B-125362, NOVEMBER 3, 1955, 35 COMP. GEN. 268

B-125362: Nov 3, 1955

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AN EMPLOYEE WHO SUSTAINED LOSSES IN AN ACCOUNTING AND TAX BUSINESS WHICH HE ESTABLISHED DURING A PERIOD OF SEPARATION FROM THE SERVICE MAY HAVE SUCH LOSSES DEDUCTED FROM EARNINGS AS A PART-TIME EMPLOYEE OF A MERCHANTILE ORGANIZATION IN DETERMINING HIS BACK PAY UPON RESTORATION. HOWEVER LOSSES WHICH HE SUSTAINED IN A FARMING VENTURE UNRELATED TO HIS SEPARATION ARE NOT FOR DEDUCTION. CULLEN WAS SEPARATED FROM THE INTERNAL REVENUE SERVICE ON MAY 13. HE WAS RESTORED TO DUTY. THE EMPLOYEE'S REMOVAL WAS PROCEDURALLY INVALID. HE AVERS THAT DURING THAT PERIOD HE ESTABLISHED AND WAS ENGAGED IN HIS OWN ACCOUNTING AND TAX BUSINESS FROM WHICH HE SUSTAINED A NET LOSS OF $971.68. IT APPARENTLY IS MR. THE BASIC ISSUES RAISED BY THE FACTS RECITED IN YOUR LETTER ARE (1) WHETHER A RESTORATION ON GROUNDS OF PROCEDURAL ERROR IN SEPARATING THE EMPLOYEE IS SUFFICIENT TO REQUIRE PAYMENT OF RETROACTIVE COMPENSATION UNDER THE ACT OF JUNE 10.

B-125362, NOVEMBER 3, 1955, 35 COMP. GEN. 268

COMPENSATION - SEPARATION FROM SERVICE - BACK PAY - DEDUCTIONS FROM INTERIM EARNINGS THE ACTS OF JUNE 10, 1948, AND AUGUST 26, 1950, WHICH AUTHORIZE RETROACTIVE COMPENSATION, LESS ANY AMOUNTS EARNED THROUGH OTHER EMPLOYMENT DURING THE PERIOD OF SEPARATION, TO EMPLOYEES RESTORED TO DUTY CONTEMPLATE NET EARNINGS AND, THEREFORE, AN EMPLOYEE WHO SUSTAINED LOSSES IN AN ACCOUNTING AND TAX BUSINESS WHICH HE ESTABLISHED DURING A PERIOD OF SEPARATION FROM THE SERVICE MAY HAVE SUCH LOSSES DEDUCTED FROM EARNINGS AS A PART-TIME EMPLOYEE OF A MERCHANTILE ORGANIZATION IN DETERMINING HIS BACK PAY UPON RESTORATION, HOWEVER LOSSES WHICH HE SUSTAINED IN A FARMING VENTURE UNRELATED TO HIS SEPARATION ARE NOT FOR DEDUCTION.

TO WILLIAM E. WALDEN, INTERNAL REVENUE SERVICE, NOVEMBER 3, 1955:

YOUR LETTER OF AUGUST 29, 1955, REFERENCE ATL-AD:FM, ENCLOSING A VOUCHER FOR $3,811.74 IN FAVOR OF JOHN F. CULLEN, A FORMER EMPLOYEE OF THE INTERNAL REVENUE SERVICE, REQUESTS OUR DECISION WHETHER THE VOUCHER, REPRESENTING BACK PAY UNDER THE ACT OF JUNE 10, 1948, 62 STAT. 354, 5 U.S.C. 652, INCIDENT TO MR. CULLEN'S ERRONEOUS SEPARATION FROM THE SERVICE, PROPERLY MAY BE CERTIFIED FOR PAYMENT. ALSO, YOU REQUEST TO BE INFORMED OF THE CORRECT AMOUNT PAYABLE.

