For other versions of this document, see http://wikileaks.org/wiki/CRS-RL30868
------------------------------------------------------------------------------
Order Code RL30868
CRS Report for Congress
Received through the CRS Web
Tax Rules and Rulings
Specifically Applicable to
Members Of Congress
Updated October 1, 2003
John R. Luckey
Legislative Attorney
American Law Division
Congressional Research Service ~ The Library of Congress
Tax Rules and Rulings Specifically Applicable to
Members Of Congress
Summary
This report examines provisions of federal law, and interpretations thereof,
which provide tax rules with specific applicability to Members of Congress. These
include rules applicable only to Members and rules that, while generally applicable,
apply in some specific way to Members. Topics covered include: immunity from
certain State and local income and personal property taxes; specific rules for certain
items which must be included in gross income for federal tax purposes (including
honorarium and official allowances); rules allowing certain amounts to be excluded
from gross income; and rules regarding allowable deductions. This last topic
includes discussion of deduction of: a Member's living expenses incurred in the
Washington metropolitan; other business expenses; charitable contributions; and
moving expenses.
Contents
Immunity From State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Personal Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
What Constitutes Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Official Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Illegal or Prohibited Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Death Gratuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Ordinary and Necessary Business Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 8
A Member's Capital Area Living Expenses . . . . . . . . . . . . . . . . . . . . . . 8
Other Away-From-Home "Traveling Expenses" . . . . . . . . . . . . . . . . . 13
Entertainment Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Certain Other Business Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Charitable Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Moving Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Contributions Returned to Donors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Excise Tax on Acts of Self-Dealing with Private Foundations . . . . . . . . . . 16
Tax Rules and Rulings Specifically
Applicable to Members Of Congress
This report examines provisions of federal law, and interpretations thereof,
which provide tax rules with specific applicability to Members of Congress. These
include rules applicable only to Members and rules that, while generally applicable,
apply in some specific way to Members.
Immunity From State and Local Taxes
Income Taxes
The Rule: A Member of Congress does not have to pay income taxes to any of the
State or local jurisdictions in the D.C. metropolitan area, unless such Member
represents such State or a district in such State.1
Explanation: A provision of federal law (not part of the Internal Revenue Code
(IRC)) provides that no State (or any political subdivision thereof, such as a county)
in which a Member of Congress "maintains a place of abode for purposes of
attending sessions of Congress" is permitted, for purposes of any income tax imposed
by the State (or political subdivision), to treat that Member as a resident or
domiciliary of the State (or political subdivision) or to treat any compensation paid
by the United States to that Member as income subject to any such income tax. This
provision does not grant immunity to a Member who represents such State or a
district in such State. For purposes of this rule, the term "State" is specially defined
to include the District of Columbia.2 Consequently, a Member of Congress does not
have to pay any income tax imposed by any of the jurisdictions that constitute the
greater Washington, D.C., metropolitan area unless the Member represents that
jurisdiction or the State or congressional district imposing the tax.
This tax exemption does not extend to a Member's spouse or dependents who
earn income in the Washington, D.C., metropolitan area. This fact might necessitate
a Member and spouse filing separate state returns even though they had filed a joint
federal return.3
1
4 U.S.C. §113(a).
2
4 U.S.C. §113(b)(2).
3
See, D.C. Code Ann. § 47-1805.01, Md. Code Ann., Tax-Gen § 10-807, and 58.1 Va. Code
Ann. § 324.
CRS-2
Personal Property Taxes
The Rule: A Member of Congress does not have to pay personal property taxes to
any of the State or local jurisdictions in the D.C. metropolitan area, unless such
Member represents such State or a district in such State.4
Explanation: Members of Congress are exempt from State or local personal
property taxes imposed by the jurisdictions comprising the greater Washington, D.C.,
metropolitan area. Again, a provision of federal law (not part of the IRC) provides
that no State (or any political subdivision thereof) in which a Member of Congress
(other than a Member who represents the State or a congressional district located
within the State) "maintains a place of abode for purposes of attending sessions of
Congress" is allowed to "impose a personal property tax with respect to any motor
vehicle owned by such Member." For purposes of this rule, the term "State" is
specially defined to include the District of Columbia.5 Consequently, a Member of
Congress is immune from the personal property tax which Virginia counties and
cities impose on motor vehicles. This immunity extends explicitly to such taxes on
motor vehicles owned by the spouse of a Member.
