Taylor v. Comm'r of Internal Revenue, Docket Nos. 108526
| Decision Date | 25 June 1943 |
| Docket Number | 109345.,Docket Nos. 108526 |
| Citation | 2 T.C. 267 |
| Parties | CECIL W. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MALCOLM D. AND MARTHA ANN MILLER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The amount withheld in 1939 and 1940 under the Civil Service Retirement Act from the pay of a United States Civil Service employee on the cash basis, held, to be within his gross income. Thomas M. Wilkins, Esq., for petitioner Cecil W. Taylor.
Malcolm D. Miller, Esq., for petitioners Malcolm D. and Martha Ann Miller.
E. M. Woolf, Esq., for the respondent.
The Commissioner determined a deficiency of $6.52 in Cecil W. Taylor's 1939 income tax and a deficiency of $7.37 in Malcolm D. and Martha Ann Miller's 1940 joint income tax. Both deficiencies result from the inclusion in the taxpayer's income of accounts withheld,1 under the Civil Service Retirement Act, from the taxpayer's basic pay as an employee in the Civil Service of the United States.
The taxpayer, Cecil W. Taylor, resides in Washington, D.C., and filed his income tax return for 1939 on a cash basis with the collector at Baltimore, Maryland. He has been a classified Civil Service employee of the Bureau of Internal Revenue from the date of his appointment, April 4, 1919, after passing the necessary Civil Service examination. He has been subject to the Civil Service Retirement Act since its enactment May 22, 1920 (41 Stat. 614). His basic salary for 1939 was $5,400, but as December 31, 1939, fell on Sunday, he did not receive his pay for the last half of that month until January 2, 1940. Under section 10 of the Civil Service Retirement Act, as amended (44 Stat. 904), 3 1/2 per centum of his basic pay, or $181.12, was withheld from his 1939 pay, leaving $4,993.88 received in cash.
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, 3 1/2 per centum of his basic pay, or $94.56, was withheld from his 1940 pay, leaving $2,605.44 received. The Civil Service Retirement Act in the taxable years provided:
EMPLOYEES TO WHOM THE ACT SHALL APPLY
SEC. 3. This act shall apply to the following employees and groups of employees:
(a) All employees in the classified civil service * * *.
SEC. 10. 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 act applies a sum equal to 3 1/2 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 the act of May 22, 1920, and said fund is hereby appropriated for the payment of annuities, refunds, and allowances as provided in this act.
The Secretary of the Treasury is hereby authorized and empowered in carrying out the provisions of this act to supplement the individual contributions of employees with moneys received in the form of donations, gifts, legacies, or bequests, or otherwise, and to receive, deposit, and invest for the purposes of this act all moneys which may be contributed by private individuals or corporations or organizations for the benefit of civil-service employees generally.
Every employee coming within the provisions of this act 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 this act, notwithstanding the provisions of sections 167, 168, and 169 of the Revised Statutes of the United States, and of any other law, rule, or regulation affecting the salary, pay, or compensation of any person or persons employed in the civil service to whom this act applies.
SEC. 12. (a) Under such regulations as may be prescribed by the Civil Service Commission the amounts deducted and withheld from the basic salary, pay, or compensation of each employee for credit to the ‘civil-service retirement and disability fund‘ created by the act of May 22, 1920, covering service during the period from August 1, 1920, to the effective date of this act, shall be credited to an individual account of such employee, to be maintained by the department or office by which he is employed and the amounts deducted and withheld from the basic salary, pay, or compensation of each employee for credit to the ‘civil-service retirement and disability fund‘ covering service from and after the effective date of this act, less the sum of $1 per month or major fraction thereof, shall similarly be credited to such individual account.
(b) In the case of any employee to whom this act applies who shall be 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 on annuity, the amount credited to his individual account shall be returned to such employee together with interest at 4 per centum per annum compounded on June 30 of each year: Provided, That when any employee becomes involuntarily separated from the service, not by removal for cause on charges of misconduct or delinquency, the total amount of his deductions with interest thereon shall be paid to such employee: And provided further, That all money so returned to an employee must, upon reinstatement, retransfer, or reappointment to a position coming within the purview of this act, be redeposited with interest before such employee may derive any benefits under this act, except as provided in this section, but interest shall not be required covering any period of separation from the service.
(c) In case an annuitant shall die without having received in annuities purchased by the employee's contributions as provided in (2) of section 4 hereof an amount equal to the total amount to his credit at time of retirement, the amount remaining to his credit shall be paid in one sum to his legal representatives upon the establishment of a valid claim therefor, unless the annuitant shall have elected to receive an increased annuity as provided in section 4 hereof.
(d) In case an employee shall die without having attained eligibility for retirement or without having established a valid claim for annuity, the total amount of his deductions with interest thereon shall be paid to the legal representatives of such employee.
(e) In case a former employee entitled to the return of the amount credited to his individual account shall become legally incompetent, the total amount due may be paid to a duly appointed guardian or committee of such employee.
SEC. 18. None of the moneys mentioned in this act shall be assignable, either in law or equity, or be subject to execution, levy or attachment, garnishment, or other legal process.
Other sections of the act provide (sec. 1) for retirement eligibility after 15 years service, at ages 62, 65, and 70, depending on occupational classifications, with option to retire at specified earlier ages after 30 years service; (sec. 2) for automatic retirement at specified ages; (sec. 4) for method of computing the retirement annuity; (sec. 5) for the manner of computing accredited service; (sec. 6) for conditions of disability retirement. Section 7 provides that if at age 55, or over, and after 15 years' service, the employee is ‘involuntarily separated from the service, not by removal for cause on charges of misconduct or delinquency,‘ he may elect to receive return of his total deductions with interest, or an immediate restricted annuity, or a deferred annuity.
Section 8 provides for an extension of benefits to those already retired; section 9 gives credit for past service; section 11 governs investment of the fund by the Secretary of the Treasury; section 13 specifies the form of application for an annuity and manner of payment; section 14 provides the manner of obtaining annuity credit for the period in government service outside the purview of the act; section 15 prescribes the duties of the Civil Service Commission; section 16 provides for a Board of Actuaries, and section 17 relates to matters of administration.
Respondent is not here seeking to charge petitioner with any amounts credited to his account by way of interest, or otherwise consisting of contributions on the part of his employer, the Government of the United States. In that respect the proceeding enters a field entirely different from that considered in Dillis C. Knapp, 41 B.T.A. 23. Petitioner's position that the part of his basic salary withheld from him and used to constitute his contribution to the retirement fund under the Civil Service Retirement Act is not part of his taxable income can, nevertheless, be supported if either one of two propositions is true. One is that these contributions procure for petitioner something purely illusory in that an employee is granted no rights under the Retirement Act of which he can not be deprived should C...
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