MR. CULLEN WAS SEPARATED FROM THE INTERNAL REVENUE SERVICE ON MAY 13, 1954. ON JANUARY 25, 1955, HE WAS RESTORED TO DUTY, EFFECTIVE MAY 13, 1954, AS A RESULT OF A RECOMMENDATION BY THE CIVIL SERVICE COMMISSION STEMMING FROM A FINDING BY THAT BODY THAT, UNDER SECTION 14 OF THE VETERANS PREFERENCE ACT OF 1944, 5 U.S.C. 863, THE EMPLOYEE'S REMOVAL WAS PROCEDURALLY INVALID. MR. CULLEN RESIGNED FROM THE SERVICE EFFECTIVE AT CLOSE OF BUSINESS JANUARY 25, 1955.

THE FORMER EMPLOYEE AVERS IN AN AFFIDAVIT THAT DURING THE PERIOD OF SEPARATION HE EARNED $720.35 AS A PART-TIME EMPLOYEE OF A MERCANTILE ORGANIZATION. ALSO, HE AVERS THAT DURING THAT PERIOD HE ESTABLISHED AND WAS ENGAGED IN HIS OWN ACCOUNTING AND TAX BUSINESS FROM WHICH HE SUSTAINED A NET LOSS OF $971.68. A FURTHER LOSS CLAIMED--- RESULTING FROM A FARMING VENTURE ENTERED UPON IN 1953--- APPEARS TO BE UNRELATED TO THE EMPLOYEE'S SEPARATION FROM THE SERVICE. IT APPARENTLY IS MR. CULLEN'S VIEW THAT THE LOSSES SUSTAINED FROM HIS BUSINESS ENTERPRISES SHOULD BE CONSIDERED IN DETERMINING THE AMOUNT EARNED BY HIM THROUGH OTHER EMPLOYMENT DURING THE PERIOD OF SEPARATION.

THE BASIC ISSUES RAISED BY THE FACTS RECITED IN YOUR LETTER ARE (1) WHETHER A RESTORATION ON GROUNDS OF PROCEDURAL ERROR IN SEPARATING THE EMPLOYEE IS SUFFICIENT TO REQUIRE PAYMENT OF RETROACTIVE COMPENSATION UNDER THE ACT OF JUNE 10, 1948, AND (2) WHETHER THE LANGUAGE "AMOUNT EARNED * * * THROUGH OTHER EMPLOYMENT" AS USED IN THAT ACT CONTEMPLATES NET EARNINGS DURING THE PERIOD OF SEPARATION.

IN OUR DECISION OF MAY 4, 1955, B-121568 (34 COMP. GEN. 568), WE MODIFIED OUR EARLIER DECISIONS--- 29 COMP. GEN. 209, 32 ID. 210, 356--- BY SUBSCRIBING TO THE VIEW THAT SEPARATION ACTIONS SET ASIDE BECAUSE OF PROCEDURAL ERROR ARE WITHIN THE MEANING OF THE TERMS "UNJUSTIFIED" AND "UNWARRANTED" USED IN THE ACT OF JUNE 10, 1948. ACCORDINGLY, THE ALLOWANCE OF RETROACTIVE COMPENSATION TO MR. CULLEN IS PROPER AND YOUR FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE.

