[Federal Register Volume 59, Number 244 (Wednesday, December 21, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31286]


[[Page Unknown]]

[Federal Register: December 21, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[IA-50-94]
RIN 1545-AS98

 

Allowances Received by Members of the Armed Forces in Connection 
With Moves to New Permanent Duty Stations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
exclusion from gross income under section 61 of the Internal Revenue 
Code of 1986 (Code) of certain allowances received by members of the 
Armed Forces in connection with a change of permanent duty station. The 
proposed regulations are required because of amendments to the law made 
by section 13213(a)(1) of the Omnibus Budget Reconciliation Act of 1993 
(OBRA 1993), 107 Stat. 473 (1993), which redefined the term moving 
expenses under section 217(b) of the Code. Persons affected by the 
proposed regulations are members of the Armed Forces.

DATES: Written comments must be delivered or mailed by March 21, 1995. 
Outlines of topics to be discussed at the public hearing scheduled for 
April 21, 1995, at 10 a.m. must be received by March 31, 1995.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (IA-50-94), room 5228, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. In the alternative, submissions may be hand delivered between 
the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R (IA-50-94), 
Courier's Desk, Internal Revenue Building, 1111 Constitution Avenue, 
NW, Washington, DC. The public hearing will be held in the IRS 
Auditorium, 1111 Constitution Avenue NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Leonard H. Friedman, (202) 622-1585, 
concerning the regulations; and Christina Vasquez, (202) 622-6803, 
Regulations Unit, concerning submissions and the hearing. These are not 
toll-free numbers.

SUPPLEMENTARY INFORMATION

Temporary Regulations and 26 U.S.C. 7805(e)(1)

    In the Rules and Regulations section of this issue of the Federal 
Register, the IRS is issuing temporary regulations to clarify the 
treatment of certain allowances received by members of the Armed Forces 
in light of changes made by OBRA 1993. Section 7805(e)(1) of the 
Internal Revenue Code (Code) (26 U.S.C. 7805(e)(1)) requires the 
publication of a notice of proposed rulemaking whenever the Secretary 
issues temporary regulations to allow an opportunity for public 
comment. The substance of the temporary regulations is reflected in the 
proposed amendments to Secs. 1.61-2 and 1.217-2. The IRS intends to 
revise Secs. 1.61-2 and 1.217-2 in response to taxpayers' comments on 
the proposed regulations.

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under sections 61 and 217 of the Code that 
are required because of the amendment of section 217(b) by OBRA 1993. 
In Notice 94-59, 1994-1 C.B. 371, the IRS announced its intention to 
issue guidance to clarify that certain allowances received by members 
of the Armed Forces continue to be excludable from gross income 
notwithstanding the amendment of section 217(b).

Explanation of Provisions

    Section 217(g) of the Code provides that a member of the Armed 
Forces on active duty who moves pursuant to a military order and 
incident to a permanent change of station does not include in income 
reimbursements or allowances for moving or storage expenses, or the 
value of moving and storage services furnished in-kind. For purposes of 
section 217(g), moving expenses are defined in section 217(b). OBRA 
1993 amended section 217(b) by narrowing the definition of deductible 
moving expenses.
    As a result of this amendment, questions have arisen concerning the 
federal tax treatment of certain allowances provided by the Department 
of Defense to members of the Armed Forces (and by the Department of 
Transportation to members of the Coast Guard) in connection with a 
transfer to a new permanent duty station. These allowances include:
    (1) a dislocation allowance, intended to partially reimburse 
expenses (e.g., lease forfeitures, temporary living charges in hotels, 
and breakage of household goods in transit) incurred in relocating a 
household;
    (2) a temporary lodging expense, intended to partially offset the 
added living expenses of temporary lodging (up to 10 days) within the 
United States;
    (3) a temporary lodging allowance, intended to help defray higher 
than normal living costs (for up to 60 days) outside the United States; 
and
    (4) a moving-in housing allowance, intended to defray costs (e.g., 
rental agent fees, home-security improvements, and supplemental heating 
equipment) associated with occupying leased quarters outside the United 
States.
    Section 1.61-2(b) of the Income Tax Regulations provides, in part, 
that subsistence and uniform allowances granted to members of the Armed 
Forces, Coast and Geodetic Survey (now known as the National Oceanic 
and Atmospheric Administration), and Public Health Service, and amounts 
received by them as commutation of quarters, are to be excluded from 
gross income. Similarly, the value of quarters or subsistence furnished 
to such persons is excluded from gross income. These exclusions from 
gross income of quarters and subsistence allowances paid to members of 
the Armed Forces are ones of long-standing, dating back to 1925. See 
Jones v. United States, 60 Ct. Cl. 552 (1925).
    The Treasury Department and the IRS have determined that the four 
above-referenced allowances provided by the Department of Defense (and 
by the Department of Transportation ), to the extent not excludable 
under other provisions of the Code (such as section 217(g) or section 
132(g)), are to be treated as subsistence or quarters allowances. 
Section 1.61-2 is proposed to be amended to provide that these 
allowances are excludable from gross income. The proposed regulations 
would also clarify that no deduction is allowed for any expenses 
incurred in connection with a transfer to a new permanent duty station 
to the extent the expenses are reimbursed by an excludable allowance.
    However, any expense that meets the definition of a moving expense 
as defined in section 217(b) and is not reimbursed continues to be 
deductible under current law.
    The regulations are proposed to be effective with respect to 
allowances for expenses incurred after December 31, 1993. Allowances 
for expenses incurred prior to January 1, 1994, in connection with a 
transfer to a new permanent duty station are excludable under section 
217(g).

