Miller v. Commissioner of Internal Revenue, 5192.

• Decision Date: 21 January 1944
• Docket Number: No. 5192.,5192.
• Citation: 144 F.2d 287
• Parties: MILLER et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

144 F.2d 287 (1944)

MILLER et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 5192.

Circuit Court of Appeals, Fourth Circuit.

January 21, 1944.

Malcolm D. Miller, of Washington, D. C., for petitioners.

Melva M. Graney, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Helen R. Carloss, and Helen Goodner, Sp. Assts. to Atty. Gen., on the brief), for respondent.

Before SOPER and DOBIE, Circuit Judges, and WYCHE, District Judge.

WYCHE, District Judge.

Petitioners in this case seek a reversal of a decision of the Tax Court of the United States finding that there is a deficiency in their joint income tax of $7.37 for the calendar year 1940, part of which is a tax upon the amount of $94.56, withheld during 1940 from the salary of Malcolm D. Miller in accordance with the Federal Civil Service Retirement Act, 5 U.S.C.A. § 691 et seq.

The facts, undisputed, are as follows:

The taxpayers, Malcolm D. Miller, and his wife, Martha Ann, reside in Arlington, Virginia, and filed a joint income tax return for 1940, on a cash basis, with the Collector at Baltimore, Maryland. Miller has been a classified Civil Service employee since August, 1934, after passing a civil service examination. He was subject to the Civil Service Retirement Act. During 1940 he was an examiner in the Bureau of Motor Carriers of the Interstate Commerce Commission, and his basic salary for 1940 was $2,700. Under Section 10 of the Civil Service Retirement Act, 3½ per centum of his basic pay, or $94.56 was withheld from his 1940 pay, leaving $2,605.44 received. 2 T. C. 267, 268.

The question presented in this appeal, therefore, is whether amounts withheld from the basic salary of a Federal Civil Service employee, pursuant to the provisions of the Civil Service Retirement Act, constitute income within the meaning of Section 22(a) of the Internal Revenue Act, 26 U.S.C.A. Int.Rev.Code, § 22(a).

By Section 10 of the Civil Service Retirement Act, 5 U.S.C.A. § 719, it is provided: "Beginning as of July 1, 1926, there shall be deducted and withheld from the basic salary, pay, or compensation of each employee to whom this chapter applies a sum equal to 3½ per centum of such employee's basic salary, pay, or compensation: * * * The amounts so deducted and withheld from the basic salary, pay, or compensation of each employee shall, in accordance with such procedure as may be prescribed by the Comptroller General of the United States, be deposited in the Treasury of the United States to the credit of the `civil-service retirement and disability fund' created by this chapter, and said fund is hereby appropriated for the payment of annuities, refunds, and allowances as provided in said chapter."

In the third paragraph of the same section, 5 U.S.C.A. 722, we find the following provisions: "Every employee coming within the provisions of this chapter shall be deemed to consent and agree to the deductions from salary, pay, or compensation as provided herein, and payment less such deductions shall be a full and complete discharge and acquittance of all claims and demands whatsoever for all regular services rendered by such employee during the period covered by such payment, except the right to the benefits to which he shall be entitled under the provisions of said chapter, * * *."

Other pertinent sections of the Act, 5 U. S.C.A. § 724, provide that the amount withheld less a charge of $1 per month, is required to be credited to the employee's individual account; the amount draws interest at the rate of 4 per centum, compounded annually, and is returnable to the employee in the form of an annuity, to commence at a specified age, or upon disability. If an employee is transferred to a position not within the purview of the Act, or who shall become absolutely separated from the service before becoming eligible for retirement or annuity, the total amount deducted for retirement, less the $1 per month, is returnable to him with interest; but if the employee should become separated involuntarily for reasons other than misconduct, the total amount, together with interest, including the $1 per month, is returnable. If the employee should die or become incompetent before becoming eligible for annuity, the total amount withheld is payable, with interest, to his estate. None of the monies mentioned in the Act is assignable either in law or equity, or subject to execution, levy or attachment, garnishment, or other legal process. An amendment in 1934 gave the employee the right to designate a beneficiary to whom should be paid upon the death of the employee or annuitant any sum remaining to his credit including any accrued annuity.

Gross income as defined by Section 22 (a) of the Internal Revenue Code, 26 U.S. C.A. Int.Rev.Code, § 22(a), includes gains, profits and income derived from salaries or compensation for personal service of whatever kind, and in whatever form paid, and also gains and income from any source whatever.

The basic salary of Malcolm D. Miller (hereinafter called the employee) for the year 1940 was $2700. This is the amount which was fixed by law to compensate him for his services as a civil service employee for that year. Of this amount he received $2,605.44 in cash. $94.56 of his salary, under the law, by his consent, was applied toward the purchase of an annuity, provided by law for his benefit.

When he was employed as a civil service employee he accepted such employment subject to all the conditions and provisions of law relating to civil service employees, one of which is that he...