B-150932, MAR. 27, 1963

B-150932: Mar 27, 1963

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REQUESTS OUR ADVICE ON TWO QUESTIONS REGARDING WITHHOLDING TAX IN CONNECTION WITH MOVING EXPENSES OF NEWLY HIRED EMPLOYEES WHEN SUCH EXPENSES ARE PAID DIRECT TO THE CARRIERS. TO HEADS OF DEPARTMENTS AND AGENCIES DIRECTING THAT THE AMOUNT OF THE TAX THEREON WILL BE WITHHELD AT THE SOURCE. HIS FAMILY AND HOUSEHOLD GOODS TO THE NEW PLACE OF EMPLOYMENT ARE. IT IS DESIRABLE THAT FEDERAL DEPARTMENTS AND AGENCIES ESTABLISH THE ADMINISTRATIVE PROCEDURES NECESSARY TO INSURE FULL COMPLIANCE THEREWITH. THE INTERNAL REVENUE SERVICE IS CURRENTLY CONSIDERING THE QUESTION OF THE TAXABILITY OF THAT PORTION OF ALLOWANCES OR REIMBURSEMENTS PAID TO NEWLY HIRED EMPLOYEES RELATING TO TRAVEL AND TRANSPORTATION EXPENSES IN MOVEMENTS OUTSIDE THE CONTINENTAL UNITED STATES.

B-150932, MAR. 27, 1963

TO LIBRARIAN OF CONGRESS:

YOUR LETTER OF FEBRUARY 25, 1963, REQUESTS OUR ADVICE ON TWO QUESTIONS REGARDING WITHHOLDING TAX IN CONNECTION WITH MOVING EXPENSES OF NEWLY HIRED EMPLOYEES WHEN SUCH EXPENSES ARE PAID DIRECT TO THE CARRIERS, IN VIEW OF THE MEMORANDUM OF THE SECRETARY OF THE TREASURY, DATED OCTOBER 1, 1962, TO HEADS OF DEPARTMENTS AND AGENCIES DIRECTING THAT THE AMOUNT OF THE TAX THEREON WILL BE WITHHELD AT THE SOURCE.

THE MEMORANDUM READS AS FOLLOWS:

"THE COMMISSIONER OF INTERNAL REVENUE HAS HELD IN REVENUE RULING 59 236, CUMULATIVE BULLETIN 1959-2, 234, AMPLIFYING REVENUE RULING 55-140, THAT:

" "AMOUNTS PAID BY AN EMPLOYER TO OR ON BEHALF OF A NEWLY HIRED EMPLOYEE FOR THE EXPENSES INCURRED BY SUCH EMPLOYEE IN MOVING HIMSELF, HIS FAMILY AND HOUSEHOLD GOODS TO THE NEW PLACE OF EMPLOYMENT ARE, UNDER THE CIRCUMSTANCES,"WAGES" FOR FEDERAL EMPLOYMENT TAX PURPOSES AND FOR PURPOSES OF WITHHOLDING OF INCOME TAX AT SOURCE ON WAGES.'

"SINCE THE RULING APPLIES EQUALLY TO NEWLY HIRED FEDERAL AND NON FEDERAL EMPLOYEES, THE PAYMENTS DESCRIBED ABOVE SHOULD BE TREATED AS WAGES FOR THE PURPOSE OF THE WITHHOLDING OF INCOME TAX AT THE SOURCE AND SHOULD BE INCLUDED ON FORMS W-2 IN TOTAL WAGES BEFORE PAYROLL DEDUCTIONS.

"AS A CONSEQUENCE, IN ORDER TO PROMOTE A UNIFORM APPLICATION OF THE LAWS ADMINISTERED BY THE INTERNAL REVENUE SERVICE, IT IS DESIRABLE THAT FEDERAL DEPARTMENTS AND AGENCIES ESTABLISH THE ADMINISTRATIVE PROCEDURES NECESSARY TO INSURE FULL COMPLIANCE THEREWITH.

"THE QUOTED RULING OF THE COMMISSIONER OF INTERNAL REVENUE RELATES TO PAYMENTS FOR EXPENSES INCURRED BY NEWLY HIRED EMPLOYEES WITHIN THE CONTINENTAL LIMITS OF THE UNITED STATES. THE INTERNAL REVENUE SERVICE IS CURRENTLY CONSIDERING THE QUESTION OF THE TAXABILITY OF THAT PORTION OF ALLOWANCES OR REIMBURSEMENTS PAID TO NEWLY HIRED EMPLOYEES RELATING TO TRAVEL AND TRANSPORTATION EXPENSES IN MOVEMENTS OUTSIDE THE CONTINENTAL UNITED STATES. THE SERVICE'S POSITION IN THIS REGARD WILL BE PUBLISHED AS SOON AS CONCLUDED.