What Constitutes Income
The IRC defines the term "gross income" to mean "all income from whatever
source derived."6 The term is broad enough to include any economic or financial
benefit conferred on an employee as compensation, whatever the form or mode by
which it is effected7 and all accessions to wealth clearly realized, over which the
taxpayer has complete domination.8 Because of the breadth of this definition, in
addition to the salary a Member of Congress is paid as compensation for performing
official duties, certain other amounts which may be received from other sources
during the taxable year have explicitly been held to be includable in the Member's
income for federal tax purposes. Many of the rulings discussed were issued prior to
the enactment or passage of a prohibition against receiving that particular type of
income.
Certain special types of receipts collected by a Member of Congress have
explicitly been held to be "income" for federal income tax purposes. These types of
receipts are certain excess or unsubstantiated official allowances for transportation
and certain amounts received from private sources -- such as, honoraria; third-party
payments for certain office-related expenses (i.e. the costs associated with
newsletters, the expense of operating intern programs, and the costs of official travel
4
Pub. L. 99-190, as amended by Pub. L. 100-202, codified as a note to 4 U.S.C.§ 113.
5
Ibid.
6
26 U.S.C. § 61.
7
Commissioner v. Smith, 324 U.S. 177 (1945).
8
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
CRS-3
to the extent not reimbursed from official sources); and campaign contributions
converted to personal use.
Official Allowances
The Rule: Official allowances generally are not includable in a Member's gross
income because they do not generate an accession to the Member's personal wealth
and because the Member does not have complete dominion over them. Certain
excess payments of travel reimbursements can give rise to income.9
Explanation: Rev. Rul 77-323 does find that certain travel allowance or
reimbursement payments are includable in income. The first instance is the case of
allowances or reimbursements received by a Member in excess of amounts actually
paid as ordinary and necessary expenses for official transportation that was not "away
from home" (e.g., allowances or reimbursements the Member received that were in
excess of amounts the Member actually spent for such expenses as taxi fares for
travel within the Washington, D.C., metropolitan area).10 Citing 26 C.F.R. § 1.162-
17(b)(1), the ruling states:
... an employee need not report on the tax return expenses for travel,
transportation, entertainment, and similar purposes paid or incurred solely
for the benefit of an employer if such employee is required to account and
does account to the employer. The expense involved are those that are
charged directly or indirectly to the employer or for which the employee
is paid through advances, reimbursements, or otherwise, provided the total
amount is equal to such expenses. In such a case, when reporting, the
taxpayer need only state that the total of amounts charged directly or
indirectly to the employer and received from the employer as advances or
reimbursements did not exceed the ordinary and necessary business
expenses paid or incurred by the employee.
Section 1.162-17(b)(2) of the regulations provides that if the total of
amounts charged directly or indirectly to the employer as advances,
reimbursements, or otherwise, exceeds the ordinary and necessary business
expenses paid or incurred by the employee and the employee is required
to and does account to the employer for such expenses, the taxpayer must
include such excess in income and so state on the return.11
9
Rev. Rul. 77-323. While this ruling includes descriptions of various types of allowance
payment schemes that are no longer used by the House of Representatives, its approach
generally, and conclusions as to the taxability of travel expense reimbursements specifically,
reflect current law.
10
For purposes of rules relating to travel while not "away from home," the tax "home" of
a Member of Congress is the place where the Member pursues their trade or business, i.e.
Washington, D.C.
11
Rev. Rul. 77-323.
CRS-4
Therefore, it is only the excess, if any, of receipts (in the form of official allowances
or reimbursements) over amounts actually spent for local travel, transportation,
entertainment, and similar purposes, that must be included in a Member's income.
