B-132700, AUG. 26, 1957

B-132700, AUG. 26, 1957

TO MR. RICHARD P. MCGARREY, AUTHORIZED CERTIFYING OFFICER, SOIL CONSERVATION SERVICE:

YOUR LETTER OF JULY 22, 1957, REQUESTS OUR DECISION WHETHER YOU MAY CERTIFY FOR PAYMENT THE ENCLOSED VOUCHER IN ITS PRESENT FORM AND WHETHER ANY OF THE EXPENSES LISTED THEREWITH MAY BE CONSIDERED IN COMPUTING THE INTERIM NET EARNINGS OF MR. JUSTIN M. SMITH. YOU SAY THAT MR. SMITH WAS ERRONEOUSLY REMOVED FROM SERVICE ON MARCH 2, 1956, AND WAS RESTORED TO DUTY JUNE 27, 1957, UPON A RECOMMENDATION OF THE CIVIL SERVICE COMMISSION BECAUSE OF PROCEDURAL ERROR IN HIS REMOVAL. IN A SEPARATE LETTER DATED JULY 15, 1957, MR. SMITH ASKED SEVERAL QUESTIONS CONCERNING HIS CASE. ENCLOSE HEREWITH A COPY OF OUR REPLY ON AUGUST 2, 1957, INFORMING HIM THAT OUR DECISION ON THE COMPUTATION OF HIS BACK PAY PROPERLY IS TO BE RENDERED TO YOU.

YOUR COMPUTATION APPEARS CORRECT, EXCEPT THAT MR. SMITH'S RETIREMENT, TAX, AND INSURANCE DEDUCTIONS ARE TO BE COMPUTED UPON HIS GROSS BACK PAY, BEFORE SUBTRACTING HIS EARNINGS FROM OTHER EMPLOYMENT. HOWEVER, WHILE THAT ADJUSTMENT MUST BE EFFECTED ON THE VOUCHER, WE WILL ASSUME FOR PURPOSES OF OUR DISCUSSION BELOW THAT THE NET SUM OF $4,952.21 STATED ON THE VOUCHER IS CORRECT.

YOU ENCLOSED WITH YOUR LETTER MR. SMITH'S AFFIDAVITS (1) SETTING FORTH HIS GROSS INTERIM EARNINGS FROM ALL SOURCES, A TOTAL OF $2,416.58, AND (2) LISTING HIS "EXPENSES" AS MILEAGE COSTS OF $1,510.46 (21,578 MILESAT 7 CENTS PER MILE), SUBSISTENCE PER DIEM AT $942.75 (104 3/4 DAYS AT $9 PER DAY), AND MISCELLANEOUS COSTS OF $771.42, TOTALING $3,224.63. HE SAYS HE INCURRED SUCH EXPENSES IN COMPLYING WITH REQUESTS OF CIVIL SERVICE COMMISSION INVESTIGATORS AND IN ORDER TO FIND AND KEEP EMPLOYMENT DURING THE PERIOD OF HIS SEPARATION FROM THE SOIL CONSERVATION SERVICE.

AUTHORITY FOR RETROACTIVE COMPENSATION IN THIS CASE APPARENTLY IS CONTAINED IN SECTION 6 (B) (2) OF THE ACT OF JUNE 10, 1948, 5 U.S.C. 652. UNDER THE TERMS THEREOF ANY PERSON RESTORED TO DUTY SHALL BE PAID COMPENSATION AT THE RATE RECEIVED ON THE DATE OF DISCHARGE LESS ANY AMOUNTS EARNED THROUGH OTHER EMPLOYMENT DURING THE PERIOD OF SEPARATION AND SHALL FOR ALL PURPOSES "EXCEPT THE ACCUMULATION OF LEAVE" BE DEEMED TO HAVE RENDERED SERVICE DURING SUCH PERIOD. AS THAT PROVISION EXPRESSLY PRECLUDES ACCRUAL OF LEAVE, THE QUOTED EXCEPTION THEREIN SUFFICES TO ANSWER ONE OF MR. SMITH'S QUESTIONS IN HIS LETTER OF JULY 15. HOWEVER, ACCUMULATED LEAVE STANDING TO HIS CREDIT ON THE DATE OF HIS REMOVAL MAY BE RESTORED TO HIS CREDIT, PROVIDED THAT REFUND OF HIS LUMP-SUM LEAVE PAYMENT ON SEPARATION IS MADE BY A DEDUCTION THEREOF FROM THE COMPENSATION DUE UNDER THE 1948 ACT, AS INDICATED IN THE COMPUTATION SHEET ATTACHED TO YOUR LETTER.