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It has also been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply to these regulations, and, therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, these proposed regulations will be submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on their impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (preferably a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. All comments will be available for public inspection and copying.
    A public hearing has been scheduled for April 21, 1995, at 10 a.m. 
in the IRS Auditorium, IRS Building, 1111 Constitution Avenue, NW, 
Washington, DC. Because of access restrictions, visitors will not be 
admitted beyond the Internal Revenue Building lobby more than 15 
minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons who wish to present oral comments at the hearing must 
submit written comments by March 31, 1995, and submit an outline of the 
topics to be discussed and the time to be devoted to each topic by 
March 31, 1995.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

    Drafting Information: The principal author of these proposed 
regulations is Leonard H. Friedman, Office of Assistant Chief 
Counsel (Income Tax and Accounting). However, other personnel from 
the IRS and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the proposed amendments to 26 CFR part 1 are as 
follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.61-2 is amended by:
    1. Removing the language ``Coast and Geodetic Survey'' from the 
second sentence of paragraph (a)(1) and adding in its place the 
language ``National Oceanic and Atmospheric Administration''.
    2. Revising paragraph (b) to read as follows:


Sec. 1.61-2  Compensation for services, including fees, commissions, 
and similar items.

* * * * *
    (b) Members of the Armed Forces, National Oceanic and Atmospheric 
Administration, and Public Health Service.
    (1) Subsistence and uniform allowances granted commissioned 
officers, chief warrant officers, warrant officers, and enlisted 
personnel of the Armed Forces, National Oceanic and Atmospheric 
Administration, and Public Health Service of the United States, and 
amounts received by them as commutation of quarters, are to be excluded 
from gross income. Similarly, the value of quarters or subsistence 
furnished to such persons is to be excluded from gross income.
    (2) For purposes of this section, quarters or subsistence includes 
the following allowances for expenses incurred by members of the Armed 
Forces after December 31, 1993, to the extent that the allowances are 
not otherwise excluded from gross income under another provision of the 
Internal Revenue Code: a dislocation allowance, authorized by 37 U.S.C. 
407; a temporary lodging allowance, authorized by 37 U.S.C. 405; a 
temporary lodging expense, authorized by 37 U.S.C. 404a; and a moving-
in housing allowance, authorized by 37 U.S.C. 405. No deduction is 
allowed under this chapter for any expenses reimbursed by such 
excludable allowances. For the exclusion from gross income of--
    (i) Disability pensions, see section 104(a)(4) and the regulations 
thereunder;
    (ii) Miscellaneous items, see section 122.
    (3) The per diem allowance in lieu of subsistence and the mileage 
allowance received by members of the Armed Forces, National Oceanic and 
Atmospheric Administration, and the Public Health Service, while in a 
travel status or on temporary duty away from their permanent stations 
shall be included in their gross income.
* * * * *
    Par. 3. Section 1.217-2 is amended by adding paragraph (g)(6) as 
follows:


Sec. 1.217-2  Deduction for moving expenses paid or incurred in taxable 
years beginning after December 31, 1969.

    (g) * * *
    (6) No deduction is allowed under this section for any moving or 
storage expense reimbursed by an allowance that is excluded from gross 
income.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 94-31286 Filed 12-20-94; 8:45 am]
BILLING CODE 4830-01-P