The other exception to the general rule that official allowances are not
includable in a Member's gross income involved allowances or reimbursements to
a Member for travel expenses incurred in connection with travel while "away from
home" (e.g., travel away from the Congressional District which the Member
represents in Congress).12 With respect to reimbursement of such expenses, the
ruling noted that IRC § 274(d) and a regulation prescribed thereunder13 disallow any
business-expense deduction under IRC § 162 for away-from-home travel expenses
unless the taxpayer substantiates the amount of the expenses and the time, place, and
business purpose of the travel. Drawing on those restrictions on the deductibility of
away-from-home travel expenses, the ruling concluded that failure to substantiate
relevant expenses would render the total amount of reimbursement collected by the
Member during the taxable year includable in his or her gross income. The ruling
went on to note in this connection that, in lieu of detailed documentation, a
recognized per diem allowance or fixed mileage allowance could be used to
determine the amount of relevant expenses. However, the ruling also pointed out
that, if a standard fixed mileage allowance higher than that recognized by the IRS for
other taxpayers is used for reimbursement purposes, then any portion of the
allowance collected by the Member in excess of expenses actually paid or incurred
must be included in gross income.14
Illegal or Prohibited Payments
Generally the legality of the activity producing income is not relevant to the
taxation of the income. The IRS has ruled on the inclusion of income15 to a Member
of funds from many sources which are now prohibited by statute or rule. The
viability of the rulings is not affected by the subsequent prohibition or limitation.16
12
For ordinary taxpayers, "home" for tax purposes is deemed to be the principal place of
business. Thus, for an ordinary individual who works in Washington, D.C., and lives in one
of the surrounding jurisdictions, "home" is Washington. However, solely for purposes of
the deduction that is allowed under IRC §162 for the expenses of business related travel
while "away from home," a Member of Congress is subject to a special rule according to
which a Member's tax "home" is deemed to be the District or State he or she represents in
Congress. This special rule is discussed in significantly greater detail elsewhere in this
report.
13
26 C.F.R. § 1.274-5.
14
Rev. Rul. 77-323.
15
It should be noted that where the IRS has ruled on the includability of income it has also
recognized the deductibility of expenses incurred in obtaining the funds.
16
The focus of this section is on the tax implications of receipt of illegal or prohibited
payments. For a discussion on the limitations, see, CRS Congressional Distribution
Memorandum: Outside Income Limitations On Senators and Members of the House of
Representatives, by Jack Maskell (February 27, 2003).
CRS-5
The Rule: Illegal and/or prohibited payments are includable in gross income under
IRC § 61.
Explanation: Payments received as a result of kickbacks,17 extortion,18
embezzlement,19 and bribery20 have been found to result in income to the recipient.
A taxable event has occurred so long as the recipient has exercised command and
dominion over the funds.
The IRS has held that, if a contributor receives from a "political officeholder"
a promise that is not of a "traditional and legitimate political nature" to perform some
service (for example, a promise to "direct the appropriate governmental office to
renew the business license of the contributor") in exchange for a payment from the
contributor to a political campaign specified by the officeholder, then the amount of
the payment concerned must be included in the officeholder's gross income.21
There are criminal prohibitions specifically on Members receiving certain types
of payments. Members may not receive either earned22 income or unearned 23income
derived from contracts with the federal government. Members may not receive any
compensation for representation of private parties before any agency or department
of the federal government.24 Members, as "federal officials," are prohibited by the
Constitution from receiving compensation for services from any foreign government
or official foreign interest.25
Federal statute prohibits a member from converting excess campaign funds to
personal use.26 For many years relevant tax law has required a Member who converts
campaign funds to personal use to include the amount so converted in his or her gross
income. Case law to this effect dates at least as far back as 1934.27 Statutory law
which implies that converted campaign funds must be included in gross income is
currently set out at IRC § 527(d), which specifies certain dispositions of campaign
funds that are not treated as income to a candidate (and thus suggests that other
17
Lydon v. Commissioner, 351 F. 2d 539 (7th Cir. 1965).
18
Rutkin v. United States, 343 U.S. 130 (1952).
19
James v. United States, 366 U.S. 213 (1961).
20
United States v. Commerford, 64 F. 2d 28 (2d Cir. 1933).
21
Rev. Rul.75-103.
22
18 U.S.C. § 431.
23
18 U.S.C. §§ 431 and 433.
24
18 U.S.C. § 203.
25
Article I, Section 9, cl. 8.
