B-144993, MAR. 21, 1961

B-144993, MAR. 21, 1961

TO DIRECTOR, INTERNATIONAL COOPERATION ADMINISTRATION:

REFERENCE IS MADE TO LETTER OF FEBRUARY 2, 1961, FROM THE FORMER DIRECTOR, INTERNATIONAL COOPERATION ADMINISTRATION, REQUESTING OUR DECISION ON THE QUESTION WHETHER THE COMPENSATION PAID TO FOUR INDIVIDUALS, EACH UNDER SEPARATE PERSONAL SERVICE CONTRACT NUMBERED ICAC- 1106, 1330, 1120 AND 1072, WITH THE INTERNATIONAL COOPERATION ADMINISTRATION (ICA), MAY BE INCREASED BY SUCH SUM AS WILL RESULT IN EACH CONTRACTOR RECEIVING, AFTER FEDERAL INCOME TAXES, THE COMPENSATION CURRENTLY PROVIDED IN HIS CONTRACT. IT IS STATED THAT PURSUANT TO THOSE CONTRACTS EACH MAN HAS BEEN AND STILL IS PROVIDING TECHNICAL ADVICE AND ASSISTANCE TO THE INSTITUTO TECHNOLOGICO DE AERONAUTICA AT SAO JOSE DES COMPOS, BRAZIL.

AS INDICATED IN YOUR LETTER ARTICLE IIB OF EACH CONTRACT REQUIRES THE CONTRACTOR TO PERFORM SERVICES IN BRAZIL FOR APPROXIMATELY 24 MONTHS AT A SALARY RANGING FROM $13,540 TO $18,000 PER YEAR TOGETHER WITH CERTAIN ALLOWANCES, THE DOLLAR PAYMENTS, HOWEVER, NOT TO EXCEED THE AMOUNTS SPECIFIED IN THE CONTRACTS. WHILE EACH CONTRACT CONTAINS A PROVISION EXEMPTING THE CONTRACTOR FROM TAXATION, DUTIES, OR LEVIES BY BRAZIL OR ANY POLITICAL SUBDIVISION THEREOF TO THE EXTENT PERMITTED BY ANY AGREEMENT OR TREATY BETWEEN BRAZIL AND THE UNITED STATES PRESENTLY OR HEREAFTER EXISTING, NONE OF THE CONTRACTS CONTAIN ANY PROVISION EXEMPTING THE CONTRACTOR FROM THE PAYMENT OF FEDERAL INCOME TAXES.

AS TO THE CIRCUMSTANCES GIVING RISE TO YOUR REQUEST IT IS STATED THAT THE CONTRACTORS WERE LOCATED BY DEAN A. A. POTTER OF PURDUE UNIVERSITY WHO PERFORMED THIS FUNCTION FOR ICA WHILE ON INVITATIONAL TRAVEL, AND LATER AS A CONSULTANT; THAT IN HIS LETTERS TO EACH PROSPECTIVE CONTRACTOR DEAN POTTER STATED THAT THE CONTRACTOR WOULD NOT HAVE TO PAY UNITED STATES INCOME TAX ON COMPENSATION EARNED UNDER HIS CONTRACT WITH ICA IF HE REMAINED IN BRAZIL FOR AT LEAST 18 ONTHS; AND THAT THIS ASSURANCE WAS APPARENTLY REPEATED IN SUBSEQUENT CORRESPONDENCE. IT IS STATED FURTHER THAT PRIOR TO THE SIGNING OF THE CONTRACTS EACH OF THE PROSPECTIVE CONTRACTORS COMMUNICATED WITH EMPLOYEES OF ICA AND THAT WHILE EACH OF THEM WAS PROVIDED WITH A COPY OF A BROCHURE FURNISHED BY THE INTERNAL REVENUE BUREAU, ENTITLED "TAX GUIDES FOR U.S. CITIZENS ROAD," CERTAIN ICA EMPLOYEES (NONE OF WHOM WAS A CONTRACTING OFFICER) EITHER REPEATED THE ASSURANCE OF UNITED STATES TAX EXEMPTION, IN WRITTEN OR ORAL COMMUNICATION, OR MADE STATEMENTS IN A RATHER AMBIGUOUS WAY WHICH NOT ONLY DID NOT SERVE TO DISAVOW THE EARLIER ASSURANCES OF TAX EXEMPTION BUT INDEED, TENDED TO SUPPORT THEM.

YOU SAY THAT EACH PARTY, INDUCED AT LEAST IN PART BY THE PROSPECT OF UNITED STATES INCOME TAX EXEMPTION, SIGNED HIS CONTRACT AND UNDERTOOK HIS SERVICES IN BRAZIL AND THAT SUBSEQUENTLY, THE FOUR CONTRACTORS WERE ADVISED BY THE UNITED STATES REVENUE AUTHORITIES THAT COMPENSATION EARNED UNDER THEIR CONTRACTS WAS SUBJECT TO UNITED STATES INCOME TAX, WHICH ADVICE WAS CONFIRMED BY LETTER OF JANUARY 16, 1961, FROM THE COMMISSIONER OF INTERNAL REVENUE TO THE DEPUTY DIRECTOR OF OPERATIONS, ICA. CONCLUSION IT IS STATED, IN EFFECT, THAT IT SEEMS CLEAR THAT THE CONTRACTORS RELIED UPON INCORRECT STATEMENTS MADE BY ICA EMPLOYEES OR AGENTS WHEN THEY ENTERED INTO THEIR CONTRACTS; THAT WHILE SUCH STATEMENTS WERE NOT AUTHORIZED AND WERE IMPROPERLY MADE, IT SEEMS PARTICULARLY UNFAIR AND UNREALISTIC TO EXPECT THAT THESE CONTRACTS WOULD DO OTHER THAN RELY UPON STATEMENTS MADE TO THEM BY REPRESENTATIVES OF THE U.S. GOVERNMENT; THAT FEES FOR LEGAL SERVICES WERE NOT REIMBURSABLE UNDER THEIR CONTRACTS; AND THAT IN DEALING WITH THE U.S. GOVERNMENT THEY BELIEVED THEY WOULD NOT BE MISLED.