"ANY QUESTIONS CONCERNING THE APPLICATION OF THE REVENUE RULING SHOULD BE DIRECTED TO THE COMMISSIONER OF INTERNAL REVENUE, ATTENTION T:R:E.'

YOU RAISE CERTAIN QUESTIONS THEREON WHICH READ AS FOLLOWS:

"QUESTION 1

"AN EMPLOYEE WITHIN THE CATEGORIES COVERED BY 5 U.S.C. SEC. 73B-3 (B) MAY BE REIMBURSED, I.A., FOR THE COST OF TRANSPORTING HIS HOUSEHOLD EFFECTS TO THE PLACE OF EMPLOYMENT. IT IS ASSUMED THAT TAX MAY BE WITHHELD ON SUCH REIMBURSEMENT. HOWEVER, WHEN THE FEDERAL AGENCY PAYS TRANSPORTATION EXPENSES DIRECTLY TO A CARRIER ON A BILL OF LADING THERE WOULD BE NO PRACTICAL BASIS FOR WITHHOLDING FROM SUCH PAYMENT. FURTHER, WE KNOW OF NO AUTHORIZATION BY LAW OR REGULATION WHICH WOULD PERMIT A FEDERAL AGENCY, IN SUCH CASE, TO MAKE SUBSEQUENT DEDUCTIONS FROM ANY PAYMENTS DUE AN EMPLOYEE FOR SALARY OR OTHER AMOUNTS DUE HIM.

"QUESTION 2

"WHILE AN EMPLOYEE MAY BE PAID DIRECTLY FOR TRANSPORTING HIMSELF AND HIS DEPENDENTS, E.G., FOR TRANSPORTATION IN A PRIVATELY OWNED AUTOMOBILE, TRANSPORTATION IN MOST CASES WILL BE ACCOMPLISHED BY MEANS OF TRANSPORTATION REQUESTS. WHAT LEGAL MEANS ARE AVAILABLE IN SUCH CASES TO THE FEDERAL AGENCIES FOR ACCOMPLISHING TAX WITHHOLDING WHICH IS REQUIRED BY THE INSTRUCTION FROM THE SECRETARY OF THE TREASURY?

YOUR QUESTIONS SPECIFICALLY ARE CONCERNED WITH THOSE TRANSACTIONS WHERE PAYMENT IS MADE DIRECT TO CARRIERS. IN SUCH INSTANCES THE AMOUNTS INVOLVED ARE NOT AVAILABLE TO ADMINISTRATIVE OFFICES FOR THE WITHHOLDING OF THE TAX AS REQUIRED BY THE FOREGOING MEMORANDUM. YOU ASK HOW SUCH WITHHOLDING CAN BE ACCOMPLISHED.

26 U.S.C. 3402, INTERNAL REVENUE CODE 1954, IS THE BASIC AUTHORITY FOR WITHHOLDING AT THE SOURCE, FROM WAGES OF FEDERAL EMPLOYEES, THE SPECIFIED TAX THEREON. U.S. GENERAL ACCOUNTING OFFICE SALARY TABLE NO. 41 ISSUED OCTOBER 1962, PAGE 5, AND TITLE 6, PAYROLL, LEAVE AND ALLOWANCES, SECTION 5060, GENERAL ACCOUNTING OFFICE POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES BOTH REQUIRE THAT SUCH AUTHORITY BE ADHERED TO IN WITHHOLDING THE TAX. THE PRESCRIBED AMOUNTS FIXED IN THE FOREGOING AUTHORITY FOR THE WITHHOLDING OF THE TAX ARE BASED UPON CERTAIN PAYROLL PERIODS OR COMPARABLE PERIODS OF TIME WHEREAS THE SITUATIONS PRESENTED IN YOUR QUESTIONS OCCUR ONLY AT OR NEAR THE TIME THE EMPLOYEE IS HIRED. 26 U.S.C. 3402, SUBSECTION (I), ADDITIONAL WITHHOLDING IS PROVIDED FOR BY REGULATIONS. THE BUREAU OF THE BUDGET IN CIRCULAR NO. A-26, REVISED, DATED MAY 2, 1960, IN CARRYING OUT THE PROVISIONS OF THE FOREGOING SUBSECTION AND IN PART FOR THE PURPOSE OF PROVIDING FLEXIBILITY IN WITHHOLDING ADDITIONAL AMOUNTS OF TAX AND TO FACILITATE PAYROLL AND AUDIT WORK HAS PRESCRIBED THE FOLLOWING POLICY:

"1. EXCEPT AS PROVIDED IN PARAGRAPH 2, THE AMOUNT OF TAX PRESENTLY WITHHELD PLUS THE ADDITIONAL AMOUNT REQUESTED TO BE WITHHELD EACH PAY PERIOD SHALL CONFORM TO ONE OF THE AMOUNTS SHOWN IN THE TAX WITHHOLDING TABLES AS SET FORTH IN SECTION 3402 OF TITLE 26 OF THE UNITED STATES CODE. FOR EXAMPLE, IF AN EMPLOYEE NOW HAS THREE EXEMPTIONS, HE MAY REQUEST THAT AN AMOUNT BE WITHHELD EQUIVALENT TO "2," "1" OR "0" EXEMPTIONS.