26
2 U.S.C. § 439a.
27
Paschen v. United States, 70 F.2d 491 (7th Cir, 1934).
CRS-6
dispositions must be so treated). Current regulations prescribed under IRC § 527
explicitly require converted campaign funds to be included in gross income.28
The rules of the House and Senate and the Ethics Reform Act of 198929 place
limits and/or prohibitions on certain types of income. Prohibited income includes:
honoraria;30 income for service on boards of directors;31 income from practice of a
profession;32 and income for affiliating with a firm.33 The primary limit on a type of
income is a cap on outside earned income.34 The fact that the payment is illegal,
prohibited, or beyond a limit does not affect its inclusion in gross income for federal
tax purposes.
The rules of the House and the Senate prohibit the maintaining of "unofficial
office accounts."35 In the past, the IRS has ruled donations to these types of accounts
for such purposes as newsletters,36 intern programs (not all intern programs are
considered "unofficial office accounts),37 and trusts to finance official travel38 were
28
See, 26 C.F.R.. § 1.527-5.
29
Pub. L. 101-194.
30
Although the statutory honoraria ban of the Ethics Reform Act of 1989 was declared
unconstitutional by the Supreme Court in United States v. National Treasury Employees
Union, 513 U.S. 454 (1995), both the House and the Senate have adopted internal rules that
prohibit any Member from receiving such payments. House Rule 25, cl.1(a)(2) and Senate
Rule 36.
31
5 U.S.C. app. § 502(a)(4); House Rule 25, cl. 2(d); Senate Rule 37, cl. 6(a), (b).
32
5 U.S.C. app. § 502(a)(3); House Rule 25, cl. 2(c); Senate Rule 37, cl. 5(b)(3).
33
5 U.S.C. app. § 502(a)(1, (2)); House Rule 25, cl. 2(a), (b); Senate Rule 37, cl. 5(b)(1),
(2).
34
5 U.S.C. app. § 501(a); House Rule 25, cl. 1(a)(1); Senate Rule 36.
35
House Rule 24; Senate Rule 38.
36
Rev. Rul.73-356 held that subscription charges or solicited donations received by a
Member of Congress for use solely to defray publication and distribution costs of
newsletters and other constituent reports or questionnaires have been held by the Internal
Revenue Service to be includable in the Member's gross income. IRC § 527(g) allows
newsletter fund of Members to be taxed as "political organization." House Rule 24
explicitly includes IRC § 527(g) newsletter funds in "unofficial office accounts which are
prohibited by the rule. Senate Rule 38 is explicit but nevertheless appears to hold such
accounts to be prohibited.
37
Rev. Rul. 75-146 held that donations solicited by a Member of Congress to defray the
expenses of maintaining at least one type of intern program have been held by the Internal
Revenue Service to be includable in the Member's gross income. One feature of the
program described in the ruling was that participating interns spent part of their time in the
Member's office performing services identical to those performed by the Member's regular
compensated staff personnel.
38
Rev. Rul.76-276 held that contributions to a trust established to finance travel by a
Member of Congress and that Member's staff in performing official duties are not
excludable "gifts" within the meaning of IRC §102 but rather must be included in the
(continued...)
CRS-7
includable in the Member's income. The fact that these accounts are now prohibited
does not effect the reasoning underlying these rulings.
As to honoraria, there are two areas of regulation which could affect a Member's
taxes. First, actual and necessary expenses incurred by a Member in the course of an
honorarium event may be paid or reimbursed by another person, and are not
considered part of an "honorarium."39 These payments or reimbursements would be
treated for tax purposes generally in the same manner as allowances, discussed
above.
