUNT OF DEPENDENT PARENTS MUST BE REGARDED AS AVAILABLE FOR THEIR LIVING EXPENSES SO THAT THE MEMBER'S CONTRIBUTION HAS TO BE IN EXCESS OF ALL OTHER INCOME. 1955: REFERENCE IS MADE TO LETTER DATED NOVEMBER 1. DISCUSSION PERTAINING TO THE QUESTIONS UPON WHICH THE DECISION IS DESIRED IS SET FORTH IN COMMITTEE ACTION NUMBER 107. A COPY OF WHICH WAS TRANSMITTED WITH SUCH LETTER. IS AS FOLLOWS: THAT FOR THE DURATION OF THIS ACT THAT PART OF THE SECOND SENTENCE OF SECTION 102 (G) OF THE ACT OF OCTOBER 12.

B-121975, JUNE 13, 1955, 34 COMP. GEN. 672

UNIFORMED SERVICES - DEPENDENCY ALLOWANCES - DEPENDENTS ASSISTANCE ACT OF 1950 - LIQUIDATED CAPITAL ASSETS OR DEPRECIATION RESERVES IN DETERMINING DEPENDENCY OF PARENTS OF MEMBERS OF THE UNIFORMED SERVICES UNDER DEPENDENCY ALLOWANCE STATUTES PRIOR TO THE DEPENDENTS ASSISTANCE ACT OF 1950, THE MEMBER'S CONTRIBUTION TO THE PARENT'S SUPPORT MUST BE MORE THAN ONE-HALF OF THE PARENT'S LIVING EXPENSES, AND ALTHOUGH PROCEEDS DERIVED FROM LIQUIDATED CAPITAL ASSETS ARE NOT CONSIDERED INCOME AVAILABLE FOR THE PARENT'S SUPPORT, WHERE THE INCOME FROM SUCH PROCEEDS PLUS THE PARENT'S INCOME FROM SOURCES OTHER THAN THE CONTRIBUTION OF THE MEMBER EXCEED ONE-HALF OF THE PARENTS'S LIVING EXPENSES, AND THE MEMBER'S CONTRIBUTION IS LESS THAN ONE-HALF OF SUCH EXPENSES, NO ALLOWANCE FOR QUARTERS MAY BE PAID. IN THE ABSENCE OF A COURT RULING UNDER THE DEPENDENCY ALLOWANCE STATUTES CONCERNING THE ALLOWANCE FOR DEPRECIATION RESERVES TO BE DEDUCTED FROM INCOME DERIVED FROM RENTAL OF PROPERTY OR THE OPERATION OF A BUSINESS, SUCH DEPRECIATION RESERVES RECEIVED BY THE PARENTS OF A SERVICEMAN WHO IS CLAIMING BASIC ALLOWANCE FOR QUARTERS ON ACCOUNT OF DEPENDENT PARENTS MUST BE REGARDED AS AVAILABLE FOR THEIR LIVING EXPENSES SO THAT THE MEMBER'S CONTRIBUTION HAS TO BE IN EXCESS OF ALL OTHER INCOME, INCLUDING DEPRECIATION RESERVES, IN ORDER TO BE ENTITLED TO BASIC ALLOWANCE FOR QUARTERS.

ASSISTANT COMPTROLLER GENERAL WEITZEL TO THE SECRETARY OF DEFENSE, JUNE 13, 1955:

