B-127036, SEPTEMBER 3, 1969, 49 COMP. GEN. 150

B-127036, SEPTEMBER 3, 1969, 49 COMP. GEN. 150

SAVINGS DEPOSITS -- SET-OFF -- TAX INDEBTEDNESS -- MILITARY PERSONNEL THE STATUS OF SAVINGS DEPOSITS AS PART OF THE SALARY AND WAGES OF ENLISTED MEMBERS OF THE UNITED STATES IS NOT AFFECTED BY THE ACT OF AUGUST 14, 1966, WHICH AMENDED 10 U.S.C. 1035, TO PROVIDE A NEW SAVINGS DEPOSIT PROGRAM AND TO EXEMPT THE DEPOSITS FROM LIABILITY FOR DEBT, INCLUDING ANY INDEBTEDNESS TO THE UNITED STATES, AND THE DEPOSITS, THEREFORE, ARE SUBJECT TO LEVY BY THE INTERNAL REVENUE SERVICE (26 U.S.C. 6331(A)) FOR UNPAID TAXES. THE 1966 ACT MERELY CONTINUED IN EFFECT THE PROVISIONS OF AN EARLIER ACT THAN THE 1954 INTERNAL REVENUE CODE UNDER WHICH A MEMBER'S DEPOSITS WERE NOT EXEMPT FROM LEVY FOR UNPAID TAXES, AND SAVINGS DEPOSITS ARE NOT INCLUDED IN THE ENUMERATION OF PROPERTY EXEMPTED FROM TAX LEVY IN THE INTERNAL REVENUE CODE, THE FEDERAL TAX LIEN ACT OF 1966, OR OTHER LEGISLATIVE PROVISIONS PRESCRIBING TAX LEVY EXEMPTIONS.

TO THE SECRETARY OF DEFENSE, SEPTEMBER 3, 1969:

FURTHER REFERENCE IS MADE TO LETTER DATED AUGUST 5, 1969, FROM THE ASSISTANT SECRETARY OF DEFENSE (COMPTROLLER) REQUESTING A DECISION AS TO WHETHER SAVINGS DEPOSITS, INCLUDING INTEREST THEREON, AUTHORIZED UNDER 10 U.S.C. 1035, ARE TO BE CONSIDERED A PART OF A MEMBER'S SALARY AND WAGES WHICH ARE SUBJECT TO LEVY BY THE INTERNAL REVENUE SERVICE. THE QUESTION WAS DISCUSSED IN DEPARTMENT OF DEFENSE MILITARY PAY AND ALLOWANCE COMMITTEE ACTION NO. 431.

SECTION 6331(A) OF THE INTERNAL REVENUE CODE, 26 U.S.C. 6331(A), PROVIDES THAT IF ANY PERSON LIABLE TO PAY ANY TAX NEGLECTS OR REFUSES TO PAY THE SAME WITHIN 10 DAYS AFTER NOTICE AND DEMAND, IT SHALL BE LAWFUL FOR THE SECRETARY OF THE TREASURY OR HIS DELEGATE TO COLLECT SUCH TAX BY LEVY UPON ALL PROPERTY AND RIGHTS TO PROPERTY (EXCEPT SUCH PROPERTY AS IS EXEMPT UNDER SECTION 6334) BELONGING TO SUCH PERSON. IT IS FURTHER PROVIDED IN SUBSECTION 6331(A) THAT:

*** LEVY MAY BE MADE UPON THE ACCRUED SALARY OR WAGES OF ANY OFFICER, EMPLOYEE, OR ELECTED OFFICIAL, OF THE UNITED STATES, THE DISTRICT OF COLUMBIA, OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES OR THE DISTRICT OF COLUMBIA, BY SERVING A NOTICE OF LEVY ON THE EMPLOYER (AS DEFINED IN SECTION 3401(D)) OF SUCH OFFICER, EMPLOYEE, OR ELECTED OFFICIAL. ***

SUBSECTION 6334(A) EXEMPTS FROM LEVY CERTAIN PROPERTY THERE ENUMERATED, NONE OF WHICH INCLUDES THE PROPERTY HERE INVOLVED. SUBSECTION 6334(C) PROVIDES THAT:

NOTWITHSTANDING ANY OTHER LAW OF THE UNITED STATES, NO PROPERTY OR RIGHTS TO PROPERTY SHALL BE EXEMPT FROM LEVY OTHER THAN THE PROPERTY SPECIFICALLY MADE EXEMPT BY SUBSECTION (A).

IN OUR DECISION OF AUGUST 10, 1956, 36 COMP. GEN. 106, WE HELD IN EFFECT THAT SUBSECTION 6334(C) NULLIFIED ALL PREVIOUS SPECIAL EXEMPTION PROVISIONS AND SUPERSEDED ANY EXEMPTION PREVIOUSLY RECOGNIZED BY THE ACCOUNTING OFFICERS AND ONLY THE PROPERTY ENUMERATED IN SUBSECTION 6334(A) SHALL BE EXEMPT FROM LEVY. THEREFORE, IT WAS OUR VIEW THAT SAVINGS DEPOSITS UNDER THE FORMER PROGRAM FOR ENLISTED MEMBERS (10 U.S.C. 1035) WERE SUBJECT TO LEVY UNDER 26 U.S.C. 6331.