Second, a Member may direct an honorarium payment be made to a charitable
organization on the Member's behalf and not be in violation of the honorarium ban40
or be required to include the honorarium in income.41 Formerly, when a Member
directed the party offering an honorarium to pay the amount concerned to a charity,
the Member was required to include the amount in gross income and then the
Member could deduct the amount as a charitable contribution, if the Member
itemized deductions. Now, IRC § 7701(k) states the following rule:
TREATMENT OF CERTAIN AMOUNTS PAID TO CHARITY. -- In the case
of any payment which, except for section 501(b) of the Ethics in
Government Act of 1978 [i.e., 5 USC Appendix 7 §501(b)], might be
made to any officer or employee of the Federal Government but which is
made instead on behalf of such officer or employee to an organization
described in section 170(c) [i.e., a public charity] --
(1) such payment shall not be treated as received by such
officer or employee for all purposes of this title and for all
purposes of any tax law of any State or political subdivision
thereof, and
(2) no deduction shall be allowed under any provision of
this title (or of any tax law of a State or political subdivision
thereof) to such officer or employee by reason of having such
payment made to such organization.
For purposes of this subsection, a Senator, a Representative in, or a
Delegate or Resident Commissioner to, the Congress shall be treated as an
officer or employee of the Federal Government.
The Ethics in Government Act is more restrictive than the IRC provision. The
amount of the honorarium which may be paid to a charity on a Member's behalf is
limited to $2,000 and a qualified charity does not include any organization from
38
(...continued)
Member's gross income.
39
House Rule 25, cl. 1(a)(2); Senate Rule 36.
40
5 U.S.C. app. § 501(c).
41
IRC § 7701(k).
CRS-8
which the Member or a Member's parent, sibling, spouse, child, or dependent relative
derives any financial benefit.
Death Gratuity
A death gratuity paid from the contingent fund of the House of Representatives
or the Senate has been held to be a "gift" which the recipient was entitled to exclude
from gross income.42
Deductions
There are some deductions which the Internal Revenue Code allows generally
in the case of any taxpayer but which can have a specific application in the case of
a Member of Congress. The discussion immediately below focuses on such
deductions.
Ordinary and Necessary Business Expenses
A deduction for ordinary and necessary business expenses paid or incurred
during the taxable year is allowed under IRC §162. There are several types of
business expenses which Members of Congress incur that are different, or are treated
differently, than those of other taxpayers.
A Member's Capital Area Living Expenses.
The Rule: Some (not all) Members of Congress are allowed a deduction of up to
$3,000 for personal living expenses they incur while residing in the Washington,
D.C., metropolitan area.
Explanation: All taxpayers are allowed to claim business-expense deductions under
section IRC § 162(a)(2) for unreimbursed traveling expenses (for example, the costs
of lodging, meals, and incidental expanses such as dry cleaning)43 which they incur
while "away from home" in the pursuit of a trade or business. To qualify, expenses
must be incurred at, going to, or returning from a place that is distant enough from
the taxpayer's "home" as to require a stop for sleep or rest. For purposes of this
section, the "home" of a taxpayer is that taxpayer's principal place of business,
which may be different from his or her place of abode (for example, someone who
lives in New Jersey but who commutes daily to New York to work, New York is the
individual's "home" for purposes of this deduction). Absent any specific rule to the
contrary, the "home" of a Member of Congress for purposes of this deduction would
be Washington, D.C. (i.e., his or her principal place of business). Generally, a
42
Rev. Rul. 55-609.
43
Interest and taxes payable in connection with ownership of real and personal property are
not contemplated expenses under this provision. In other words, deductions for those
expenses are not subject to the $3,000 ceiling and may be claimed to the full extent they
might be claimed by any other taxpayer.
CRS-9
taxpayer's unreimbursed traveling expenses incurred while away from the principal
place of business are deductible without limit.
However, there is a specific rule for treatment of these expenses for Members
of Congress contained in IRC § 162(a). The first sentence of this section sets out the
general rule, explicitly designating "traveling expenses (including amounts expended
for meals and lodging other than amounts which are lavish or extravagant under the
circumstances) while away from home in the pursuit of a trade or business" to be
among the ordinary and necessary business expenses for which a deduction may be
claimed. The second sentence provides the specific rule for treatment of Member's
expenses, stating:
For purposes of the preceding sentence, the place of residence of a
Member of Congress (including any Delegate and Resident Commissioner)
within the State, congressional district, or possession which he represents
in Congress shall be considered his home, but amounts expended by such
Members within each taxable year for living expenses shall not be
deductible for income tax purposes in excess of $3,000.44
This rule differs from the more general in two important respects: (1) a Member's
"home" for relevant purposes is not the Member's regular or principal place of
business but rather is the State or congressional district the Member represents in
Congress and (2) unreimbursed traveling expenses incurred while away from the
"home" designated by the statute are not deductible without limit but rather are
subject to a $3,000 ceiling.