REFERENCE IS MADE TO LETTER DATED NOVEMBER 1, 1954, WITH ENCLOSURE, FROM THE ASSISTANT SECRETARY OF DEFENSE ( COMPTROLLER) REQUESTING A DECISION "AS TO WHETHER OR NOT PROCEEDS DERIVED FROM LIQUIDATING CAPITAL ASSETS, OR RESERVES, SET ASIDE FOR DEPRECIATION, OBTAINED FROM THE RENTAL OF PROPERTY OR OPERATION OF A BUSINESS, WHICH PARENTS OF A SERVICEMAN USE TO PAY CURRENT LIVING EXPENSES, MUST BE CONSIDERED INCOME TO THE PARENTS IN DETERMINING THEIR DEPENDENCY UPON THE SERVICEMAN FOR SUPPORT WITHIN THE MEANING OF SECTION 1 OF THE DEPENDENTS ASSISTANCE ACT OF 1950.' DISCUSSION PERTAINING TO THE QUESTIONS UPON WHICH THE DECISION IS DESIRED IS SET FORTH IN COMMITTEE ACTION NUMBER 107, MILITARY PAY AND ALLOWANCE COMMITTEE, DEPARTMENT OF DEFENSE, A COPY OF WHICH WAS TRANSMITTED WITH SUCH LETTER.

SECTION 1 OF THE DEPENDENTS ASSISTANCE ACT OF 1950, 64 STAT. 794, 50 U.S.C. APP. 2201, IS AS FOLLOWS:

THAT FOR THE DURATION OF THIS ACT THAT PART OF THE SECOND SENTENCE OF SECTION 102 (G) OF THE ACT OF OCTOBER 12, 1949 ( PUBLIC LAW 351, EIGHTY- FIRST CONGRESS), WHICH READS " * * * AND ACTUALLY RESIDES IN THE HOUSEHOLD OF SAID MEMBER" IS SUSPENDED: PROVIDED, THAT THE DEPENDENCY OF THE FATHER OR MOTHER AS REQUIRED BY SAID SECTION 102 (G) SHALL BE DETERMINED ON THE BASIS OF AN AFFIDAVIT SUBMITTED BY SUCH FATHER OR MOTHER, AND SUCH OTHER EVIDENCE AS THE SECRETARY CONCERNED MAY DEEM NECESSARY UNDER SUCH REGULATIONS AS HE MAY PRESCRIBE, AND NO SUCH FATHER OR MOTHER SHALL BE DEEMED DEPENDENT UNLESS---

(1) THE MEMBER OF THE UNIFORMED SERVICES CLAIMING SUCH DEPENDENCY HAS PROVIDED OVER ONE-HALF OF THE SUPPORT OF SUCH FATHER OR MOTHER FOR SUCH PERIOD OF TIME AS THE SECRETARY CONCERNED MAY PRESCRIBE; OR

(2) IN THE CASE OF CLAIMED DEPENDENCY ARISING BY REASON OF CHANGED CIRCUMSTANCES AFTER THE ENTRANCE OF SUCH MEMBER INTO ACTIVE SERVICE SUBSEQUENT TO THE EFFECTIVE DATE OF THIS ACT, SUCH FATHER OR MOTHER BECOMES IN FACT DEPENDENT UPON SUCH MEMBER FOR OVER ONE-HALF OF HIS OR HER SUPPORT.

THE QUESTIONS, AS STATED IN COMMITTEE ACTION NUMBER 107, ARE AS FOLLOWS: QUESTION 1:

WHEN THE PARENTS OF A SERVICEMAN ARE IN FACT LIQUIDATING CAPITAL ASSETS, AND USING THE PROCEEDS TO PAY FOR CURRENT LIVING EXPENSES, MUST THE SERVICEMAN'S CONTRIBUTION TO HIS PARENTS BE IN EXCESS OF THE PROCEEDS OF SUCH LIQUIDATION PLUS INCOME FROM OTHER SOURCES, IN ORDER FOR HIM TO BE ENTITLED TO BASIC ALLOWANCE FOR QUARTERS? QUESTION 2:

