B-41885, JUNE 2, 1944, 23 COMP. GEN. 911

B-41885: Jun 2, 1944

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- ARE IMMUNE FROM SET-OFF EXCEPT. 1944: I HAVE YOUR LETTER OF MAY 6. NOTIFYING ME THAT ANY SUMS DUE SPECIFIED EMPLOYEES OF THE VARIOUS CONSTITUENT AGENCIES FOR WHOM WE ARE PREPARING PAYROLLS ARE TO BE SET OFF AGAINST THE EMPLOYEE'S TAX LIABILITY. ILLUSTRATIVE OF THESE CASES IS THE ATTACHED NOTICE OF LEVY WHICH SERVES NOTICE THAT ALL PROPERTY RIGHTS. MONEYS AND ALL SUMS OF MONEY OWING FROM THE GOVERNMENT TO THE EMPLOYEE SPECIFIED IS HEREBY SEIZED AND THAT SUCH MONEYS DUE SHALL BE APPLIED IN PAYMENT OF HIS TAX LIABILITY. RENDERED BY YOUR OFFICE TO THE ADMINISTRATOR OF THE WAR FOOD ADMINISTRATION IT WAS HELD THAT "CURRENT SALARY PAYMENTS OF A FEDERAL OFFICER OR EMPLOYEE COULD NOT BE WITHHELD WITHOUT THE CONSENT OF THE OFFICER OR EMPLOYEE CONCERNED TOWARD LIQUIDATION OF HIS INDEBTEDNESS TO THE UNITED STATES EXCEPT AS PROVIDED FOR UNDER SECTION 1766.

B-41885, JUNE 2, 1944, 23 COMP. GEN. 911

SET-OFF OF COMPENSATION AGAINST FEDERAL TAX INDEBTEDNESS THE SERVING OF A NOTICE OF LEVY PURPORTING TO SEIZE MONEYS, ETC., IN THE HANDS OF THE GOVERNMENT BELONGING TO AN EMPLOYEE, PURSUANT TO THE RIGHT PROVIDED BY SECTIONS 3690, 3692 AND 3710 OF THE INTERNAL REVENUE CODE TO EFFECT COLLECTION OF UNPAID TAXES BY DISTRAINT AND LEVY, DOES NOT AUTHORIZE THE INVOLUNTARY SET-OFF OF CURRENT SALARY PAYMENTS DUE THE EMPLOYEE AGAINST HIS FEDERAL TAX INDEBTEDNESS, CONTRARY TO THE RULE THAT CURRENT SALARY PAYMENTS--- AS DISTINGUISHED FROM AMOUNTS DUE UPON SEPARATION--- ARE IMMUNE FROM SET-OFF EXCEPT, AS PROVIDED BY THE ACT OF MAY 26, 1936, IN THE CASE OF INDEBTEDNESS ARISING BY REASON OF DISALLOWANCES IN DISBURSING OFFICERS' ACCOUNTS.

COMPTROLLER GENERAL WARREN TO THE DIRECTOR, DIVISION OF CENTRAL ADMINISTRATIVE SERVICES, OFFICE FOR EMERGENCY MANAGEMENT, JUNE 2, 1944:

I HAVE YOUR LETTER OF MAY 6, 1944, AS FOLLOWS:

FROM TIME TO TIME THERE HAS BEEN FILED WITH MY OFFICE BY THE BUREAU OF INTERNAL REVENUE NOTICE OF LEVY, TREASURY FORM 668-A, NOTIFYING ME THAT ANY SUMS DUE SPECIFIED EMPLOYEES OF THE VARIOUS CONSTITUENT AGENCIES FOR WHOM WE ARE PREPARING PAYROLLS ARE TO BE SET OFF AGAINST THE EMPLOYEE'S TAX LIABILITY.

ILLUSTRATIVE OF THESE CASES IS THE ATTACHED NOTICE OF LEVY WHICH SERVES NOTICE THAT ALL PROPERTY RIGHTS, MONEYS AND ALL SUMS OF MONEY OWING FROM THE GOVERNMENT TO THE EMPLOYEE SPECIFIED IS HEREBY SEIZED AND THAT SUCH MONEYS DUE SHALL BE APPLIED IN PAYMENT OF HIS TAX LIABILITY.

IN A DECISION, DATED FEBRUARY 2, 1944, 23 C.G. 555, RENDERED BY YOUR OFFICE TO THE ADMINISTRATOR OF THE WAR FOOD ADMINISTRATION IT WAS HELD THAT "CURRENT SALARY PAYMENTS OF A FEDERAL OFFICER OR EMPLOYEE COULD NOT BE WITHHELD WITHOUT THE CONSENT OF THE OFFICER OR EMPLOYEE CONCERNED TOWARD LIQUIDATION OF HIS INDEBTEDNESS TO THE UNITED STATES EXCEPT AS PROVIDED FOR UNDER SECTION 1766, REVISED STATUTES.' SECTION 1766, REVISED STATUTES, IS APPLICABLE ONLY TO ACCOUNTABLE (FISCAL) OFFICERS OF THE UNITED STATES.

