Meeting the Uniformed Military Services’ Payroll During a

Period of Lapsed Appropriations

The Secretary of Defense may meet the August 3 1, 1982, payroll for the uniformed military services 

without violating the Antideficiency Act, even though there are insufficient appropriated funds 

remaining in the payroll account to cover the amounts of social security and federal income tax that 

will be withheld simultaneously with issuance of the paychecks. This is because the due date for 

such withheld sum s to be paid into the Treasury has been adjusted by the Secretary of the Treasury 

to September 30, 1982, and there is no legal obligation on the part of any em ployer to have in hand 

or to transfer to the Treasury any withheld funds until those payments are actually due.

Rinds withheld from an em ployee’s pay are not considered legally transferred to the employee at the 

time a paycheck is issued, therefore, the prohibition in Article 1, § 9, Clause 7, against drawing 

money from the Treasury in advance of an appropriation is not implicated by the timely issuance of 

paychecks in this case.

August 25, 1982

T h e S e c r e t a r y o f D e f e n s e

M y D e a r M r. S e c r e t a r y : By letter of August 23, 1982, to Director Stockman 

of the Office of Management and Budget, you have stated that you will take steps 

to meet the August 31, 1982, payroll for the uniformed military services if the 

Attorney General reaches certain conclusions regarding the legality of meeting 

the payroll. The purpose of this letter is to advise you that I have examined this 

matter and have concluded that there are no legal barriers to meeting the payroll 

in the manner contemplated.

The issues presented arise only if the President vetoes the enrolled bill, 

presently before him for his approval or disapproval, which makes governmentwide supplemental appropriations for fiscal year 1982. If the President vetoes 

that bill and no comparable legislation is enacted before August 31, 1982, 1 am 

informed that unexpended balances in the 10 regular military pay appropriation 

accounts will be sufficient for military personnel to be paid from those accounts 

their full take-home pay. Although the payroll, as regards take-home pay, will 

thereby be met from appropriated funds, certain questions arise because there 

will be insufficient appropriated funds remaining in the appropriation accounts at 

issue which could be paid to the Treasury on August 31, 1982, to cover the 

amounts of FICA and federal income tax, totaling, I am advised, approximately 

$652,000,000, that will be withheld sim ultaneously with issuance of the 

paychecks.

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Under existing regulations issued by the Secretary of the Treasury, 26 C.F.R. 

§§ 3 1 .6 3 0 2 (c )-! et seq. (1981), there is a legal requirem ent that the 

$652,000,000 so withheld be transferred to the appropriate accounts at the 

Treasury by August 31, 1982. The Secretary of the Treasury has, however, 

determined to adjust that “due date” to September 30, 1982. Once this change is 

accomplished by a regulation issued by the Secretary, a draft of which has been 

provided to me, the $652,000,000 will not have to be paid over to the appropriate 

accounts at Treasury until September 30. In addition, the Chief Counsel of the 

Internal Revenue Service has informed this Department by letter of August 24, 

1982, that there is no requirement imposed under federal statutes or regulations 

for an employer, otherwise subject to all of the statutory responsibilities imposed 

by the various provisions of the United States Code governing FICA and federal 

income tax withholding, to have in hand, or otherwise in escrow at the time 

paychecks are issued, the amount of funds necessary to cover the employer’s 

responsibilities under those statutes.1 In other words, there is no legal obligation 

to have in hand or to transfer to the Treasury any funds which have been, as an 

accounting matter, “withheld” from an employee’s paycheck until such time as, 

under pertinent Treasury regulations, those payments are actually due at the 

Treasury.

If there were a legal requirement for you, as Secretary of Defense, to transfer 

to the appropriate accounts at Treasury any funds obligated for payment of the 

taxes involved on August 31, then it would be doubtful that the military personnel 

involved could receive their full take-home pay because of the superior obligation 

of the Department of Defense, as an employer under the relevant tax laws, see,

e.g .. Comp. Gen. B-161457 (May 9, 1978), to make timely payment into those 

tax accounts. However, because the Secretary of the Treasury will adjust that date 

to Septem ber 30, no payment w ill be due on August 31, 1982. Thus, your 

Departm ent will be in the position of a private employer, without any obligation 

under the law to set aside or otherwise escrow funds to cover the legal obligation 

that has in fact been accruing throughout the particular pay period involved. In 

short, you have the authority to determine to pay full take-home pay to the 

uniformed military services even in the absence of appropriated funds sufficient 

to cover the taxes on that pay.