IN THOSE CASES WHERE PARENTS OF A SERVICEMAN DERIVE INCOME FROM THE RENTAL OF PROPERTY, OR FROM THE OPERATION OF A BUSINESS WHEREIN A RESERVE FOR DEPRECIATION WOULD NORMALLY BE SET ASIDE FROM YEAR TO YEAR FOR REPLACEMENT OF CAPITAL ASSETS, MUST SUCH RESERVE FOR DEPRECIATION BE REGARDED AS AVAILABLE TO THE PARENTS TO MEET THEIR LIVING EXPENSES SO THAT THE SERVICEMAN'S CONTRIBUTION TO HIS PARENTS HAS TO BE IN EXCESS OF ALL OTHER INCOME, INCLUDING THE AMOUNT NORMALLY RESERVED FOR DEPRECIATION, IN ORDER FOR HIM TO BE ENTITLED TO BASIC ALLOWANCES FOR QUARTERS?

IN THE DISCUSSION OF SUCH QUESTIONS, APPEARING IN COMMITTEE ACTION NUMBER 107, IT IS STATED:

IN ORDER TO ESTABLISH DEPENDENCY ON A SERVICEMAN, IT IS NOT NECESSARY THAT THE PARENTS FIRST EXHAUST THEIR CAPITAL ASSETS. SEE HOLMES V. U.S., 100 CT. CLS. 304, AND CASES CITED THEREIN. SIMILARLY, IN THOSE CASES WHERE THE PARENTS ARE IN FACT WITHDRAWING MONEY FROM THE BANK OR OTHERWISE DEPLETING CAPITAL ASSETS, THE MILITARY SERVICES HAVE BEEN ALLOWING CLAIMS FOR BASIC ALLOWANCE FOR QUARTERS BASED ON DEPENDENT PARENTS EVEN THOUGH SUCH WITHDRAWALS MAY BE IN EXCESS OF THE SERVICEMAN'S CONTRIBUTION, SINCE TO HOLD OTHERWISE WOULD DEPRIVE THE SERVICEMAN OF BASIC ALLOWANCE FOR QUARTERS, REDUCE THE AMOUNT THAT HE COULD CONTRIBUTE TO HIS PARENTS, AND THUS IN EFFECT FORCE THEM TO LIQUIDATE THEIR CAPITAL ASSETS PRIOR TO ESTABLISHING DEPENDENCY.

IT HAS BEEN HELD THAT FOR THE DURATION OF THE DEPENDENTS ASSISTANCE ACT OF 1950, AS EXTENDED ( AUGUST 1, 1950 TO JULY 1, 1955), THE AUTHORITY TO MAKE FINAL AND CONCLUSIVE DETERMINATIONS OF ALL QUESTIONS OF DEPENDENCY AND RELATIONSHIP WHICH MAY ARISE IN CONNECTION WITH PAYMENTS OF BASIC ALLOWANCE FOR QUARTERS TO MEMBERS OF THE UNIFORMED SERVICES, IN THOSE CASES WHERE THE PAYMENT IS BASED ON THE DEPENDENCY OF A PARENT, IS VESTED IN THE SECRETARY OF THE DEPARTMENT CONCERNED. 30 COMP. GEN. 282. STATED, AND FOR THE REASONS STATED, BY THE MILITARY PAY AND ALLOWANCE COMMITTEE, HOWEVER,"IT WOULD SEEM DESIRABLE THAT THE STANDARDS OF THE SERVICES AND THE GENERAL ACCOUNTING OFFICE FOR DETERMINING THE DEPENDENCY OF PARENTS BE AS UNIFORM AS IS PRACTICABLE.'