IN 17 C.G. 12, IT WAS HELD:

"THERE IS NO AUTHORITY OF LAW, EXCEPT AS PROVIDED IN THE ACT OF MAY 26, 1936, 49 STAT. 1374, FOR THE APPLICATION OF CURRENT SALARY PAYMENTS OF FEDERAL EMPLOYEES, AS DISTINGUISHED FROM FINAL SALARY PAYMENTS UPON SEPARATION FROM THE SERVICE, TOWARD LIQUIDATION OF A GOVERNMENT INDEBTEDNESS, SUCH AS AN UNPAID FEDERAL HOUSING ADMINISTRATION INSURED LOAN, WITHOUT THE CONSENT OF THE EMPLOYEE CONCERNED, AND WHERE SAID CONSENT IS WITHHELD BY THE EMPLOYEE AFTER THE MATTER IS REFERRED TO THE EMPLOYING AGENCY, THE FEDERAL HOUSING ADMINISTRATION SHOULD BE SO ADVISED THAT THERE MIGHT BE TAKEN BY THAT AGENCY SUCH STEPS TO EFFECT COLLECTION AS ARE AUTHORIZED BY SECTION 2, TITLE I, OF THE NATIONAL HOUSING ACT, AS AMENDED, 49 STAT. 1188, 16 COMP. GEN. 956, PLIFIED.'

IN VIEW OF THE RULING IN THE DECISIONS CITED, I WOULD APPRECIATE YOUR ADVISING ME WHETHER THERE IS ANY AUTHORITY UNDER WHICH AN EMPLOYEE'S CURRENT SALARY CHECKS MAY BE SET OFF AGAINST HIS TAX LIABILITY WHEN A NOTICE OF LEVY IS SERVED BY THE BUREAU OF INTERNAL REVENUE.

I WOULD APPRECIATE YOUR EARLY DECISION IN THE MATTER.

IT APPEARS FROM THE NOTICE OF LEVY ENCLOSED WITH YOUR LETTER THAT THE SAME WAS ISSUED BY THE COLLECTOR OF INTERNAL REVENUE, BALTIMORE, MARYLAND, AND ADDRESSED TO THE WAR MANPOWER COMMISSION. IT STATES THAT UNPAID TAXES IN THE AMOUNT OF $280.44 ARE DUE FROM THE EMPLOYEE AND FURTHER RECITES THAT ALL MONEYS AND CREDITS IN THE POSSESSION OF SAID COMMISSION BELONGING TO THE EMPLOYEE "ARE HEREBY SEIZED AND LEVIED UPON FOR THE PAYMENT OF THE AFORESAID TAX" AND DEMANDS PAYMENT OF $280.44 ,OF THE AMOUNT NOW OWING FROM YOU" TO THE EMPLOYEE "OR FOR SUCH LESSER SUM AS YOU MAY BE INDEBTED TO HIM, TO BE APPLIED IN PAYMENT OF THE SAID TAX LIABILITY.'

THE GENERAL RULE OF SET-OFF INHERENT IN THE UNITED STATES MAY BE STATED BY QUOTING THE FOLLOWING FROM A DECISION OF THIS OFFICE DATED APRIL 28, 1922, 1 COMP. GEN. 605, 606:

* * * EVERY CREDITOR HAS THE RIGHT TO APPLY THE MONEYS OF HIS DEBTOR IN HIS HANDS IN THE EXTINGUISHMENT OF CLAIMS DUE HIM FROM THE DEBTOR. THIS IS A COMMON-LAW RIGHT AND MAY BE EXERCISED ON GENERAL PRINCIPLES WITHOUT THE AID OF A STATUTE. SEE BARRY V. UNITED STATES, 229 U.S., 47; 15 PET., 370; 98 U.S., 186; 4 LAWRENCE 1 COMP. DEC. 504.

HOWEVER, AS INDICATED BY THE DECISIONS REFERRED TO IN YOUR LETTER, 23 C.G. 555; 17 ID. 12, THIS GENERAL RULE IS NOT FOR APPLICATION INSOFAR AS CONCERNS THE WITHHOLDING OF CURRENT SALARY PAYMENTS OF OFFICERS AND EMPLOYEES OF THE GOVERNMENT WHILE STILL IN THE SERVICE. SEE, ALSO, 19 COMP. GEN. 64; 16 COMP. GEN. 161; ID. 547; ID. 826; SMITH V. JACKSON, 246 U.S. 388; AND MCCARL V. PENCE, 18 F.2D 809.