THE ACT OF AUGUST 14, 1966, PUBLIC LAW 89-538, 80 STAT. 347, AMENDING 10 U.S.C. 1035, VIRTUALLY ABOLISHED THE FORMER ENLISTED MEMBERS' DEPOSITS SYSTEM AND SUBSTITUTED A PROGRAM WHEREBY A MEMBER OF THE ARMED FORCES WHO IS ON PERMANENT DUTY OUTSIDE THE UNITED STATES OR ITS POSSESSIONS MAY DEPOSIT DURING THAT TOUR OF DUTY NOT MORE THAN HIS UNALLOTTED CURRENT PAY AND ALLOWANCES IN AMOUNTS OF $5 OR MORE WITH ANY BRANCH, OFFICE OR OFFICER OF A UNIFORMED SERVICE AND RECEIVE INTEREST ON SUCH DEPOSITS AT A RATE PRESCRIBED BY THE PRESIDENT NOT TO EXCEED 10 PER CENTUM A YEAR ON SUCH DEPOSITS UP TO A MAXIMUM AMOUNT OF $10,000. BY EXECUTIVE ORDER NO. 11298, DATED AUGUST 14, 1966, THE PRESIDENT PRESCRIBED THAT SUCH DEPOSITS SHALL ACCRUE INTEREST AT THE RATE OF 10 PERCENT PER ANNUM COMPUTED QUARTERLY.

AS PROVIDED BY THE ACT OF AUGUST 14, 1966, 10 U.S.C. 1035(D) WAS AMENDED TO READ AS FOLLOWS:

(D) AN AMOUNT DEPOSITED UNDER THIS SECTION, WITH INTEREST THEREON, IS EXEMPT FROM LIABILITY FOR THE MEMBER'S DEBTS, INCLUDING ANY INDEBTEDNESS TO THE UNITED STATES OR ANY INSTRUMENTALITY THEREOF, AND IS NOT SUBJECT TO FORFEITURE BY SENTENCE OF A COURT-MARTIAL.

SINCE THE ACT OF AUGUST 14, 1966, SPECIFICALLY PROVIDES THAT MEMBERS' SAVINGS DEPOSITS ARE "EXEMPT FROM LIABILITY FOR THE MEMBER'S DEBTS, INCLUDING ANY INDEBTEDNESS TO THE UNITED STATES OR ANY INSTRUMENTALITY THEREOF," AND THE LAW WAS ENACTED SUBSEQUENT TO THE APPROVAL OF THE INTERNAL REVENUE CODE OF 1954, IT IS INDICATED THAT DOUBT EXISTS AS TO THE EFFECT OF 26 U.S.C. 6331 ON SUCH DEPOSITS UNDER ESTABLISHED RULES OF STATUTORY CONSTRUCTION.

THE PRESENT SUBSECTION (D) OF 10 U.S.C. 1035, ENACTED IN 1966, MERELY CONTINUES IN EFFECT A SIMILAR SUBSECTION (D) THAT APPEARED IN THE FORMER SECTION 1035 RELATING TO ENLISTED MEMBERS' DEPOSITS. SUCH FORMER SUBSECTION (D) WAS A CODIFICATION OF SECTION 3 OF THE ACT OF JULY 15, 1954, CH. 513, 68 STAT. 485, ENACTED PRIOR TO THE INTERNAL REVENUE CODE OF 1954, WHICH WAS APPROVED AUGUST 16, 1954. THERE IS NOTHING IN THE LEGISLATIVE HISTORY OF THE 1966 LAW WHICH INDICATES THAT THE CONGRESS HAD ANY INTENTION OF EXEMPTING A MEMBER'S DEPOSITS FROM LEVY FOR TAXES.

UNDER THE PLAIN TERMS OF SUBSECTION 6334(C), ONLY THE PROPERTY OR RIGHTS TO PROPERTY SPECIFICALLY ENUMERATED IN SUBSECTION (A) ARE EXEMPT FROM LEVY. WHILE THE 1966 ACT (INCLUDING THE CURRENT FORM OF 10 U.S.C. 1035(D)) WAS ENACTED AFTER THE INTERNAL REVENUE CODE OF 1954, THE EARLIER SUBSECTION 1035(D) COVERED EXEMPTIONS OTHER THAN EXEMPTION FROM LEVY FOR TAXES AND, SINCE THAT SUBSECTION, IN AND BEFORE 1966, DID NOT AUTHORIZE EXEMPTION FROM TAX LEVY, IT IS BELIEVED THAT IN CONTINUING THAT SUBSECTION IN 1966 IN SUBSTANTIALLY ITS THEN EXISTING FORM, THE CONGRESS DID NOT INTEND TO ENLARGE ITS COVERAGE TO INCLUDE EXEMPTION FROM LEVY FOR TAXES. IN THAT CONNECTION THERE IS FOR NOTING THAT SECTION 104(C) OF THE FEDERAL TAX LIEN ACT OF 1966, APPROVED NOVEMBER 2, 1966, 80 STAT. 1125, 1137, ENACTED SUBSEQUENT TO THE ACT OF AUGUST 14, 1966, ADDED CATEGORIES (6) AND (7) TO THE ENUMERATION OF PROPERTY EXEMPT FROM LEVY UNDER 26 U.S.C. 6334(A). HAD THE CONGRESS INTENDED MEMBERS' SAVINGS DEPOSITS TO BE EXEMPT FROM LEVY, IT WOULD SEEM THAT A SPECIFIC PROVISION THEREFOR WOULD HAVE BEEN MADE IN THE ACT OF NOVEMBER 2, 1966, OR IN SECTION 812 OF THE ACT OF JUNE 21, 1965, PUBLIC LAW 89 44, 79 STAT. 170, OR SECTION 406 OF THE ACT OF AUGUST 28, 1958, PUBLIC LAW 85-840, 72 STAT. 1047, WHICH ADDED CATEGORIES (5) AND (4), RESPECTIVELY.

IN VIEW OF THE FOREGOING, THE QUESTION PRESENTED IS ANSWERED IN THE AFFIRMATIVE.