IN ORDER TO CONSTITUTE A PARENT A "DEPENDENT" FOR PAY AND ALLOWANCE PURPOSES, UNDER THE DEPENDENTS ASSISTANCE ACT OF 1950, IT MUST BE SHOWN THAT THE SERVICE MEMBER HAS PROVIDED "OVER ONE-HALF OF THE SUPPORT" OF THE PARENT, AND, UNDER THE CAREER COMPENSATION ACT OF 1949, THAT THE PARENT IS "IN FACT DEPENDENT" ON THE MEMBER FOR "OVER HALF OF HIS OR HER SUPPORT.' SECTION 4 OF THE PAY READJUSTMENT ACT OF 1942, 56 STAT. 361, INCLUDED IN THE TERM "DEPENDENT" THE FATHER OR MOTHER OF THE PERSON CONCERNED PROVIDED HE OR SHE WAS IN FACT DEPENDENT ON SUCH PERSON FOR HIS OR HER "CHIEF SUPPORT.' THE WORDS "OVER HALF OF HIS OR HER SUPPORT," AS USED IN THE CAREER COMPENSATION ACT OF 1949, MEAN ESSENTIALLY THE SAME THING. THE COURTS AND THE ACCOUNTING OFFICERS CONSISTENTLY HAVE HELD THAT THE TERM "CHIEF SUPPORT" SHALL BE GIVEN ITS ORDINARY AND WELL-KNOWN MEANING, AND THAT SUCH TERM MEANS "MAIN" SUPPORT OR "PRINCIPAL" SUPPORT, THAT IS, WHERE THE PARENT IS DEPENDENT ON THE OFFICER FOR "MOST" OR THE "GREATER" PART OF THE FUNDS NECESSARY FOR HIS OR REASONABLE SUPPORT. RIEGER V. UNITED STATES, 69 C.1CLS. 632; ODLIN V. UNITED STATES, 74 C.1CLS. 633, GEER V. UNITED STATES, 76 C.1CLS 259; AND WHITING V. UNITED STATES, 80 C.1CLS. 662. WHILE, ORDINARILY, A MEMBER WILL BE CONSIDERED THE CHIEF SUPPORT OF HIS PARENT IF HIS AVERAGE MONTHLY CONTRIBUTIONS EXCEED 50 PERCENT OF THE PARENT'S AVERAGE MONTHLY LIVING EXPENSES, AND THE AVERAGE MONTHLY INCOME OF THE PARENT FROM ALL OTHER SOURCES IS LESS THAN 50 PERCENT OF HIS AVERAGE MONTHLY LIVING EXPENSES, THE PARENT MAY NOT BE CONSIDERED A DEPENDENT IF THE PARENT'S AVERAGE MONTHLY INCOME FROM ALL OTHER SOURCES EXCEEDS 50 PERCENT OF THE PARENT'S AVERAGE MONTHLY LIVING EXPENSES, IRRESPECTIVE OF WHETHER THE MEMBER'S CONTRIBUTIONS EXCEED 50 PERCENT OF SAID MONTHLY LIVING EXPENSES. COMPARE THE ODLIN CASE, CITED ABOVE. THAT CASE THE OFFICER CONTRIBUTED $170 A MONTH TO HIS MOTHER WHO HAD AN INCOME OF HER OWN OF $80 A MONTH, AND THE COURT STATED, AT PAGE 638:

THE FACT THAT THE PLAINTIFF'S MONTHLY CONTRIBUTION TO HIS MOTHER WAS IN EXCESS OF HER INDEPENDENT INCOME DOES NOT OF ITSELF ESTABLISH THE FACT THAT SHE WAS DEPENDENT ON HIM FOR HER CHIEF SUPPORT. IT MUST BE SHOWN THAT HIS CONTRIBUTION WAS REQUIRED FOR HER NECESSARY AND PROPER SUPPORT, AND, THAT IT CONSTITUTED THE CHIEF PART OF SUCH SUPPORT. THE AMOUNT REQUIRED FOR THE NECESSARY AND PROPER SUPPORT OF THE PLAINTIFF'S MOTHER NOT BEING SHOWN, THE COURT CAN NOT SAY THAT THE AMOUNT NECESSARY FOR HER SUPPORT, ABOVE THE INCOME OF $80 PER MONTH RECEIVED BY HER, WAS SUCH THAT SHE WAS DEPENDENT ON THE PLAINTIFF FOR HER "CHIEF SUPPORT.' ( ITALICS SUPPLIED.)