"2. IN THOSE CASES WHERE WITHHOLDING IS REQUESTED IN EXCESS OF THE AMOUNT PROVIDED BY THE "0" EXEMPTION, THE AMOUNT TO BE WITHHELD SHALL BE THAT WHICH MAY BE AGREED UPON BY THE EMPLOYING AGENCY AND THE EMPLOYEE. SUCH WITHHOLDING, HOWEVER, SHOULD BE A CONSTANT AMOUNT FOR EACH PAY PERIOD.'

IN ADDITION THE TREASURY DEPARTMENT IN 22 F.R. 8433, AT PAGE 8454, HAS PRESCRIBED THE FOLLOWING REGULATION PURSUANT TO SUBSECTION (I) REFERRED TO ABOVE:

"SEC. 31.3402 (I/--- 1 ADDITIONAL WITHHOLDING. (A) IN ADDITION TO THE TAX REQUIRED TO BE DEDUCTED AND WITHHELD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3402, THE EMPLOYER AND EMPLOYEE MAY AGREE THAT AN ADDITIONAL AMOUNT SHALL BE WITHHELD FROM THE EMPLOYEE'S WAGES. THE AGREEMENT SHALL BE IN WRITING AND SHALL BE IN SUCH FORM AS THE EMPLOYER MAY PRESCRIBE. THE AGREEMENT SHALL BE EFFECTIVE FOR SUCH PERIOD AS THE EMPLOYER AND EMPLOYEE MUTUALLY AGREE UPON.

HOWEVER, UNLESS THE AGREEMENT PROVIDES FOR AN EARLIER TERMINATION, EITHER THE EMPLOYER OR THE EMPLOYEE, BY FURNISHING A WRITTEN NOTICE TO THE OTHER, MAY TERMINATE THE AGREEMENT EFFECTIVE WITH RESPECT TO THE FIRST PAYMENT OF WAGES MADE ON OR AFTER THE FIRST "STATUS DETERMINATION DATE" (JANUARY 1 AND JULY 1 OF EACH YEAR) WHICH OCCURS AT LEAST 30 DAYS AFTER THE DATE ON WHICH SUCH NOTICE IS FURNISHED.

"/B) THE AMOUNT DEDUCTED AND WITHHELD PURSUANT TO AN AGREEMENT BETWEEN THE EMPLOYER AND EMPLOYEE SHALL BE CONSIDERED AS TAX REQUIRED TO BE DEDUCTED AND WITHHELD UNDER SECTION 3402. ALL PROVISIONS OF LAW AND REGULATIONS APPLICABLE WITH RESPECT TO THE TAX REQUIRED TO BE DEDUCTED AND WITHHELD UNDER SECTION 3402 SHALL BE APPLICABLE WITH RESPECT TO ANY AMOUNT DEDUCTED AND WITHHELD PURSUANT TO THE AGREEMENT.'

SINCE YOUR QUESTIONS CONCERN NEWLY HIRED EMPLOYEES IT MAY BE THAT UNDER THE FOREGOING CIRCULAR AND REGULATION, ARRANGEMENTS COULD BE MADE FOR SECURING THE ADDITIONAL WITHHOLDING REQUIRED TO COVER THE PAYMENTS MADE DIRECT TO THE CARRIERS IN THE INSTANCES REFERRED TO IN YOUR QUESTIONS. HOWEVER, AS TO WHETHER THE FOREGOING CIRCULAR AND REGULATION ARE FOR APPLICATION IN SUCH CIRCUMSTANCES--- ASSUMING ARRANGEMENTS FOR ITS USE COULD BE MADE WITH THE INDIVIDUAL--- YOUR ATTENTION IS DIRECTED TO THE LAST PARAGRAPH OF THE MEMORANDUM FROM THE SECRETARY OF THE TREASURY IN WHICH HE STATES THAT ANY QUESTIONS CONCERNING THE MATTER SHOULD BE DIRECTED TO THE COMMISSIONER OF INTERNAL REVENUE. WE ARE NOT AWARE OF ANY OTHER AUTHORITY PERMITTING AN AGENCY TO DEDUCT THE SUM IN QUESTION FROM THE CURRENT SALARY OF THE EMPLOYEES.