UNDER THE TERMS OF THE ACT OF MAY 26, 1936, 49 STAT. 1374, REFERRED TO IN 17 COMP. GEN. 12, SUPRA, THE AUTHORITY OF THE ADMINISTRATIVE OFFICERS OF THE GOVERNMENT TO WITHHOLD CURRENT SALARY PAYMENTS IS APPLICABLE "WHENEVER UPON THE STATEMENT OF THE ACCOUNT OF ANY DISBURSING OFFICER OF THE UNITED STATES IN THE GENERAL ACCOUNTING OFFICE CREDIT SHALL HAVE BEEN DISALLOWED FOR ANY PAYMENT TO ANY PERSON IN THE EXECUTIVE BRANCH OF THE GOVERNMENT.' THE DEBT OF AN OFFICER OR EMPLOYEE OF THE GOVERNMENT FOR UNPAID TAXES DOES NOT ARISE BY REASON OF A DISALLOWANCE OF CREDIT IN A DISBURSING OFFICER'S ACCOUNT. WHILE THE DECISIONS HERETOFORE REFERRED TO DO NOT INVOLVE A CLAIM OF THE GOVERNMENT FOR UNPAID TAXES, NO BASIS APPEARS FOR HOLDING THAT THE GOVERNMENT IS AUTHORIZED TO WITHHOLD CURRENT SALARY PAYMENTS OF ANY OFFICER OR EMPLOYEE OF THE GOVERNMENT WHILE STILL IN THE SERVICE--- AS DISTINGUISHED FROM SALARY PAYMENTS DUE AT THE TIME OF SEPARATION--- TO LIQUIDATE A TAX INDEBTEDNESS WITHOUT THE CONSENT OF THE PARTICULAR OFFICER OR EMPLOYEE CONCERNED.

IT IS ASSUMED THAT YOUR DOUBT CONCERNING THE APPLICATION TO THE PRESENT MATTER OF THE RULE ESTABLISHED BY THE DECISIONS CITED ARISES BY REASON OF THE MANNER IN WHICH THE EMPLOYEE'S TAX INDEBTEDNESS WAS BROUGHT TO THE ATTENTION OF THE AGENCY CONCERNED, NAMELY, BY SERVICE OF A NOTICE OF LEVY. IN THAT CONNECTION, IT APPEARS THAT THE AUTHORITY OF THE COLLECTOR OF INTERNAL REVENUE TO ISSUE SAID NOTICE OF LEVY DERIVES FROM CERTAIN PROVISIONS OF THE INTERNAL REVENUE CODE (26 U.S.C.A. 3690, ET SEQ.) WHICH READ AS FOLLOWS:

SEC. 3690. AUTHORITY TO DISTRAIN.

IF ANY PERSON LIABLE TO PAY ANY TAXES NEGLECTS OR REFUSES TO PAY THE SAME WITHIN TEN DAYS AFTER NOTICE AND DEMAND, IT SHALL BE LAWFUL FOR THE COLLECTOR OR HIS DEPUTY TO COLLECT THE SAID TAXES, WITH SUCH INTEREST AND OTHER ADDITIONAL AMOUNTS AS ARE REQUIRED BY LAW, BY DISTRAINT AND SALE, IN THE MANNER PROVIDED IN THIS SUBCHAPTER, OF THE GOODS, CHATTELS, OR EFFECTS, INCLUDING STOCKS, SECURITIES, BANK ACCOUNTS, AND EVIDENCES OF DEBT, OF THE PERSON DELINQUENT AS AFORESAID.

SEC. 3710. SURRENDER OF PROPERTY SUBJECT TO DISTRAINT.

(A) REQUIREMENT.--- ANY PERSON IN POSSESSION OF PROPERTY, OR RIGHTS TO PROPERTY, SUBJECT TO DISTRAINT, UPON WHICH A LEVY HAS BEEN MADE, SHALL, UPON DEMAND BY THE COLLECTOR OR DEPUTY COLLECTOR MAKING SUCH LEVY, SURRENDER SUCH PROPERTY OR RIGHTS TO SUCH COLLECTOR OR DEPUTY, UNLESS SUCH PROPERTY OR RIGHT IS, AT THE TIME OF SUCH DEMAND, SUBJECT TO AN ATTACHMENT OR EXECUTION UNDER ANY JUDICIAL PROCESS.