YOUR QUESTION REGARDING THE AMOUNT DUE RAISES THE SECOND ISSUE REFERRED TO ABOVE WHICH HERETOFORE APPARENTLY HAS NOT BEEN RESOLVED BY ANY OF OUR DECISIONS. THE LANGUAGE OF THE 1948 STATUTE REQUIRES THE PAYMENT OF RETROACTIVE COMPENSATION LESS "ANY AMOUNT EARNED * * * THROUGH OTHER EMPLOYMENT" DURING THE PERIOD OF SEPARATION. THE LANGUAGE "ANY AMOUNT EARNED" HAS BEEN CONSTRUED AS EXCLUDING EXPENSES INCURRED IN SEEKING RESTORATION AND IN SEEKING OR QUALIFYING FOR ,OTHER EMPLOYMENT.' THE ACT OF AUGUST 26, 1950, 64 STAT. 476, 5 U.S.C. 22-1, PERTAINING TO SUSPENSIONS OR SEPARATIONS FOR SECURITY REASONS AUTHORIZES THE PAYMENT UPON RESTORATION OF BACK COMPENSATION FOR ALL OR ANY PART OF THE PERIOD OF SUSPENSION OR SEPARATION LESS THE "INTERIM NET EARNINGS" OF THE EMPLOYEE CONCERNED. THE LATTER STATUTE CLEARLY CONTEMPLATES THE DEDUCTION OF CERTAIN ITEMS OF EXPENSE OR LOSS IN ARRIVING AT THE NET AMOUNT TO BE DEDUCTED FROM THE RETROACTIVE PAY ALLOWABLE AND IT HAS BEEN SO CONSTRUED. TO GIVE PRECISE EFFECT TO THE DIFFERENT LANGUAGE IN THE TWO STATUTES MIGHT LEAD TO THE CONCLUSION THAT THE 1948 ACT REQUIRES THE DEDUCTION OF GROSS EARNINGS FROM THE AMOUNT ALLOWED AS BACK PAY, REGARDLESS OF ANY LEGITIMATE LOSSES SUSTAINED IN CONNECTION WITH OTHER EMPLOYMENT DURING THE PERIOD INVOLVED. HOWEVER, IN VIEW OF THE SIMILAR PURPOSES OF THE RETROACTIVE PAY PROVISIONS OF THE TWO STATUTES, WE DO NOT BELIEVE IT WAS THE INTENT OF THE CONGRESS TO ESTABLISH DIFFERENT CRITERIA FOR DETERMINING THE AMOUNTS TO BE DEDUCTED FROM EARNINGS, AND LOGIC WOULD DICTATE THAT "NET EARNINGS" WAS INTENDED IN BOTH INSTANCES. ACCORDINGLY, THE REPORTED EARNINGS OF MR. CULLEN FROM HIS EMPLOYMENT WITH THE MERCANTILE ORGANIZATION, OTHERWISE DEDUCTIBLE FROM THE RETROACTIVE COMPENSATION ALLOWABLE, MAY BE REDUCED BY LEGITIMATE LOSSES REPORTED TO HAVE BEEN INCURRED IN HIS ACCOUNTING PRACTICE. IN DETERMINING WHETHER THE REPORTED EXPENSES ARE LEGITIMATE AND REASONABLE, REFERENCE MUST BE HAD TO THE INTERNAL REVENUE LAWS APPLICABLE IN ESTABLISHING THE NET EARNINGS OF BUSINESS ENTERPRISES. IN THAT REGARD, WE ARE UNABLE ON THE PRESENT RECORD TO PASS UPON THE ITEMS OF DEPRECIATION CLAIMED BY MR. CULLEN BUT WE MAY SAY THAT THE OTHER ITEMS OF EXPENSE CLAIMED DO NOT APPEAR TO BE UNREASONABLE. THE LOSS CLAIMED BY MR. CULLEN AS A RESULT OF THE FARMING VENTURE WAS NOT INCIDENT TO HIS SEPARATION FROM THE SERVICE AND IN NO EVENT WOULD BE FOR CONSIDERATION. CF. 32 COMP. GEN. 408.

THE VOUCHER TRANSMITTED WITH YOUR LETTER IS RETURNED HEREWITH WITH THE SUGGESTION THAT MR. CULLEN BE REQUESTED TO SUBMIT A SCHEDULE SUPPORTING IN MORE DETAIL THE ITEMS CLAIMED BY HIM AS DEPRECIATION. IF A SATISFACTORY EXPLANATION IS FURNISHED FOR SUCH ITEMS, THE VOUCHER, IF CORRECT IN OTHER RESPECTS, PROPERLY MAY BE CERTIFIED FOR PAYMENT.