B-150865, MAR. 20, 1963

B-150865: Mar 20, 1963

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IN THE EVENT PAYMENT OF THE TAX LIEN IS AUTHORIZED. ALL PAYMENTS DUE OR TO BECOME DUE UNDER THE CONTRACT WERE ASSIGNED BY THE CONTRACTOR TO AMERICAN EXPRESS COMPANY. THE DOCUMENT WAS EXECUTED BY THE PARTIES ON JUNE 30. INTERNAL REVENUE ADVISED THAT BECAUSE OF THE ASSIGNMENT IT WAS ENTITLED TO SET-OFF ONLY ON ACCOUNT OF THE UNPAID TAXES FOR THE SECOND QUARTER OF 1959. THE SAME DATE ON WHICH THE ASSIGNMENT WAS EXECUTED AND ACKNOWLEDGED. THE QUESTION POSED IS WHICH OF THE TWO CLAIMS FOR THE PROCEEDS OF THE SUBJECT VOUCHER SHALL BE ACCORDED PRECEDENCE. THE APPLICABLE REGULATIONS PROVIDE WITH RESPECT TO BOTH THE FEDERAL INSURANCE CONTRIBUTIONS ACT TAX AND THE WITHHOLDING TAX ON INCOME (WHICH ARE THE UNPAID TAXES HERE INVOLVED) THAT THE EMPLOYER SHALL COLLECT SUCH TAXES BY DEDUCTION FROM WAGES AS AND WHEN PAID.

B-150865, MAR. 20, 1963

TO MR. C. L. WOODARD, CORPS OF ENGINEERS:

THERE HAS BEEN RECEIVED, WITH COVERING LETTER OF FEBRUARY 18, 1963, FROM THE ARMY FINANCE CENTER, YOUR REQUEST DATED JANUARY 29, 1963, FOR AN ADVANCE DECISION AS TO THE PROPER ACTION TO BE TAKEN IN CONNECTION WITH VOUCHER V7-63-370, DULY CERTIFIED AND PRESENTED TO YOU FOR PAYMENT, AND DRAWN IN FAVOR OF "AMERICAN EXPRESS CO., INC., ASSIGNEE FOR JAMES E. BANDY AND ASSOCIATES, LTD. AND/OR INTERNAL REVENUE SERVICE.'

THE SUBJECT VOUCHER REPRESENTS A PARTIAL PAYMENT DUE UNDER CONTRACT NO. DA 92-328-ENG-135, DATED APRIL 30, 1959, IN THE AMOUNT OF $1,178.61, AND BECAUSE OF THE CONFLICTING INTERESTS ON THE PART OF THE PARTIES NAMED THEREON YOU REQUEST TO BE ADVISED TO WHOM PAYMENT SHOULD BE MADE. IN THE EVENT PAYMENT OF THE TAX LIEN IS AUTHORIZED, YOU FURTHER REQUEST TO BE ADVISED AS TO THE CORRECT AMOUNT OF INTEREST TO BE ALLOWED.

THE RECORD DISCLOSES THAT PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, ALL PAYMENTS DUE OR TO BECOME DUE UNDER THE CONTRACT WERE ASSIGNED BY THE CONTRACTOR TO AMERICAN EXPRESS COMPANY, INC. THE DOCUMENT WAS EXECUTED BY THE PARTIES ON JUNE 30, 1959, AND ACKNOWLEDGED BY THE CONTRACTING AND DISBURSING OFFICER INVOLVED ON THE SAME DATE. THE CONTRACT DOES NOT CONTAIN A "NO SET OFF" CLAUSE. THEREAFTER, BY NOTICE OF LEVY DATED AUGUST 29, 1961, INTERNAL REVENUE SERVICE ASSERTED A CLAIM FOR $3,484.43, AGAINST THE CONTRACTOR FOR UNPAID TAXES AND INTEREST COVERING THE REPORTING PERIODS INVOLVING THE SECOND QUARTER OF 1959 THROUGH THE THIRD QUARTER OF 1960. HOWEVER, BY LETTER DATED NOVEMBER 20, 1962, INTERNAL REVENUE ADVISED THAT BECAUSE OF THE ASSIGNMENT IT WAS ENTITLED TO SET-OFF ONLY ON ACCOUNT OF THE UNPAID TAXES FOR THE SECOND QUARTER OF 1959. SINCE THE SECOND QUARTER OF 1959 ENDED JUNE 30, 1959, THE SAME DATE ON WHICH THE ASSIGNMENT WAS EXECUTED AND ACKNOWLEDGED, THE QUESTION POSED IS WHICH OF THE TWO CLAIMS FOR THE PROCEEDS OF THE SUBJECT VOUCHER SHALL BE ACCORDED PRECEDENCE.

