Validity of Federal Tax Lien on Civil Service Retirement Refund

Validity of Federal Tax Lien
on Civil Service Retirement Refund
Under 5 U.S.C. § 8346(a), the Internal Revenue Service is barred from attaching the civil
service retirement refund o f a former federal employee in order to satisfy her husband’s
tax liability, notwithstanding any interest the latter individual may have in the refund
under Nevada’s community property law.
January 13, 1981
M EM ORANDUM OPIN IO N FO R T H E G E N E R A L COUNSEL,
O F F IC E O F PER SO N N EL M A N A G EM EN T
This responds to your request for an opinion on the validity of a levy
of the Internal Revenue Service (IRS) directed to half the civil service
retirement deductions due for refund to Mrs. D, a former federal
employee. The levy was occasioned by the individual tax liability of
Mrs. D ’s husband, with whom she resides in Nevada, a community
property state.
The statute relating to civil service retirement benefits that is princi­
pally relevant here provides as follows:
The money mentioned by this subchapter [Subchapter
III—Civil Service Retirement, consisting of 5 U.S.C.
§§ 8331-8348] is not assignable, either in law or equity,
except under the provisions o f subsections (h) and (j) o f
section 8345 o f this title, or subject to execution, levy,
attachment, garnishment, or other legal process, except as
otherwise may be provided by Federal laws.
5 U.S.C. § 8346(a) (emphasis added). Subsection (h) of § 8345 permits
an individual entitled to an annuity to make allotments or assignments
of amounts therefrom for such purposes as the Office of Personnel
Management (OPM) considers appropriate. Subsection (j), among other
things, requires that funds which are otherwise payable by OPM to an
individual under the retirement laws shall be paid instead to another
person if so provided in a “court decree of divorce, annulment, or legal
separation, or the terms of any court order or court-approved property
settlement agreement incident to” such a decree. Subsection (j) encom­
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passes court-ordered divisions o f assets under state community property
laws.
T he provision of the IR S Code that is principally relevant here is 26
U.S.C. § 6331(a), which reads in pertinent part:
If any person liable to pay any tax neglects or refuses to
pay the same . . . it shall be lawful for the Secretary [of
the Treasury] to collect such tax . . . by levy upon all
property and rights to property (except such property
as is exempt under section 6334) belonging to such per­
son . . . .
Section 6334 does not exempt any payments made under the civil
service retirem ent laws.
T he issue in dispute between OPM and IRS is whether the second
“except” clause o f 5 U.S.C. § 8346(a) has the effect of bringing Ne­
vada’s community property law into play with regard to the retirement
deductions accumulated by OPM for Mrs. D ’s account. If so, IRS may
reach 50 percent o f the funds in the account as Mr. D ’s “property [or]
rights to property” under 26 U.S.C. § 6331(a).
Before dealing specifically with this issue, it will be helpful to trace
the history of 5 U.S.C. § 8346(a) and other statutory provisions that
may impinge on an individual’s civil service retirement benefits. The
original progenitor of § 8346(a) was § 14 of the legislation enacted in
1920 to create the retirement system, Pub. L. No. 66-215, 41 Stat. 614,
620. Section 14 did not contain the italicized language of § 8346(a),
supra, but read simply as follows:
T hat none of the moneys mentioned in this A ct shall be
assignable, either in law or equity, or subject to execution,
levy, or attachment, garnishment, or other legal process.
This wording remained essentially unchanged until late 1975. How­
ever, before then Congress had provided in other statutes for the
governm ent’s deductions of health insurance premiums (5 U.S.C.
§ 8906(c)), life insurance premiums (5 U.S.C. § 8714a(d)), and medicare
premiums (42 U.S.C. § 1395s(d)) from an individual’s retirement annu­
ity. In addition, Congress had enacted § 459 of the Social Security Act,
42 U.S.C. § 659, effective January 1, 1975, which lifted the bar of
§ 8346(a) and similar provisions in other federal benefit laws for the
purpose of allowing garnishment of benefits to satisfy an obligation for
child support or alimony.1
T he first amendment to 5 U.S.C. § 8346(a) was made by Pub. L. No.
94-166, 89 Stat. 1002 (1975). It added subsection (h) to § 8345 to permit
allotm ents and assignments by annuitants and correspondingly amended
*Tw o years later Congress defined “alimony” so as not to include a payment in compliance with a
com m unity property settlement—that is, Congress specifically ruled out garnishments to enforce such
settlements. 42 U.S.C. § 662(c) (Supp. I 1977).
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§ 8346(a) to introduce the first “except” clause, as it pertains to subsec­
tion (h).2 It also added the second “except” clause.
Finally, in 1978, Congress enacted 5 U.S.C. § 8345(j) to allow OPM
to comply with a decree, order, or property settlement (including one
based on a state’s community property law) that arose from a divorce,
annulment, or legal separation.3 Pub. L. No. 95-366, 92 Stat. 600,
§ l(a)(1978). Section 8346(a) was amended accordingly by the addition
of the italicized reference to § 8345(j) in the first “except” clause of
§ 8346(a). Id.. § 1(b).
