Grauvogel v. C.I.R., 84-7393

• Decision Date: 14 August 1985
• Docket Number: No. 84-7393,84-7393
• Citation: 768 F.2d 1087
• Parties: -5747, 85-2 USTC P 9614 Carl Albert GRAUVOGEL, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1087

768 F.2d 1087

56 A.F.T.R.2d 85-5747, 85-2 USTC P 9614

Carl Albert GRAUVOGEL, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 84-7393.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 5, 1985.

Decided Aug. 14, 1985.

Carl Albert Grauvogel, pro se.

Glenn L. Archer, Jr., Michael L. Paup, Ann Belanger Durney, Kathryn E. Rooklidg, Washington, D.C., for respondent-appellee.

On Appeal from the Decision of the United States Tax Court.

Before WRIGHT, POOLE and HALL, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge.

This appeal raises a constitutional challenge to the tax-free status of a cost-of-living allowance (COLA) accorded federal employees working in Alaska.

FACTS

During 1979 and 1980, Grauvogel was employed as a biologist for the Alaska State Department of Fish and Game. His salary was $37,602.83 and $41,310.11 for the respective years. Using the cost-of-living differentials paid by Alaska to its Nome employees under a contract with the Alaska Public Employees Association, Grauvogel deducted 24.8% of his salary in 1979 ($9,326) and 24.5% in 1980 ($10,121).

The Commissioner of Internal Revenue disallowed the deductions, interpreting 26 U.S.C. Sec. 912(2) as limited to civilian officers and employees of the federal government. Grauvogel petitioned the Tax Court, raising two arguments. First he claimed that permitting tax-free COLA to federal employees stationed in Alaska violated the equal protection rights of similarly situated Alaska state employees. If the unconstitutional portion was severed, the exemption would then apply to both state and federal employees. Second, he claimed that since his salary was paid with matching federal funds, he qualified for an exemption under the statute as written.

The Tax Court sustained the constitutionality of the statute and denied Grauvogel's exemption. It found that he was a state employee irrespective of matching federal funds.

On appeal, the taxpayer argues that the exemption violates his equal protection rights. ¹ He makes the additional request that penalties and interest should be waived.

ANALYSIS

26 U.S.C. Sec. 912(2) provides that certain cost-of-living-allowances paid to "civilian officers or employees of the Government of the United States stationed outside the continental United States (other than Alaska)" are exempt from federal income tax. ² Grauvogel contends that the distinction between federal and state employees unfairly discriminates against the latter, violating the equal protection guarantee inherent in the due process clause of the Fifth Amendment. See Schweiker v. Wilson, 450 U.S. 221, 226 n. 6, 101 S.Ct. 1074, 1079 n. 6, 67 L.Ed.2d 186 (1981) (Fifth Amendment imposes same standard on federal government as Fourteenth Amendment imposes on states).

We examine this statutory classification to determine if it bears a rational relation to a legitimate governmental purpose. Regan v. Taxation With Representation, 461 U.S. 540, 547, 103 S.Ct. 1997, 2002, 76 L.Ed.2d 129 (1983). Congress has broad latitude in creating a tax classification and we will not set it aside if any state of facts will justify it. Id.; McGowan v. Maryland, 366 U.S. 420, 426, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393 (1961).

The legislative history of section 912(2) indicates a legislative purpose to offset rising taxes and living costs of civilian employees overseas without increasing their COLA. ³ Sjoroos v. Commissioner, 81 T.C. 971, 973-74 (1983) (private citizen challenges Sec. 912(2)); Lyman v. Commissioner, 47 T.C.M. (CCH) 1236, 1239 (1984). This decision implements broader congressional policy on administration of federal government activity outside the continental United States and is rationally related to this end. Accord Sjoroos, 81 T.C. at 975.

Our analysis does not change because Grauvogel is an Alaska state employee. Lyman, 47 T.C.M. (CCH) at 1239. Congress chose this method of dealing with the high cost of living outside the continental United States. It is not our function to " 'hypothesize independently on the desirability or feasibility of any possible alternative[s]' to the statutory scheme." Lalli v. Lalli, 439 U.S. 259, 274, 99 S.Ct. 518, 527, 58 L.Ed.2d 503 (1978) (quoting Mathews v. Lucas, 427 U.S. 495, 515, 96 S.Ct. 2755,

2767, 49 L.Ed.2d 651 (1976)). We have determined that this classification is directly related to the legitimate interest of effectively administering the operations of the United States government outside the continental United States. Our review ends there.

INTEREST

Issues not raised below will generally not be considered on appeal. Kuntz v. Reese, 760 F.2d 926, 936 (9th Cir.1985). We may exercise our discretion to hear such an issue in some narrow circumstances. Id.; Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir.1985). We do so here because the issue raised is one of law, and justice will be better served if we address all of this pro se litigant's contentions.

He asks that all accumulated interest be waived because he has never tried to hide his claimed exemption. ⁴ We recognize that he has been forthright. However, the interest provision of the Internal Revenue Code provides that interest shall apply to taxes "not paid on or before the last date prescribed for payment." 26 U.S.C. Sec. 6601(a). Section 6601(a) is not a penalty for late payment but merely compensation for delayed payment in the nature of interest on a loan. United States v. Childs, 266 U.S. 304, 309-10, 45 S.Ct. 110, 111, 69 L.Ed. 299 (1924). See United States v. Means, 621 F.2d 236, 238 (6th Cir.1980) (no good faith exception to accumulation of interest).

The statute itself provides the means for a taxpayer to stop the interest provision from operating. This taxpayer could have paid the amount due within 10 days of demand and stopped the accumulation of interest, 26 U.S.C. Sec. 6601(e)(3), or paid the assessment and sought a refund. See Rev.Proc. 60-17, 1960-2 Cum.Bull. 942; 10 J. Mertens, Law of Federal Income Taxation Sec. 55.02 (Rev.1985) (exceptions to general rule that interest must be paid on all overdue taxes).

CONCLUSION

The Tax Court determined correctly that the COLA provision applicable to federal employees working in Alaska is not unconstitutional. Although Grauvogel has made his arguments in good faith, the statutory interest provision applies to his overdue taxes.

AFFIRMED.

1 Grauvogel has not argued that he qualifies for the exemption as written in this appeal. We deem it waived. See Fed.R.App.P. 28; Levy v. Urbach, 651 F.2d 1278, 1280-81 n. 3 (9th Cir.1981); Ellingson v. Burlington Northern, Inc., 653 F.2d 1327, 1332 (9th Cir.1981).

2 In 1960, Congress added the language "other than Alaska". See Overseas Differentials and Allowances Act, Pub.L. No. 86-707, Sec. 523(a), 74 Stat. 792, 802 (19...