THE APPLICABLE REGULATIONS PROVIDE WITH RESPECT TO BOTH THE FEDERAL INSURANCE CONTRIBUTIONS ACT TAX AND THE WITHHOLDING TAX ON INCOME (WHICH ARE THE UNPAID TAXES HERE INVOLVED) THAT THE EMPLOYER SHALL COLLECT SUCH TAXES BY DEDUCTION FROM WAGES AS AND WHEN PAID. SEE SECTIONS 31.3102-1 (A) AND 31.3402 (A/-1 (B) FEDERAL TAX REGULATIONS (1959). THESE REGULATIONS FURTHER PROVIDE THAT THE EMPLOYER IS LIABLE FOR SUCH TAXES WITH RESPECT TO ALL WAGES PAID BY HIM TO EMPLOYEES WHETHER OR NOT DEDUCTIONS ARE ACTUALLY MADE FROM THE WAGES. SEE SECS. 31.3102-1 (C) AND 31.3403-1 FTR. FURTHERMORE, ANY SUCH TAXES COLLECTED BY THE EMPLOYER CONSTITUTE SPECIAL FUNDS IN TRUST FOR THE UNITED STATES. SEE SECS. 30.3102-1 (C) AND 31.3402 (A/-1 (F), FTR.

IN DECISION OF MAY 29, 1958, 37 COMP. GEN. 808, THIS OFFICE HELD IN A SOMEWHAT SIMILAR CASE THAT ALTHOUGH AN ASSIGNMENT WAS ACKNOWLEDGED TWENTY DAYS BEFORE THE QUARTERLY REPORT WAS REQUIRED TO BE RENDERED, THE TAXES WITHHELD FROM EMPLOYEES BECAUSE MATURE AND ACTIONABLE CLAIMS AGAINST THE CONTRACTOR BEFORE THE EFFECTIVE DATE OF THE ASSIGNMENT. IT IS ASSUMED THAT IN THE INSTANT CASE THE CONTRACTOR DEDUCTED FROM THE GROSS WAGES DUE ITS EMPLOYEES WITHHOLDING AND FICA TAXES AS REQUIRED BY LAW FOR EACH PAYROLL PERIOD DURING THE SECOND QUARTER OF 1959. THEREFORE, IN THE APPLICATION OF THE CITED REGULATIONS AND THE PRINCIPLES ENUNCIATED IN THE CITED DECISION TO THIS MATTER, WE BELIEVE THAT SUBSTANTIALLY ALL OF THE FUNDS REPRESENTING THOSE TAXES WITHHELD FROM THE CONTRACTOR'S EMPLOYEES WERE EXISTING TAX CLAIMS BEFORE JUNE 30, 1959.

THE PROCEEDS OF THE VOUCHER, WHICH IS RETURNED HEREWITH, MAY BE PAID TO THE INTERNAL REVENUE SERVICE. WE ARE ADVISED THAT THE PRINCIPAL AMOUNT OF THE TAXES PLUS PENALTY IS $1,002.66, INTEREST ON WHICH AT 6 PERCENT PER ANNUM FOR THREE YEARS WOULD AMOUNT TO $180.48. IT THEREFORE APPEARS UNNECESSARY TO DECIDE YOUR QUESTION REGARDING THE DATE TO WHICH INTEREST SHOULD BE COMPUTED.