NO PROVISION WAS MADE IN ANY OF THE CONTRACTS FOR RELIEVING THE CONTRACTORS FROM THE PAYMENT OF FEDERAL INCOME TAXES UNDER ANY CIRCUMSTANCES, OR FOR CHANGING THE RATE OF COMPENSATION FIXED THEREIN. INDEED, ANY SUCH PROVISION WITH RESPECT TO UNITED STATES TAXES WOULD HAVE BEEN UNAUTHORIZED BECAUSE IT IS IMPOSSIBLE FOR AN AGENT TO BIND THE GOVERNMENT CONTRARY TO LAW. UNITED STATES V. CERTAIN PARCELS OF LAND, 131 F.SUPP. 65, 73.

WHILE IT IS STATED IN THE SUBMISSION THAT THE CONTRACTORS WERE INDUCED AT LEAST IN PART BY THE PROSPECT OF EXEMPTION FROM FEDERAL INCOME TAXES, IT HAS BEEN HELD THAT BEFORE PERSONS DEALING WITH THE GOVERNMENT ARE ENTITLED TO RELY UPON STATEMENTS MADE BY A GOVERNMENT AGENT THEY MUST SHOW THAT THE AGENT HAD AUTHORITY TO MAKE THE STATEMENT. KELLY V. UNITED STATES, 91 F.SUPP. 305. IN THIS INSTANCE, IT IS SPECIFICALLY STATED THAT THE STATEMENTS MADE CONCERNING THE IMMUNITY FROM FEDERAL INCOME TAXES WERE NOT AUTHORIZED AND IMPROPERLY MADE AND IN THE CIRCUMSTANCES, THE GOVERNMENT IS NOT ESTOPPED BY THESE UNAUTHORIZED STATEMENTS. RITTER V. UNITED STATES, 28 F.2D 265. IT MAY WELL BE THAT BOTH THE ICA REPRESENTATIVES AND THE CONTRACTORS BASED THEIR DISCUSSIONS OF TAX EXEMPTION UPON THE ASSUMPTION OR EXPECTATION THAT THE CONTRACTS OF EMPLOYMENT WOULD BE MADE DIRECTLY WITH THE INSTITUTE RATHER THAN WITH THE UNITED STATES. IT IS CLEAR, HOWEVER, FROM SECTION 3.05 OF THE "TAX GUIDE," WHICH WAS FURNISHED TO THE PROSPECTIVE CONTRACTORS, THAT COMPENSATION PAID BY THE UNITED STATES WOULD NOT BE EXEMPT AND THEY MUST BE HELD TO HAVE BEEN ON NOTICE OF THAT PROVISION WHEN THEY ENTERED INTO THE CONTRACTS WITH ICA. THAT SECTION STATES:

"CONTRACTORS. AMOUNTS PAID BY THE UNITED STATES GOVERNMENT TO AN INDIVIDUAL UNITED STATES CITIZEN UNDER A CONTRACT PERFORMED IN A FOREIGN COUNTRY ARE NOT EXEMPT FROM TAXATION. UNITED STATES CITIZENS EMPLOYED AND PAID BY THE CONTRACTOR, HOWEVER, MAY RECEIVE THE EXEMPTION UNDER SECTION 911 PROVIDED OF COURSE, THEY SATISFY THE OTHER REQUIREMENTS.'

WE APPRECIATE THE BASIS FOR THE STATEMENT IN THE SUBMISSION THAT IT IS FELT THERE ARE SUBSTANTIAL EQUITABLE CONSIDERATIONS IN FAVOR OF INCREASING THE COMPENSATION OF THE FOUR CONTRACTORS BY SUCH SUMS AS WOULD RESULT IN EACH CONTRACTOR RECEIVING, AFTER TAXES, THE COMPENSATION CURRENTLY PROVIDED IN HIS CONTRACT. HOWEVER, THE LAW IS CLEAR THAT A CONTRACT OF THE GOVERNMENT MAY NOT BE AMENDED WITHOUT CONSIDERATION, AND IN THE CIRCUMSTANCES WE WOULD NOT BE JUSTIFIED IN AUTHORIZING ANY INCREASE OF THE COMPENSATION OF THE INVOLVED CONTRACTORS SUCH AS PROPOSED IN YOUR LETTER, IN THE ABSENCE OF ADEQUATE CONSIDERATION THEREFOR MOVING TO THE UNITED STATES. 38 COMP. GEN. 525; 39 ID. 432; 40 ID. 234.