You have also raised the question whether a transfer of funds has occurred as a 

matter of law at the time a paycheck is issued irrespective of whether the tax 

liability involved is due and payable to the Treasury, so as to implicate the 

prohibition in Article I, § 9, Clause 7 of the Constitution that no funds be “drawn 

from the Treasury” in the absence of an appropriation. By way of example, your 

Departm ent has propounded the following hypothetical: a military officer receives gross pay in a specific pay period of $ 1,000, $200 of which is required by 

law to be withheld from that gross pay for FICA and income taxes. Because that 

officer “earned” that $200, is there not in law a transfer to him of that $200, with 

the Secretary of Defense merely acting as his “agent” for purposes of paying over 

that money into the Treasury at the appropriate time?

1 “T h e U nited States as an em ployer is liable fo r th e paym ent of salaries and em ploym ent taxes in the same m anner 

as the private sector em p lo y er” C om p Gen B -161457 at 2 (M ay 9 , 1978).

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1 believe that if the legal obligation to pay into the Treasury that $200 were the 

employee’s, concern over this question might have some merit. However, as is 

made clear by 26 C.F.R. § 1.3 1-1(a), an employee in that situation cannot be held 

liable for the failure of his employer to make the requisite payment. See generally

Slodov v. United States, 436 U.S. 238, 243 & n.4 (1978). Based on that 

regulation, I conclude that no legal transfer has occurred, because the obligation 

to make legally required payments to the Treasury never passes to the employee 

and because the legal obligation on the Department of Defense to make the 

transfer will not mature until September 30. I believe that this analysis and 

conclusion effectively dispose of any suggestion that an obligation of funds to be 

paid over into the FICA and federal income tax withholding accounts at Treasury 

is equivalent to funds having been “drawn from the Treasury” under Article I, 

§ 9, Clause 7 of the Constitution. See Reeside v. Walker, 52 U.S. (11 How.) 272 

(1851).

The Reeside case is particularly instructive on this constitutional issue. In that 

case, the petitioner had secured a money judgment against the United States as 

the result of prevailing on a set-off claimed against the United States. The 

petitioner had subsequently brought a mandamus action asking that the Secretary 

of the Treasury be ordered to enter on the books of the Treasury a credit to him and 

that the credit be paid to him. In denying the petitioner’s right to that relief, the 

Court had occasion to distinguish between the entry of a credit to a private person 

on the books of the Treasury and the disbursement of that credit under Article I, 

§ 9, Clause 7.

As to the former, the Court stated that if “the verdict against the United States 

[were] to be entered on the books of the Treasury Department, the plaintiff would 

be as far from having a claim on the Secretary or Treasurer to pay it as now.” This 

was so, declared the Court, because of “the want of any appropriation by 

Congress to pay this claim. It is a well-known constitutional provision, that no 

money can be taken or drawn from the Treasury except under an appropriation by 

Congress.” 52 U.S. (1 1 How.) at 291. I believe the Reeside case establishes the 

distinction between accounting entries that may acknowledge liability, on the one 

hand, and the paying out from an account in the Treasury of funds in the absence 

of appropriations, an act clearly prohibited by Article I, § 9, Clause 7. See also

23 Op. Att’y Gen. 586 (1901). Your obligation to make the payments in issue 

clearly exists, but no transfer of funds to the employee is recognized in the law 

and none has occurred in fact.

For the same reason, I see no basis to argue that “an expenditure . . . under any 

appropriation or fund in excess of the amount available therein” has been made 

under the Antideficiency Act, 31 U.S. § 665(a) (1976). Clearly an obligation has 

been incurred, but no funds have even been identified, much less transferred, 

from any account to any other account, to make good that obligation,2 nor is there

2 1 note that on August 24, 1982, you certified by letter to the Director, Office of M anagem ent and Budget, that 

m aintaining all uniform ed m ilitary personnel on the payroll during this period in which insufficient appropriations 

will exist to pay their salaries and taxes thereon is consistent with the opinion of the Attorney G eneral of January 16, 

1981, regarding the applicability of the A ntideficiency Act, 31 U S C § 665(a), to the em ploym ent o f personal 

services in excess o f that authorized by law during this period.

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any legal requirement that any such transfer occur until September 30, 1982.

In conclusion, I believe that the action to be taken by the Secretary of the 

Treasury to adjust the date on which these funds must be paid over to the 

appropriate accounts at Treasury from August 31 to September 30, 1982, the 

absence of any legal compulsion for the Department of Defense as an employer to 

escrow or set aside funds which will not be due until September 30, and the fact 

that no employee of the Department of Defense paid pursuant to this transaction 

can legally become obligated to the United States for payment of the funds 

withheld all combine to render legal the issuance to those employees of full takehome paychecks on August 31, 1982.

Sincerely,

E d w a r d C . S c h m u l t s

Acting Attorney General

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