B-229184, Feb 16, 1990, 69 Comp.Gen. 258
B-229184: Feb 16, 1990
Although a RIT allowance is intended to reimburse an employee for substantially all of the increased taxes he incurs due to the expenses of relocation that he is reimbursed. The applicable regulations provide that the allowance is not to be adjusted to accommodate an employee's unique circumstances. Payment of an additional RIT allowance in these circumstances is not authorized. He was authorized relocation expenses which included entitlement to a RIT allowance. That payment is not in issue. The issue is whether he is entitled to receive an additional allowance because he lost a $2. The purpose of the RIT allowance is to offset the additional taxes the employee must pay on the nondeductible portion of the reimbursed expenses.
B-229184, Feb 16, 1990, 69 Comp.Gen. 258
A transferred employee's adjusted gross income exceeded the maximum allowable for taking a deduction for a contribution to an Individual Retirement Account (IRA) on a jointly filed tax return. He indicates that the loss of the IRA deduction increased his tax liability by $300, and he seeks an additional amount of relocation income tax (RIT) allowance to compensate him for this loss. Although a RIT allowance is intended to reimburse an employee for substantially all of the increased taxes he incurs due to the expenses of relocation that he is reimbursed, the applicable regulations provide that the allowance is not to be adjusted to accommodate an employee's unique circumstances. Payment of an additional RIT allowance in these circumstances is not authorized.
Frayne W. Lehman - Relocation Income Tax Allowance: An authorized official of the U.S. Department of Housing and Urban Development (HUD) /1/ asks whether a transferred employee, Mr. Frayne W. Lehman, may be paid an additional relocation income tax (RIT) allowance because of the loss of a deduction for an individual retirement account (IRA). Mr. Lehman states that the loss of the deduction occurred because his moving expense reimbursement increased his adjusted gross income beyond the allowable limits for an IRA deduction. For the reasons stated below, Mr. Lehman may not receive an additional allowance.
In February 1987, Mr. Lehman transferred from Honolulu, Hawaii, to Phoenix, Arizona. He was authorized relocation expenses which included entitlement to a RIT allowance. Following his move, Mr. Lehman received a RIT allowance computed in accordance with the applicable provisions of the Federal Travel Regulations (FTR), and that payment is not in issue. The issue is whether he is entitled to receive an additional allowance because he lost a $2,000 deduction for an IRA contribution. This occurred because his moving expense reimbursement increased his adjusted gross income on his joint tax return to over $50,000, which by law precluded him from taking any deduction for contributions to an IRA. See 26 U.S.C. Sec. 219(g) (Supp. IV 1986). As a result, his tax liability increased by $300.
A transferred employee who receives reimbursement of his moving expenses generally has the total amount reimbursed included as income to him. This necessarily causes the employee's adjusted gross income on an individual or joint tax return to increase by the amount of the reimbursed expenses. From his adjusted gross income, the employee then may deduct certain of the moving expenses for which he has been reimbursed. The purpose of the RIT allowance is to offset the additional taxes the employee must pay on the nondeductible portion of the reimbursed expenses. See generally A. J. Mitchell, Jr., 66 Comp.Gen. 478 (1987).
For the taxable year 1987, Mr. Lehman received a form W-2 reflecting that he had received $15,984.05 in reimbursed moving expenses and allowances. Of this amount only a total of $3,137.91 constituted nondeductible moving expenses, and Mr. Lehman received a RIT allowance to offset his increased tax liability. See 5 U.S.C. Sec. 5724b (1988), as implemented by the Federal Travel Regulations (FTR), chapter 2, part 11, GSA Bulletin FPMR A- 40, Supp. 25 (effective Jan. 1, 1987). In calculating his allowance, however, the agency did not consider Mr. Lehman's contention that the inclusion of his reimbursed moving expenses in his adjusted gross income resulted in his losing a $2,000 deduction for an IRA contribution. If his adjusted gross income had not included the $15,984.05, he could have deducted the entire IRA contribution of $2,000 with a concomitant $300 reduction in his income tax liability for 1987. See 26 U.S.C. Sec. 219(g).
DISCUSSION AND CONCLUSION
The RIT allowance is authorized by 5 U.S.C. Sec. 5724b(a), which provides that "to the extent considered necessary and appropriate" as prescribed in implementing regulations, agency funds are available to reimburse employees "substantially all of the Federal, State, and local income taxes incurred" because of the reimbursement of moving expenses. Recognizing the complexities that could arise in prescribing a procedure to implement this statutory entitlement, GSA, in conjunction with the Internal Revenue Service, devised a system to avoid a "potentially controversial and administratively burdensome procedure requiring the employee to furnish extensive documentation, such as certified copies of actual tax returns and reconstructed returns." FTR, para. 2-11.8b(1). The system enables an agency to calculate a RIT allowance once the employee's earned income and nondeductible moving expenses are known. The regulations further set out certain assumptions enabling an agency to determine the employee's nondeductible relocation expenses as well as certain other assumptions regarding an employee's state and local tax rates. Id. Agencies are to apply the procedures uniformly and the procedures "are not to be adjusted to accommodate an employee's unique circumstances which may differ from the assumed circumstances. ...." FTR, para. 2-11.8b(2).
The regulations contain no provisions specifically relating to an IRA deduction the entitlement to which varies among individuals depending on such factors as income level, return-filing status and whether an employee or spouse is covered under an employer pension program. Neither do the regulations provide for reimbursement based on some secondary effect such as an increase in the employee's income level which disqualifies him from some other deduction, such as an IRA deduction. In fact this appears to be the type of "unique" circumstance which the regulations specifically preclude from consideration. In our view this is within the latitude the statute leaves to the prescriber of regulations.
Accordingly, since it would be contrary to the language and purpose of the regulations, Mr. Lehman may not be paid an increased RIT allowance based on his claimed loss of an IRA deduction.
/1/ S. A. Evans, Director, Office of Finance and Accounting.