Executive Order 11744--Cost-of-living allowance provided to employees of the Joint Federal-State Land Use Planning Commission for Alaska
Source: The provisions of Executive Order 11744 of Oct. 24, 1973, appear at 38 FR 29563, 3 CFR, 1971-1975 Comp., p. 816, unless otherwise noted.
The Joint Federal-State Land Use Planning Commission for Alaska (hereinafter referred to as "the Commission") was established in the Alaska Native Claims Settlement Act of December 18, 1971 (Public Law 92-203, 85 Stat. 688 which is hereinafter referred to as "the Act") to render advice to the Federal Government and the government of the State of Alaska with respect to the planning, ownership, use, and management of lands located in the State of Alaska. Section 17(a)(5) of the Act provides that Commission employees may be hired
* * * without regard to the provisions of title 5, United States Code, governing appointments in the competitive service, and without regard to the provisions of chapter 51 and subchapter III of chapter 53 of such title relating to classification and General Schedule pay rates * * *
and gives the Federal and State co-chairmen the authority "to appoint and fix the compensation of such staff personnel as they deem necessary."
Pursuant to this authority, Jack O. Horton, then Federal Co-Chairman, and Governor William A. Egan, State Co-Chairman, agreed prior to the hiring of the first Commission employee that all such employees should be compensated in accordance with the pay scale for General Schedule Federal employees and should receive a cost-of-living allowance (hereinafter referred to as "COLA") identical to that provided other General Schedule employees serving in Alaska, said agreement being formalized in a regulation initially released on October 24, 1972, and subsequently amended to read as follows:
"4.4 Compensation of Staff.
(a) Employees of the Commission shall be paid at a GS rate of salary determined for their respective positions by the co-chairmen and/or Director; and shall be entitled to receive a twenty-five (25%) percent living cost differential in addition to the base rate of salary which shall be accounted for separately from the base salary.
(b) Employees of the Commission shall also be entitled to obtain and receive all insurance, leave, retirement, and other benefits available to Federal employees in Alaska."
With respect to the Federal taxation of this allowance, 26 U.S.C. Section 912 provides in relevant part:
"The following items shall not be included in gross income, and shall be exempt from taxation under this subtitle:
* * * * * * *
(2) Cost-of-living allowances.--In the case of civilian officers or employees of the Government of the United States stationed outside the continental United States (other than Alaska), amounts (other than amounts received under title II of the Overseas Differentials and Allowances Act) received as cost-of-living allowances in accordance with regulations approved by the President,"
* * * * * * *
In an opinion dated April 27, 1973, the Internal Revenue Service held that employees hired by the Commission are Federal employees within the meaning of 26 U.S.C. Section 912(2) but concluded for the reasons set out below that the COLA provided to them pursuant to Commission Regulation 4.4 is subject to Federal taxation.
NOW, THEREFORE, by virtue of the authority vested in me by 26 U.S.C. Section 912(2) and for the reasons set out below, I hereby approve Commission Regulation 4.4 subject to the qualifications and limitations provided in the next two sentences. Said approval shall be retroactive to the date when the first Commission employee was hired, shall apply only to the COLA paid Commission employees actually serving in Alaska, and shall remain in effect as long as: (a) the pay scale for Commission personnel corresponds exactly to that applicable to General Schedule Federal employees; (b) that portion of Regulation 4.4 which deals with the payment of COLA remains effective in substantially its present form; and (c) COLA is provided pursuant to Executive Order No. 10000 of September 16, 1948, entitled "Regulations Governing Additional Compensation and Credit Granted Certain Employees of the Federal Government Serving Outside the United States," to General Schedule Federal employees serving in Alaska. Except where expressly inconsistent with this order, the requirements of Executive Order No. 10000 shall govern the payment of COLA granted to Commission employees.
This order is based on the following findings and conclusions:
1. Pursuant to Executive Order No. 10000, the Office of Personnel Management has been delegated the authority granted to the President in 5 U.S.C. Section 5941 to designate areas outside the contiguous forty-eight states where certain Federal employees are entitled to receive COLA to compensate them, among other things, for living costs which are substantially higher than those in the District of Columbia. In accordance with this authority, the Office has designated Alaska as a location where General Schedule employees are to be paid a 25 percent COLA. Under 26 U.S.C. Section 912(2), this allowance is exempt from Federal taxation.
[Para. 1 amended by Executive Order 12107 of Dec. 28, 1978, 44 FR 1055, 3 CFR, 1978 Comp., p. 264]
2. Pursuant to the authority granted in Section 17(a)(5) of the Act, the Office, with the approval of the co-chairmen, has promulgated a valid regulation authorizing the provision of the same COLA to Commission employees serving in Alaska that is paid to General Schedule employees serving there.
[Para. 2 amended by Executive Order 12107 of Dec. 28, 1978, 44 FR 1055, 3 CFR, 1978 Comp., p. 264]
3. The Bureau of Land Management of the United States Department of the Interior, which provides administrative support to the Commission, accounts for the COLA paid to Commission employees in accordance with Government practices customarily utilized in Alaska for such purposes.
4. The Office, with the approval of the co-chairmen, has agreed upon a pay scale for compensating staff personnel which corresponds exactly to that enacted by Congress for compensating General Schedule Federal employees.
[Para. 4 amended by Executive Order 12107 of Dec. 28, 1978, 44 FR 1055, 3 CFR, 1978 Comp., p. 264]
5. Since the appointment and compensation of Commission employees are expressly exempted from the Civil Service laws by Section 17(a)(5) of the Act, the COLA provided to such personnel is not subject to the approval of the Office of Personnel Management under Executive Order No. 10000, which, in accordance with 5 U.S.C. Section 5941, applies only to employees whose rates of basic pay are fixed by statutes. For this reason, the Internal Revenue Service has ruled that such COLA is subject to Federal income taxation as not having been paid in accordance with regulations approved by the President as required by 26 U.S.C. Section 912(2).
[Para. 5 amended by Executive Order 12107 of Dec. 28, 1978, 44 FR 1055, 3 CFR, 1978 Comp., p. 264]
6. The underlying reasons for granting a COLA to General Schedule employees serving in Alaska and elsewhere and for exempting said COLA from Federal income taxation apply equally to the COLA provided to Commission employees. (In fact, because Section 17(a)(4)(B) of the Act expressly provides that the Federal co-chairman shall be compensated at a rate not to exceed that fixed for level V executive employees, the COLA paid to him is exempt from Federal taxation under 26 U.S.C. Section 912(2).) These reasons include the high cost of living in Alaska, the need to attract qualified employees to the Federal service, and the fact that, with certain exceptions not relevant here, Commission employees have the same obligations and responsibilities and receive the same benefits as General Schedule employees.
7. There is nothing in 5 U.S.C. Section 5941, 26 U.S.C. Section 912, the relevant legislative history, or any other source to indicate that Congress, in enacting these provisions, intended to deny a Federal tax exemption for the COLA of workers who occupy the status and have the employment characteristics which pertain to Commission personnel.
8. If this Executive order is not issued, a significant inequity will result in that taxpayers who are similarly situated in all relevant respects will be treated differently under the Federal laws respecting income taxation.
9. Given the unique circumstances of this case, including the discretion granted to the Federal and State co-chairmen of the Commission to fix employees' salaries without reference to the Civil Service laws relating to the appointment and compensation of personnel and the physical situs of the Commission in a locale where COLA is authorized for General Schedule employees, it is most unlikely that this order will set a precedent which transcends the facts which are operative here or will jeopardize the tax gathering efforts of the Internal Revenue Service.