This rule means that while a Member of Congress is residing in the Washington,
D.C., metropolitan area to perform official duties, the Member may deduct up to
$3,000 worth of expenses for meals and lodging (and incidental expenses) if they
otherwise qualify as "traveling expenses." That is, so long as the Member's "home"
is far enough from Washington, D.C., that a trip there would require a stop for rest
or sleep. A Member whose "home" is nearer than that is not eligible to deduct any
living expenses incurred in the Washington, D.C., metropolitan area.45
In connection with lodging expenses, the IRC generally disallows all deductions,
including deductions under IRC § 162(a), with respect to any "dwelling unit" used
by a taxpayer during the taxable year as a "residence."46 For purposes of this
disallowance, a "dwelling unit" (such as a house, an apartment, or a condominium)
is considered used a "residence" if it is used "for personal purposes by the taxpayer
44
IRC § 162(a)(2).
45
It should be noted that the special designation of a Member's tax "home" only applies for
purposes of living expenses incurred by the Member, not those incurred by the Member's
spouse or any other relative residing with the Member in his or her Washington-area abode.
This observation complicates computation of the amounts of both types of expenses.
Another complicating factor in the case of expenses incurred for meals in the Washington,
D.C., metropolitan area is that such expenses appear to be subject to the 50 percent
limitation imposed under IRC § 274(n).
46
IRC § 280A
CRS-10
... or by any members of the family of the taxpayer" for more than fourteen days in
the taxable year.47 There is an exception to this rule which states:
Nothing in this section shall be construed to disallow any deduction
allowable under section 162(a)(2) ... by reason of the taxpayer's being away
from home in the pursuit of a trade or business ... .48
Since it is precisely "by reason of the taxpayer's being away from home in the pursuit
of a trade or business" that a Member's expenses for lodging in the Washington area
give rise to a "deduction allowable under section 162(a)(2)," the exception would
apply and the general rule under which personal use of a dwelling unit would render
such expenses nondeductible is disregarded. Consequently, in the case of any
Member of Congress who is "away from home" while residing in the Washington,
D.C., metropolitan area, lodging expenses are deductible even if the Member's family
occupies the same dwelling unit.
If living expenses are deducted under IRC §162, those same expenses may not
also be deducted under some other section of the Internal Revenue Code. Thus, for
example, the Internal Revenue Service has explicitly ruled that a Member of
Congress is not permitted to deduct the same item simultaneously as both a "traveling
expense" under IRC §162 and a "moving expense" under IRC §217.49
Substantiation And Use Of A Per Diem Rate.
No deductions under IRC §162 for traveling expenses are allowed unless
substantiated by adequate records or sufficient corroborating evidence as to the
amount, time and place, and business purpose of such expense.50 Pursuant to a
statutory mandate,51 which was subsequently repealed,52 the Secretary of the Treasury
issued temporary regulations prescribing amounts deductible (without substantiation)
pursuant to the Member's rule of IRC § 162(a)."53 Those temporary regulations have
not been rescinded. The various types of living expenses contemplated in the
temporary regulations are:
Meals include the actual cost of food and expenses incident to the
preparation and serving thereof. Lodging includes amounts paid for rent,
care of premises, utilities, insurance and depreciation of household
furnishings owned by the Member. In the case of a Member who lives in
a residence owned by him in the Washington, D.C. area, the cost of
lodging also includes depreciation on such residence. Other incidental
47
IRC § 280A(d)(1) & (2).
48
IRC § 280A(f)(4).
49
Rev. Rul. 73-468.
50
IRC § 274(d).
51
Pub. L. 97-119, § 113(b).
52
Pub. L. 97-216, § 215(b).
