Rev. Rul. 75-362

Advice has been requested whether, as a result of amendments to the Internal Revenue Code of 1954 by the Tax Reform Act of 1969, Pub. L. 91-172, 1969-3 C.B. 10, dislocation allowances or trailer allowances paid to members of the uniformed services in connection with a change of permanent station are "wages" for purposes of the Collection of Income Tax at Source on Wages (Chapter 24, subtitle C of the Code).

Sections 406, 407, and 409, title 37 U.S.C., provide, in part, that under certain conditions a member of a uniformed service who is ordered to make a change of permanent station is entitled to transportation in kind for his dependents, to reimbursement therefor, or to a monetary allowance in place of transportation in kind. The member is also entitled, with certain limitations, to transportation of baggage and household effects, or reimbursement therefor. The member (1) whose dependents make an authorized move in connection with his change of permanent station, (2) whose dependents are covered by section 405(a), title 37 U.S.C. (involving allowances to offset expenses incurred incident to an ordered evacuation of dependents of members of the uniformed services), or (3) without dependents, who is transferred to a permanent station where he is not assigned to quarters of the United States, is entitled to a dislocation allowance equal to his basic allowance for quarters for one month as provided for a member of his pay grade and dependency status. In place of the transportation of baggage and household effects or payment of a dislocation allowance, a member who transports a house trailer or mobile dwelling within the continental United States, within Alaska, or between the continental United States and Alaska, for use as a residence, and who would otherwise be entitled to transportation of baggage and household effects, shall be entitled to transportation of the trailer or dwelling by the United States, or to a trailer allowance or reimbursement not to exceed a prescribed amount.

Rev. Rul. 64-153, 1964-1 C.B. (Part 1) 70, states, in part, that dislocation allowances received by a member of the uniformed services under section 303(c) of the Career Compensation Act of 1949 as amended (now codified as section 407, title 37 U.S.C.), in connection with a change in permanent station, are received in addition to allowances designed to defray moving expenses, are meant to defray such extra costs as lease forfeitures, temporary living charges in hotels and boarding houses pending establishment of a normal household, breakage and depreciation of household goods in transit, and other expenses which are related to, but not literally a part of, moving expenses and thus are includible in gross income. Rev. Rul. 65-158, 1965-1 C.B. 34, cites Rev. Rul. 64-153 with respect to the dislocation allowance, and states that such allowance constitutes "wages" for Federal employment tax purposes, including the withholding of income tax at source on wages.

With respect to trailer allowances received by a member of the uniformed services under section 303(c) of the Career Compensation Act of 1949, as amended (codified as section 409, title 37 U.S.C.), Rev. Rul. 64-153 states, in part, that such allowances are received in lieu of moving allowances for the purpose of defraying the costs of moving a trailer containing the household goods and personal effects of the recipient, and thus are not includible in gross income if used for the purpose authorized.

Section 231 of the Tax Reform Act of 1969 expanded the types of items deductible as moving expenses under section 217 of the Code. The additional types of job-related moving expenses include those specified in subsections 217(b)(1)(C), (D), and (E). Now, deductible moving expenses, as defined under section 217, include the reasonable expenses:

(A) of moving household goods and personal effects from the former residence to the new residence,

(B) of traveling (including meals and lodging) from the former residence to the new place of residence,

(C) of traveling (including meals and lodging), after obtaining employment, from the former residence to the general location of the new principal place of work and return, for the principal purpose of searching for a new residence,

(D) of meals and lodging while occupying temporary quarters in the general location of the new principal place of work during any period of 30 consecutive days after obtaining employment, or

(E) constituting qualified residence sale, purchase, or lease expenses.

Section 217(b)(3) of the Code places an overall limitation of $2,500 on the deduction allowed for categories (C), (D), and (E). Furthermore, expenses for categories (C) and (D) items may account for no more than $1,000 of the $2,500.

Section 217(c) of the Code provides generally (with certain exceptions) that no deduction will be allowed unless (1) the taxpayer's new principal place of work is at least 50 miles farther from his former residence than was his former principal place of work, and (2) the taxpayer is a full-time employee in the general location of his new principal place of work for at least 39 weeks during the 12-month period immediately following his arrival in that location.

Under Pub. L. 93-490, 1974-2 C.B. 451, any taxpayer who is a member of the armed forces may deduct any amount paid by him as moving expenses in connection with any move required by the Secretary concerned, in excess of any reimbursement received for such expenses, without regard to the provisions of section 217(c) of the Code, to the extent it is otherwise deductible under section 217.

Section 82 of the Code provides that there shall be included in gross income (as compensation for services) any amount received or accrued, directly or indirectly, by an individual as a payment for or reimbursement of expenses of moving from one residence to another residence which is attributable to employment or self-employment. Thus, the full amount of the dislocation allowance or trailer allowance is includible in the gross income of the recipient under section 82 even though a corresponding deduction may be allowed to the extent it qualifies under section 217.

Although compensation for services is generally subject to income tax withholding, section 3401(a) of the Code provides, in part, as follows:

Wages.--For purposes of this chapter, the term "wages" means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash; except that such term shall not include remuneration paid--

(15) to or on behalf of an employee if (and to the extent that) at the time of the payment of such remuneration it is reasonable to believe that a corresponding deduction is allowable under section 217; * * *

* * * * *

Rev. Rul. 70-482, 1970-2 C.B. 200, holds, in pertinent part, that the provisions of section 82 of the Code do not affect the exception from the term "wages" provided by section 3401(a)(15), and that even though payments or reimbursements for expenses of moving from one residence to another residence attributable to employment or self-employment are included in gross income under section 82 as compensation for services, such payments are excepted from "wages" for Federal employment tax purposes if it is reasonable to believe at the time of the payment that a corresponding deduction is allowable under section 217.

As a result of the Tax Reform Act of 1969, which expanded the types of expenses for which a moving expense deduction is now allowable, a significant number of the items for which the dislocation allowance is intended may now fall within the deductible categories of section 217 of the Code, such as meals and lodging while occupying temporary quarters at a new station and expense of settlement of an unexpired lease.

It is generally reasonable to believe at the time the dislocation allowance or trailer allowance is paid to members of the uniformed services that a corresponding deduction would be allowable under section 217 of the Code. Accordingly, the dislocation allowance or trailer allowance is excepted from "wages" for purposes of the Collection of Income Tax at Source on Wages. However, if the employer knows of specific facts at the time the dislocation allowance or trailer allowance is paid to a particular member of the uniformed services that indicate such member would not be entitled to a corresponding deduction under section 217 then such allowance is not excepted from "wages" for purposes of the Collection of Income Tax at Source on Wages.

Rev. Rul. 64-153 is superseded, since the position stated therein is restated under current law in this Revenue Ruling. Rev. Rul. 65-158 is modified to remove the conclusion that dislocation allowances constitute wages for purposes of the Collection of Income Tax at Source on Wages.