Turning to the issue before us, we note first that there is nothing in
the legislative history of the amendment of § 8346(a) in 1975 to indicate
the reason for adding the words, “except as otherwise may be provided
by Federal laws,” at its end. In fact, this language was not necessary to
achieve the avowed purpose of the 1975 A ct—that is, the authorization
of allotments and assignments by annuitants.4 That purpose was realized
by the enactment of § 8345(g) and the first “except” clause. Moreover,
the second “except” clause was not necessary for the effectiveness of
any of the earlier laws listed above because each was self-contained,
and it was not necessary to enable IRS to reach funds payable under
the retirement law to employees or former employees delinquent in the
payment of their taxes.5 The most that can be said about the provision
is that it was probably included pro forma.
Passing the question o f purpose for the moment, we find that there
was also silence in Congress concerning the meaning of the term
“Federal laws” in the second “except” clause. We are faced in this
context with a significant lack of assistance because we must determine
whether the term covers 26 U.S.C. § 6331(a) as read together with the
community property law o f a state. If not, IRS cannot take half of Mrs.
D ’s retirement deductions to reduce her husband’s indebtedness to the
government.
We are of the opinion on this point that in the absence of congres­
sional guidance regarding either the purpose o f the second “except”
clause or, more importantly, the scope of the term “Federal laws,” the
term must be read in its natural sense of embracing only federal statu­
tory laws.6 More particularly, we are unable to find either a precedent
‘ Public Law No. 94-166 mistakenly designated the new subsection in § 8345 as “(g)’’ and made the
same mistake in § 8346(a). The errors were corrected by Pub. L. No. 95-366, 92 Stat. 600 (1978).
5 Section 8345(j) in effect negated, as it applied to OPM, the provision in the definition o f
“alimony” in 42 U.S.C. § 662(c) that excluded payments based on community property laws. See note
1, supra.
4See H R. Rep. No. 446, 94th Cong., 1st Sess. 1-2 (1975).
*39 Comp. Gen. 203 (1959); 27 Comp. Gen. 703 (1948); 21 Comp. Gen. 1000 (1942). These
opinions, insofar as relevant here, were grounded on general principles of setoff.
8Cf. H.R. Rep. No. 713, 95th Cong., 1st Sess. 2 (1977), accompanying the bill that enacted
§ 8345(j). A t p. 2 the Committee paraphrased the second “except” clause o f § 8346(a) as follows:
“except as may be expressly provided by Federal laws” (emphasis added). S. Rep. No. 1084, 95th
Cong., 2d Sess. 2 (1978), contains the same paraphrase.
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or a basis for construing the term to encompass a state’s community
property law by transmutation through the medium of 26 U.S.C.
6331(a). In short, we conclude that Nevada’s community property law,
in the absence o f explicit legislation by Congress, has not created for
Mr. D “property [or] rights to property” in his wife’s retirement deduc­
tions that are assailable by IRS.
W e are not inattentive to the judicial doctrine that state law gener­
ally governs the determination w hether a federal taxpayer has an own­
ership interest in property sufficient for an IR S levy to grasp for taxes
due from him. Aquilino v. United States, 363 U.S. 509 (1960). That rule,
o f course, is subject to the strictures o f the Supremacy Clause of the
Constitution. See Hisquierdo v. Hisquierdo, 439 U.S. 572, 581 (1979);
United States v. Yazell, 382 U.S. 341, 352 (1966). However, we do not
view the gloss put on § 6331(a) by Aquilino and similar cases as being
pertinent here. It is one thing to hold that, paramount federal interests
aside, the government should abide by state laws “in the field of family
and family-property arrangements.” United States v. Yazell, 382 U.S. at
352. It is another to conclude that the United States is bound by state
law in its ow n administration of the Civil Service Retirement System.
T here is no clash between federal and state interests here that re­
quires scrutiny in the light of the Supremacy Clause. W hat is involved
in reality is a clash between tw o federal policies, one calling for the
expeditious collection o f taxes and the other for the protection of
retirem ent deductions and benefits so that they will be paid to the
persons who earned them. Since, in the instant matter, the barrier of 5
U.S.C. § 8346(a) remains in place to block the thrust of the power
granted IRS by 26 U.S.C. § 6331(a), there can be no question that the
latter policy prevails.
We are mindful of the consideration that legislation in
aid of collection o f Governm ent revenues should be liber­
ally construed and applied. T here is obviously an impera­
tive public interest in favor o f the prompt collection of
delinquencies. But manifestly it cannot be validly consid­
ered an overriding policy in any particular situation unless
Congress has so demonstrated its intention.
United States v. Sullivan, 333 F. 2d 100, 119 (3d Cir., 1964).
In summary, IRS is not entitled to obtain any of Mrs. D ’s funds from
OPM for application against her husband’s tax liability.
L eon U lm a n
Deputy Assistant Attorney General
Office o f Legal Counsel
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