CCA 200915044: Treasury had final authority over federal-service wage treatment

Plain-English summary

An IRS attorney addressed whether federal loan-repayment payments counted as wages and whether the related services counted as employment. The attorney read section 3122 to preserve the Secretary of the Treasury's authority to make those determinations under section 3121(a) and (b). Views expressed by the heads of other federal agencies did not control the federal employment-tax classification. The attorney had not researched the legislative history of the relevant sentence and asked which prior IRS determination the taxpayer had accepted.

Ruling snapshot

• Question: Who has final authority to decide whether federal-service payments are wages and the services are employment?
• Outcome: Advice given: section 3122 leaves those determinations to the Secretary of the Treasury under section 3121.
• Key authorities: IRC §§ 3121(a), 3121(b), 3122.

Full text (IRS public release)

ID: CCA_2009021312065432 Number: 200915044
Release Date: 4/10/2009
Office: -------------
UILC: 3122.00-00

From: --------------------
Sent: Friday, February 13, 2009 12:06:57 PM
To: --------------------
Cc:
Subject: RE: Loan Repayment

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My understanding is that the sentence in section 3122 which reads "Nothing in this paragraph shall be construed to affect the Secretary's authority to determine under subsections (a) and (b) of section 3121 whether any such service constitutes employment, the periods of such employment, and whether remuneration paid for any such service constitutes wages" controls the result in your case.

I understand that the above-referenced sentence was added to 3122 later (some time after enactment of the original section 3122) in order to clear up the type of confusion that you are experiencing. We read this sentence as meaning that, it doesn't matter what the heads of other federal agencies might think about whether particular payments are wages or particular services are employment, the final authority for making these determinations rests with the Secretary of the Treasury. I haven't had time to track down whatever legislative history there might be concerning the addition of that sentence, though.

When you say that "the taxpayer has always agreed with the IRS's position that the loan repayments are subject to income tax and employment tax withholdings," what determination are you referring to? The determination that the agent made in this case? Thanks.

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