(B) PENALTY FOR VIOLATION.--- ANY PERSON WHO FAILS OR REFUSES TO SO SURRENDER ANY OF SUCH PROPERTY OR RIGHTS SHALL BE LIABLE IN HIS OWN PERSON AND ESTATE TO THE UNITED STATES IN A SUM EQUAL TO THE VALUE OF THE PROPERTY OR RIGHTS NOT SO SURRENDERED, BUT NOT EXCEEDING THE AMOUNT OF THE TAXES (INCLUDING PENALTIES AND INTEREST) FOR THE COLLECTION OF WHICH SUCH LEVY HAS BEEN MADE, TOGETHER WITH COSTS AND INTEREST FROM THE DATE OF SUCH LEVY.

(C) PERSON DEFINED.--- THE TERM "PERSON" AS USED IN THIS SECTION INCLUDES AN OFFICER OR EMPLOYEE OF A CORPORATION OR A MEMBER OR EMPLOYEE OF A PARTNERSHIP, WHO AS SUCH OFFICER, EMPLOYEE, OR MEMBER IS UNDER A DUTY TO PERFORM THE ACT IN RESPECT OF WHICH THE VIOLATION OCCURS.

IT HAS BEEN HELD THAT UNDER THE FOREGOING PROVISIONS OF LAW THE GOVERNMENT HAS THE POWER TO REACH PROPERTY OR PROPERTY RIGHTS OF THE DELINQUENT TAXPAYER IN POSSESSION OF A THIRD PERSON AND THAT SALARY OR WAGES WHICH HAVE BEEN EARNED ARE SUBJECT TO DISTRAINT AND LEVY, SO FAR AS THEY HAVE ACCRUED, WHEN DEMANDS FOR PAYMENT ARE MADE BY A COLLECTOR OF INTERNAL REVENUE. UNITED STATES V. LONG ISLAND DRUG CO., 115 F.2D 983; UNITED STATES V. BANK OF UNITED STATES, 5 F.1SUPP. 942. HOWEVER, SUCH DECISIONS RELATE TO THE SEIZURE OF PROPERTY IN THE POSSESSION OF PRIVATE PARTIES OR AGENCIES, AND NO DECISION OR PRECEDENT HAS COME TO ATTENTION SUPPORTING THE VIEW THAT THE PROCEDURE CONTEMPLATED BY THE ABOVE-QUOTED PROVISIONS OF LAW MAY BE INVOKED WITH RESPECT TO FUNDS IN THE POSSESSION OF THE UNITED STATES. SAID PROCEDURE IN ALL ITS LEGAL IMPLICATIONS IS NOT UNLIKE A GARNISHMENT; AND, ASIDE FROM THE FACT THAT THE LEVY, IF RECOGNIZED IN THE PRESENT MATTER, WOULD CREATE THE INCONGRUOUS SITUATION OF ONE AGENCY, SUCH EXECUTION WOULD RUN COUNTER TO THE UNBROKEN RULE ESTABLISHED BY THE CASE OF BUCHANAN V. ALEXANDER, 4 HOW. 20, THAT A CREDITOR OF A GOVERNMENT EMPLOYEE MAY NOT ATTACH OR GARNISH HIS WAGES BY ACTION AGAINST THE UNITED STATES, ITS OFFICERS, OR THE FUNDS FROM WHICH SUCH WAGES WILL BE PAID, UNLESS THE UNITED STATES HAS CONSENTED TO SUCH PROCEEDINGS. IN THAT CONNECTION, SEE MCGREW V. MCGREW, 38 F2D. 541, 544; MCCARTHY V. UNITED STATES SHIPPING BOARD MERCHANT FLEET CORPORATION, 53 F.2D 923; APPLEGATE V. APPLEGATE, 39 F.1SUPP. 887. MOREOVER, IT EQUALLY IS WELL SETTLED THAT PROCEEDINGS AGAINST PROPERTY OF THE UNITED STATES MAY NOT BE MAINTAINED WHERE IT HAS NOT WAIVED ITS SOVEREIGN IMMUNITY. THE SIREN, 7 WALL. 152; STANLEY V. SCHWALBY, 147 U.S. 508; MINNESOTA V. UNITED STATES, 305 U.S. 382; UNITED STATES V. ALABAMA, 313 U.S. 274.

IN VIEW OF THE FOREGOING, AND IN SPECIFIC ANSWER TO THE QUESTION PRESENTED IN THE PENULTIMATE PARAGRAPH OF YOUR LETTER, IT MUST BE HELD THAT, IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY TO THE CONTRARY, THE CIRCUMSTANCES OF THE PRESENT MATTER ARE NOT SUCH AS TO JUSTIFY A DEPARTURE FROM THE RULE HEREINBEFORE REFERRED TO CONCERNING THE IMMUNITY FROM SET- OFF OF THE CURRENT SALARY OR WAGES OF OFFICERS AND EMPLOYEES OF THE UNITED STATES.