REGARDING THE LISTED "EXPENSES" OF MR. SMITH, WE GENERALLY HAVE HELD IN SIMILAR CASES THAT THE STATUTE CONTEMPLATES THE DEDUCTION FROM THE "OTHER" EARNINGS ONLY THE ORDINARY AND NECESSARY BUSINESS EXPENSES TO THE EXTENT PERMITTED UNDER THE INTERNAL REVENUE LAWS AND REGULATIONS FOR ESTABLISHING NET INCOME FOR TAXATION PURPOSES; THAT IS, THE LEGITIMATE AND REASONABLE EXPENSES NECESSARILY INCURRED TO PRODUCE THE GROSS INCOME. HOWEVER, IN THE CASE OF SALARIED EMPLOYEES--- AS DISTINGUISHED FROM THOSE WHO CARRY ON A TRADE OR BUSINESS--- THE RULE IS DIFFERENT. WITH THE FORMER SUCH COSTS ARE CHARACTERIZED IN THE INTERNAL REVENUE REGULATIONS AS NONTRADE OR NONBUSINESS EXPENSES. 26 C.F.R. 39.23/A/-15. WE REGARD SUCH EXPENSES AS THOSE AN EMPLOYEE IS REQUIRED TO INCUR TO OBTAIN AND QUALIFY FOR THE EMPLOYMENT. THEREFORE, IN ACCORDANCE WITH SUBSECTION 39.23/A/-15/F) OF THE CITED REGULATIONS, HIS EXPENSES OF TRAVELING, SUBSISTENCE, AND HOUSEHOLD MOVEMENTS ARE NOT DEDUCTIBLE. NEITHER ARE THE EXPENSES INCURRED IN "SEEKING EMPLOYMENT OR IN PLACING ONESELF IN A POSITION TO BEGIN RENDERING PERSONAL SERVICES FOR COMPENSATION.' AS TO THE ITEM OF $32, REPRESENTING FEES FOR MEMBERSHIPS IN EDUCATION ASSOCIATIONS, IF SUCH MEMBERSHIPS WERE REQUIRED OF MR. SMITH IN ORDER TO TEACH IN THE OGDEN HIGH SCHOOL, THAT ITEM WOULD BE ALLOWABLE AND SHOULD BE DEDUCTED FROM HIS EARNINGS FROM THAT SOURCE.

AS TO THE ATTORNEY FEES AND THE TRAVEL AND MISCELLANEOUS COSTS WHICH MR. SMITH SAYS WERE INCURRED INCIDENT TO THE APPEAL AND INVESTIGATION OF HIS SEPARATION, IT SUFFICES TO SAY THAT THE STATUTE CONTAINS NO PROVISION, EXPRESS OR IMPLICIT, FOR AN ALLOWANCE OF SUCH EXPENSES. FURTHER, WE KNOW OF NO AUTHORITY FOR ANY ALLOWANCE OF INTEREST COSTS, SUCH AS ON MONEY BORROWED OR WITHDRAWN FROM INVESTMENT ACCOUNTS OR RETIREMENT FUNDS; FOR SUBSISTENCE AND MILEAGE COSTS OF COMMUTING FROM HOME TO WORK DURING THE PERIOD OF SEPARATION; OR FOR ATTENDANCE AT CONFERENCES AND CONVENTIONS INCIDENT TO THE INTERIM EMPLOYMENT, AS CLAIMED BY MR. SMITH IN THIS CASE.

REGARDING MR. SMITH'S INTERIM EARNINGS, THE AMOUNT OF $15 HE RECEIVED FOR A PUBLISHED MAGAZINE ARTICLE MAY BE EXCLUDED IN COMPUTING HIS INTERIM EARNINGS. 34 COMP. GEN. 384. AS TO HIS OTHER EMPLOYMENT DURING APRIL 1956 AND THE PERIOD FROM APRIL TO JUNE 1957, IT APPEARS THAT SOME OF HIS EXPENSES WERE REIMBURSED BY HIS EMPLOYERS. HOWEVER, THE MILEAGE AND PER DIEM LISTED IN HIS PRESENT STATEMENTS ARE NOT ALLOWABLE COSTS; NEITHER DO SUCH ITEMS APPEAR TO BE "BUSINESS EXPENSES" AS DEFINED IN 26 C.F.R. 39- 23/A/-1, NAMELY, THOSE EXPENSES NECESSARILY INCURRED IN CARRYING ON A TRADE OR BUSINESS WITHIN THE MEANING OF THE LAW, 26 U.S.C. 62 (1) AND 162 (1952 EDITION, SUPPL. IV). FURTHER, IT IS OUR VIEW THAT SUCH ITEMS DO NOT REPRESENT ORDINARY AND NECESSARY NONTRADE OR NONBUSINESS EXPENSES INCURRED FOR THE PRODUCTION OF THE INCOME INVOLVED.

THEREFORE, AN APPROPRIATE CORRECTION SHOULD BE MADE ON THE VOUCHER AS POINTED OUT IN THE SECOND PARAGRAPH OF THIS LETTER, BUT NONE OF THE ITEMS CLAIMED BY MR. SMITH--- OTHER THAN THE ITEMS OF $32 AND $15, DISCUSSED ABOVE--- MAY BE DEDUCTED FROM HIS INTERIM GROSS EARNINGS TO DETERMINE HIS NET EARNINGS.

ACCORDINGLY, AFTER MAKING THE CORRECTIONS INDICATED, THE VOUCHER WHICH IS RETURNED HEREWITH MAY BE CERTIFIED FOR PAYMENT.