[Federal Register Volume 60, Number 151 (Monday, August 7, 1995)]
[Rules and Regulations]
[Pages 40075-40077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19282]



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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8607]
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: Final regulations.

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SUMMARY: This document contains final 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 
uniformed services in connection with a change of permanent duty 
station. The final 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 final regulations are members of the uniformed 
services (the Armed Forces, the commissioned corps of the National 
Oceanic and Atmospheric Administration, and the commissioned corps of 
the Public Health Service).

DATES: These regulations are effective August 7, 1995. For dates of 
applicability, see ``Effective date'' portion under SUPPLEMENTARY 
INFORMATION.

FOR FURTHER INFORMATION CONTACT: Marilyn E. Brookens, (202) 622- 1585 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under sections 61 and 217 of the Internal Revenue Code 
(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).
    On December 21, 1994, temporary regulations (TD 8575) relating to 
military expense allowances under sections 61 and 217 (relating to 
definitions of gross income and of moving expenses) were published in 
the Federal Register (59 FR 65711). A notice of proposed rulemaking 
(IA-50-94) relating to the same subjects was published in the Federal 
Register for the same day (59 FR 65739). No public hearing was 
requested or held.
    Written comments regarding the regulations were received. After 
consideration of all the comments, the regulations proposed by IA-50-94 
are adopted as revised by this Treasury decision, and the corresponding 
temporary regulations are withdrawn. The comments are discussed below. 

[[Page 40076]]


Explanation of Provisions

I. General Background

    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 arose concerning the 
federal tax treatment of certain allowances provided by the Department 
of Defense and by the Department of Transportation under title 37 of 
the United States Code to members of the Armed Forces in connection 
with a transfer to a new permanent duty station. Those 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 (other than Hawaii or Alaska); (3) a temporary 
lodging allowance, intended to help defray higher than normal living 
costs (for up to 60 days) outside the United States or in Hawaii or 
Alaska; and (4) a move-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 uniformed services 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, to the extent not excluded under other 
provisions of the Code (such as section 217(g) or section 132(g)), are 
to be treated as quarters or subsistence allowances. Section 1.61-2(b) 
is revised to provide that these allowances are excluded from the gross 
income of members of the uniformed services. Section 1.61-2(b)(2) and 
section 1.217-2(g)(6) 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 excluded 
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.

II. Public Comments

    The National Oceanic and Atmospheric Administration (NOAA) 
requested that the regulations provide active duty officers of the NOAA 
Corps with an exclusion for the allowances covered by these 
regulations. The commissioned corps of NOAA, the commissioned corps of 
the Public Health Service (PHS), and the Armed Forces collectively 
comprise the uniformed services. 10 U.S.C. 101(a)(5) (Supp. IV 1992). 
The Armed Forces consist of the Army, Navy, Air Force, Marine Corps, 
and Coast Guard. 10 U.S.C. 101(a)(4) (1988).
    The pay and allowance provisions of title 37 apply to all members 
of the uniformed services. In particular, the allowances that are the 
subject of these regulations are the same for the NOAA commissioned 
corps and the PHS commissioned corps as for the Armed Forces. The 
Department of Treasury historically has extended the holdings of Jones 
v. United States to all members of the uniformed services. I.T. 2232, 
IV-2 C.B. 144 (1925); Mim. 3413, V-1 C.B. 29 (1926). Accordingly, the 
final regulations under section 1.61-2(b) provide that the four 
earlier-referenced allowances are quarters or subsistence allowances 
and are excluded from gross income for members of the uniformed 
services.
III. Effective Date

    The final regulations are effective with respect to allowances for 
expenses incurred after December 31, 1993.

Special Analyses

    It has been determined that this Treasury decision 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, 
the notice of proposed rulemaking was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Drafting Information

    The principal author of these regulations is Marilyn E. Brookens of 
the 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended 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 excluded from gross income. Similarly, the value of 
quarters or subsistence furnished to such persons is excluded from 
gross income.
    (2) For purposes of this section, quarters or subsistence includes 
the following allowances for expenses 

[[Page 40077]]
incurred after December 31, 1993, by members of the Armed Forces, 
members of the commissioned corps of the National Oceanic and 
Atmospheric Administration, and members of the commissioned corps of 
the Public Health Service, 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 move-in 
housing allowance, authorized by 37 U.S.C. 405. No deduction is allowed 
under this chapter for any expenses reimbursed by such excluded 
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 or actual expense allowance, the monetary 
allowance in lieu of transportation, 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, are included 
in their gross income except to the extent excluded under the 
accountable plan provisions of Sec. 1.62-2.
* * * * *


Sec. 1.61-22T  [Removed]

    Par. 3. Section 1.61-22T is removed.
    Par. 4. Section 1.217-2 is amended by adding paragraph (g)(6) to 
read as follows:


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

* * * * *
    (g) * * *
    (6) Disallowance of deduction. No deduction is allowed under this 
section for any moving or storage expense reimbursed by an allowance 
that is excluded from gross income.


Sec. 1.217-2T  [Removed]

    Par. 5. Section 1.217-2T is removed.
Margaret Milner Richardson,


Commissioner of Internal Revenue.

    Approved: July 27, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-19282 Filed 8-4-95; 8:45 am]
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