Seward seaport record., 1954-03-26
Delegates Await Views On
 Tax Exemption

sury Department on whether or not backing would be had from that executive department on possible legislation which would permit employees of private bus mess firms in Hawaii, Alaska and elsewhere to exclude cost-of- living allowances from their gross incomes. Such a proposal would also extend to local gov ernment employees and those federal employees who do not now have their salaries fixed by law.
 The proposal was submitted to the Treasury Department some weeks ago by the two delegates because it is felt that the success of such proposal would depend on the support of the administra- ton.
 The move stems from the rul- ing made last October by the In- ternal Revenue Service that cost of-living allowances paid to fed eral employees outside the con tinental United States under law passed in 1948 would be ex- empt from income tax payments. It will be recalled that not until the Congress enacted the Inde- pendent Offices Appropriation Act for the 1949 fiscal year, as amended, was a cost-of-living al lowance under regulations pre- scribed by the President paid to federal employees outside the continental United States, all though prior years had seen diff ferential payments made through administrative action. Under those regulations prescribed by this law, and effective January i, 1949, federal employees in Alaska are paid a 25 per cent cost-of-living allowance and those in Hawaii a 20 per cent allowance based on costs higher than the District of Columbia.
 The Internal Revenue Service continued to require, however, that these allowances were sub ject to the payment of income tax until an employee of the Civil Aeronautics Administra- tion in Hawaii took the matter to court. He won his case based on Section 116G) of the Internal Revenue Code which excludes from gross income for tax pur- poses: ''In the case of a clerk or employee in the Foreign Service of the United States, amounts received as ost-of-living allow ances under authority of section 3, as amended, of the Act of February 23, 1881; and in the case of an ambassador, minister, diplomatic consular, or Foreign Service officer, amounts receiv- ed as post allowances under the authority of section 12, as amended and renumbered, of the Act of May "A, 1924; and in the case of other civilian officers or employees of the Government of the United States stationed out side continental United States, an1ouns received as cos-of-living allowances in accordance with regulations approved by the President"
 Subsequent to the successful court case, the Internal Revenue Service ruled that the cost-of- living allowances paid under the Independent Offices Appropria- ton Act, 1949, as amended, would be exempt from the pay ment of income tax. There is three-year statute of Limitations on refunds, and March Is of this year marked the closing date for seeking refunds for the calendar year 1850.
 Following this ruling, Dele gate Bartlett sought the views of the Internal Revenue Service as to whether a precedent had been set which would allow cost of-living allowances paid to oth- CTS, such as teachers and em- ployees in private business, to be exempt from gross income in payment of income taxes. In a letter dated November 12, Dele gate Bartlett received an adverse reply, reading in part, as follows:
 Revenue Ruling 237 does not set a precedent. That ruling is applicable only to the cost-of- living allowances paid pursuant to section 207 of the Independent Offices Appropriation Act, as amended and Executive Or der 10000. z. These allowances are paid ot civilian employees of the United States Government stationed in the Territories and Possessions of the United States in accordance with regulations approved by the President. Such regulations have been issued un- der Executive Order 10000. :. This ruling wollld mt he an-