AND IN THE WHITING CASE, ABOVE CITED, THE COURT STATED, AT PAGE 665:

* * * THAT IT IS INCUMBENT ON THE OFFICER SEEKING THE BENEFIT OF ITS (THE STATUTE-S) PROVISIONS TO ESTABLISH (1) THE REASONABLE AND NECESSARY LIVING EXPENSES OF THE MOTHER WHOSE DEPENDENCY IS CLAIMED, AND (2) TO ESTABLISH THAT HIS CONTRIBUTION TO HER SUPPORT, OVER AND ABOVE THE AMOUNT OF HER INCOME FROM OTHER SOURCES, WAS SUCH AS TO MAKE HER DEPENDENT ON HIM FOR HER CHIEF SUPPORT. IN OTHER WORDS, IT MUST BE SHOWN THAT THE AMOUNT REQUIRED FOR HER REASONABLE AND NECESSARY LIVING EXPENSES WAS CONTRIBUTED CHIEFLY BY THE PLAINTIFF OFFICER. * * *

IN DETERMINING WHETHER A PARENT WAS IN FACT DEPENDENT UPON AN OFFICER OF THE UNIFORMED SERVICES UNDER THE LAWS IN EFFECT PRIOR TO THE DEPENDENTS ASSISTANCE ACT OF 1950, AUTHORIZING THE PAYMENT OF INCREASED RENTAL AND SUBSISTENCE ALLOWANCES AND INCREASED BASIC ALLOWANCE FOR QUARTERS TO OFFICERS WITH A DEPENDENT PARENT, WE HAVE CONSISTENTLY FOLLOWED THE RULE ESTABLISHED IN THE HOLMES CASE, 100 C.1CLS. 304, THAT A PARENT DOES NOT HAVE TO EXHAUST HIS PRINCIPAL (CAPITAL ASSETS) AS A CONDITION PRECEDENT TO THE ESTABLISHMENT OF HIS DEPENDENCY. ON THE BASIS OF THE RULE LAID DOWN IN THE HOLMES CASE, THE PROCEEDS DERIVED FROM LIQUIDATED CAPITAL ASSETS ARE NOT CONSIDERED INCOME AVAILABLE FOR THE PARENT'S SUPPORT. HOWEVER, UNDER THE COURT DECISIONS QUOTED ABOVE, IN ORDER TO CONSTITUTE A PARENT A "DEPENDENT," IT MUST BE SHOWN THAT THE MEMBER'S CONTRIBUTION TO THE PARENT'S SUPPORT IS MORE THAN ONE-HALF OF THE PARENT'S LIVING EXPENSES. HENCE, IN ANY CASE WHERE THE PROCEEDS OF THE PARENT'S CAPITAL ASSETS PLUS THE PARENT'S INCOME FROM SOURCES OTHER THAN THE MEMBER EXCEED ONE-HALF OF THE PARENT'S LIVING EXPENSES, AND THE MEMBER'S CONTRIBUTION IS LESS THAN ONE-HALF OF THOSE EXPENSES, WE COULD NOT PROPERLY CONSIDER THE PARENT AS BEING DEPENDENT ON THE MEMBER FOR OVER ONE-HALF OF HIS OR HER SUPPORT.