53
47 F.R. 2986-2988 (January 21, 1982). Codified at 26 C.F.R. § 5e.274-8.
CRS-11
expenses include laundry, cleaning, and local transportation. Local
transportation includes travel within a 50 mile radius of Washington, D.C.,
whether by private automobile, taxicab or other transportation for hire.54
These temporary regulations set out two different methods which may be used
to determine the amount of relevant living expenses a Member of Congress may
deduct without substantiation. One method can only be used by a Member who both
owns the residence occupied in the Washington, D.C., metropolitan area and deducts
interest and taxes with respect to that residence. Using this method, the sum of living
expenses deductible without substantiation is computed by multiplying two-thirds of
a specified daily rate times the number of "Congressional days" falling within the
taxable year.55
The other method is for use by two types of Members: (1) a Member who does
not own the residence occupied and (2) a Member who, though an owner of the
residence occupied, for some reason does not deduct either interest (e.g., if the
residence is not mortgaged) or taxes with respect to that residence. Under this
method, the sum of living expenses deductible without substantiation is computed
by multiplying the full amount of the same specified daily rate times the number of
"Congressional days" falling within the taxable year.56 For purposes of both
methods, all days during the taxable year are considered "Congressional days" except
those in periods lasting five or more consecutive days (including Saturdays and
Sundays) during which the particular chamber in which the Member serves was not
in session.57 Of course, if a Member elects not to use either of the two special
methods just described, relevant deductions may still be claimed. However, in such
a case, the amounts of deductible expenses must be substantiated.58
The statute59 and underlying regulations60 set out a rather complex formula for
coming up with the amount of relevant living expenses which may be deducted
without substantiation. As a practical matter, given that the daily rate greatly exceeds
$30 and there are at least 100 "Congressional days" during a particular year, it is safe
to say that the entire allowed deduction of $3,000 may, absent unusual circumstances,
54
26 C.F.R.. § 5e.274-8(b).
55
26 C.F.R.. § 5e.274-8(c)(1)(i).
56
2 6 C.F.R.. § 5e.274-8(c)(1)(ii).
57
26 C.F.R. § 5e.274-8(d).
58
For guidance in such cases, see Rev. Rul. 80-62, as modified by Rev. Rul. 87-93.
59
The temporary regulations refer to "the maximum amount of actual subsistence for
Washington, D.C. payable pursuant to 5 U.S.C. § 5702(c)." At the time the temporary
regulations were drafted, that provision, 5 U.S.C. § 5702(c), conferred authority to
prescribe, by regulation, conditions under which a Government employee's "actual and
necessary expenses of official travel" would be reimbursed when such expenses exceeded
the amount of the "maximum per diem allowance" otherwise made available. That authority
to prescribe such regulations is presently conferred under subsection (a)(1)(B) of 5 U.S.C.
§ 5702, rather than under subsection (c).
60
41 C.F.R. subpart 301-11.
CRS-12
be taken under these regulations without substantiation. However, if a Member
leaves office relatively early in a taxable year (by virtue of retirement, death,
resignation, or expulsion), it might be necessary to ascertain the exact daily rate and
number of Congressional days served in the year.
The Two-Percent Floor On Miscellaneous Itemized Deductions And
The Interaction Between It And The $3,000 Ceiling On Living Expenses.
The IRC contains a so-called "two-percent floor" on miscellaneous itemized
deductions.61 These "miscellaneous itemized deductions" are allowed to be deducted
only to the extent they exceed, in the aggregate, two percent of the taxpayer's adjusted
gross income. For example, if a Member of Congress has adjusted gross income of
$200,000 for a particular taxable year, then the first $4,000 of his or her otherwise
deductible miscellaneous itemized deductions cannot be claimed.
The Rule: The living expenses which are subject to the $3,000 ceiling are
"miscellaneous itemized deductions" subject to the "two-percent floor." In applying
the "ceiling" and the "floor," the "floor" is applied to all the "miscellaneous itemized
deductions" first and then the "ceiling" is applied to the living expenses.
Explanation: The term "miscellaneous itemized deductions" means itemized
deductions other than certain listed specified deductions.62 The list does not include
deductions allowed under IRC § 162. Therefore, living expenses deductable by
Members of Congress under IRC § 162(a) are "miscellaneous itemized deductions"
subject to the two-percent floor.
