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

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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