B-210857.4, Aug 24, 1988, Office of the General Counsel

B-210857.4, Aug 24, 1988, Office of the General Counsel

APPROPRIATIONS/FINANCIAL MANAGEMENT - Claims Against Government - Claim settlement - Amount determination - Tax liability DIGEST: Normally this Office will not rule on tax matters since a decision as to what is and what is not taxable lies with the Internal Revenue Service. However, we will make an independent determination if the matter is within our jurisdiction, i.e., Davis-Bacon Act payments. Further, Claims Group is advised that FICA tax deductions should not have been made to a Davis- Bacon Act payment made to the estate of a former employee after the calendar year in which the employee died since such payments are specifically precluded from the definition of wages for FICA tax deduction purposes by 26 U.S.C. Sec. 3121(a)(14).

The Honorable Ike Skelton Member, United States House of Representatives

We refer to your most recent correspondence of May 23, 1988, on behalf of your constituent, Ms. Darlene Allen. Ms. Allen has protested the deduction of $333.48 in Federal Insurance Contributions Act (FICA) taxes from a settlement made under the Davis-Bacon Act and paid to her as a representative of the estate of Buddy D. Allen, her deceased husband.

Normally this Office will not rule on tax matters since a decision as to what is and what is not taxable lies with the Internal Revenue Service (IRS). However, we will make an independent determination if the matter for consideration is within our jurisdiction, such as in this case, where the Comptroller General is responsible for the payment of wages withheld under the Davis-Bacon Act. 40 U.S.C. Sec. 276a-2(a) (1982). See also 65 Comp.Gen. 800 (1986).

By way of background, our Claims Group withheld the FICA taxes from the final payment to Ms. Allen as part of its standard operating procedure since FICA taxes are normally due when wages are received. 26 U.S.C. Sec. 3102(a) (1982). Further, our Claims Group personnel received verbal confirmation from the Social Security Administration that it was correct to do so. However, we agree with Ms. Allen that the FICA tax deduction should not have been made in this case.

Wages are defined for purposes of FICA tax deductions in 26 U.S.C. Sec. 3121(a), as amended by the Tax Reform Act of 1986, to include all remuneration for employment. However, the definition of wages does not include any payment made by an employer to a survivor or the estate of a former employee after the calendar year in which such employee died. U.S.C. Sec. 3121(a)(14); 26 C.F.R. Sec. 31.3121(a)(14)-1 (1987).

The statutory language is clear on its face, and since Mr. Allen died in 1983 and the payments were made to his estate in 1986, such amount was not taxable as wages under FICA. Therefore, the amount should not have been deducted from the final payment to his estate.

It will not be possible for this Office to return the amount of the erroneous deduction to Ms. Allen since it has already been deposited in the Treasury. However, we are advising our Claims Group to issue a revised form W-2 to show that the refund was not income. This documentation will allow Ms. Allen to file for a refund of the FICA under IRS regulations. 26 C.F.R. Sec. 31.6402(a)-2 (1987).

We also wish to point out that there is a limitation period for filing for a refund and that a claim must be filed by the taxpayer within 3 years from the time a return was filed or within 2 years from the time the tax was paid, whichever period is later. 26 C.F.R. Sec. 301.6511(a)-1 (1987).

We regret any inconvenience we may have caused your constituent.