RESPECTING THE SECOND QUESTION, WE GENERALLY HAVE VIEWED THE AMOUNT OF INCOME DERIVED FROM THE RENTAL OF PROPERTY AS THE AMOUNT REMAINING AFTER ALLOWING FOR THE COST OF MAINTAINING THE PROPERTY (OPERATING EXPENSES). IN THE CASE OF PAGE V. UNITED STATES, 73 C.1CLS. 626, 628, THE COURT, IN ARRIVING AT THE INCOME FROM RENTAL PROPERTY AVAILABLE TO THE PARENT FOR HER SUPPORT, INCLUDED IN THE EXPENSES INCIDENT TO THE MAINTENANCE OF SUCH PROPERTY INTEREST ON NOTE AND MORTGAGE, REPAIRS AND UPKEEP, STATE, COUNTY AND MUNICIPAL TAXES, FUEL, WATER RENT, AND INSURANCE. THE COURT FURTHER STATED, AT PAGE 631," IN DETERMINING THE QUESTION OF DEPENDENCY THE PLAINTIFF'S CONTRIBUTION SHOULD BE COMPARED WITH WHATEVER INCOME THE MOTHER RECEIVED FROM PROPERTIES OWNED BY HER IN EXCESS OF THE COST INCURRED IN THEIR MAINTENANCE.' ALSO SEE FREELAND V. UNITED STATES, 74 C.1CLS. 471; TOMLINSON V. UNITED STATES, 66 C.1CLS. 697.

UNDER THE INTERNAL REVENUE LAWS A TAXPAYER IS ALLOWED AS A DEPRECIATION DEDUCTION A "REASONABLE ALLOWANCE" FOR THE EXHAUSTION, WEAR AND TEAR OF PROPERTY HELD FOR THE PRODUCTION OF INCOME, COMPUTED UNDER METHODS SPECIFICALLY SET OUT IN THE STATUTE AND REGULATIONS ISSUED UNDER THE STATUTE, IN DETERMINING HIS TAXABLE ANNUAL INCOME. THE PURPOSE OF THE STATUTE ALLOWING DEDUCTIONS FOR DEPRECIATION IS TO PERMIT THE TAXPAYER CURRENTLY TO RECEIVE INCOME WHICH IS TAX FREE TO THE EXTEND THAT WEAR AND TEAR AND TIME DECREASE THE VALUE OF HIS INVESTMENT, OR WHAT IS TREATED AS HIS INVESTMENT, IN THE PROPERTY. REISINGER V. COMMISSIONER OF INTERNAL REVENUE, 144 F.2D 475. WHILE A TAXPAYER IS PERMITTED TO DEDUCT FROM HIS ANNUAL GROSS INCOME AN AMOUNT WHICH HE BELIEVES IS A ,REASONABLE ALLOWANCE" FOR DEPRECIATION OF PROPERTY HELD FOR THE PRODUCTION OF INCOME, IN DETERMINING HIS TAXABLE ANNUAL INCOME, THERE ARE VARIOUS METHODS UNDER WHICH SUCH DEDUCTIONS MAY BE COMPUTED; THERE OFTEN IS DOUBT AS TO WHETHER THE MONEY ACTUALLY IS INTENDED TO BE RETAINED AS A RESERVE; AND THERE FREQUENTLY IS UNCERTAINTY AS TO WHETHER THE RATE OF DEPRECIATION USED WILL BE ALLOWED BY THE INTERNAL REVENUE SERVICE AT A LATER DATE. HENCE, IN THE ABSENCE OF A REPORTED COURT CASE DEALING DIRECTLY WITH THE QUESTION PRESENTED, THE MATTER APPEARS TOO SPECULATIVE FOR US TO CONCLUDE, WITH RESPECT TO DEPENDENCY ALLOWANCE STATUTES, THAT AMOUNTS PLACED IN RESERVES FOR DEPRECIATION PROPERLY SHOULD BE EXCLUDED FROM THE MONTHLY INCOME NORMALLY AVAILABLE FOR CURRENT SUPPORT OF A PARENT IN DETERMINING WHETHER THE PARENT IS IN FACT DEPENDENT UPON THE SERVICE MEMBER FOR CHIEF SUPPORT OR OVER-HALF OF HIS OR HER SUPPORT.

ACCORDINGLY, BOTH QUESTIONS AS PRESENTED IN COMMITTEE ACTION NUMBER 107, ARE ANSWERED IN THE AFFIRMATIVE.