IRC § 67 explicitly states that "this section shall be applied before the
application of the dollar limitation of the last sentence of section 162(a) (relating to
trade or business expenses)."63
The "dollar limitation of the last sentence of section 162(a)" is, the $3,000 ceiling on
deductible living expenses incurred by a Member of Congress in the Washington,
D.C., metropolitan area. An example of the inter-working of the "ceiling" and
"floor"is as follows:
... assume that a Member with AGI (i.e., adjusted gross income) of
$100,000 has $5,000 of away-from-home expenses qualifying for the
deduction (disregarding application of the $3,000 limit and the two-percent
floor, but after application of the 50-percent rule for meal and
entertainment expenses) and $5,000 of other miscellaneous itemized
deductions, for a total of $10,000 of potential deductions subject to the
two-percent floor. Application of the two-percent floor would limit these
deductions to $8,000, and the amount disallowed because of the two-
percent floor would be disallowed proportionately. Thus, after application
61
IRC § 67(a).
62
Id.
63
IRC § 67(f).
CRS-13
of the two-percent floor, the Member could deduct $4,000 of the away-
from-home expenses and $4,000 of the [other] miscellaneous itemized
deductions. The former amount (i.e., the away-from-home expenses) is
further limited to $3,000 because of the special limitation on deducting
Member's expenses in sec. 162(a). Thus, the Member could deduct a total
of $7,000 of miscellaneous itemized deductions.64
Other Away-From-Home "Traveling Expenses".
In addition to those living expenses incurred in the Washington, D.C.,
metropolitan area which are treated as "traveling expenses" by virtue of the second
sentence of IRC §162(a), a Member may also deduct unreimbursed "traveling
expenses" incurred for business travel that is not only "away" from that Member's tax
"home" (i.e., the State or congressional district represented) but is also "away" from
Washington. Ordinarily, substantiation of the amounts concerned is required. In this
regard, the IRS has ruled that the per diem allowance specified in the Federal Travel
Regulations for the locality involved and the mileage allowances specified by the IRS
itself will satisfy the substantiation and adequate accounting requirements of Reg. §§
1.162-17(b) and 1.274-5.65 There is no limitation on the amount of these expenses
which may be deducted.
Entertainment Expenses.
Determining the extent to which entertainment expenses are deductible is a
multi-step process. As an initial matter, the expense must qualify as an ordinary and
necessary business expense within the general meaning of IRC § 162. If it is, then
the deduction must not be specifically disallowed under any of the special rules of
IRC § 274(a). In a relevant ruling,66 the IRS described three examples of
entertainment expenses incurred by a hypothetical Member of Congress and held that
only one of them would be deductible. The situation involving the expense held to
be deductible was described as follows:
A, a Member of Congress, pays for the lunch of a constituent whom A
takes to a restaurant in order that A might have the time and opportunity
to discuss a problem the constituent is having with an agency of the
Government. A had no other time to discuss the constituent's problem.
According to the ruling, the discussion of the constituent's problem was evidence of
the business-relatedness of the expense. The ruling concluded that, so long as the
surroundings where the lunch was furnished were conducive to the discussion of
business, the exception specified under IRC § 274(c)(1) applied and the expense was
deductible.
64
See, H.Rept. 100-795 at page 9, footnote 7; S.Rept. 100-445 at page 10, footnote 9. For
further examples, see, 26 C.F.R. § 1.67-1T(d).
65
Rev. Rul. 80-62.
66
Rev. Rul. 78-373.
CRS-14
By contrast, in the case of expenses incurred by a Member of Congress for a
cocktail party and buffet to which a few constituents were invited but at which the
surroundings were not conducive to the discussion of business, the ruling disallowed
any deduction, citing 26 C.F.R. § 1.274-2(c)(7) to the effect that an expense cannot
qualify as directly related to the taxpayer's trade or business if the entertainment
concerned occurs under circumstances where there is little or no possibility of
engaging in the active conduct of trade or business.
The third example involved expenses incurred by a Member of Congress for a
party for his staff members, secretaries, and aides, all of whom were compensated out
of his annual congressional hiring allowance. The ruling held that such expenses
were not deductible. The rationale was that the exception to the general disallowance
rule of IRC § 274(a) that is set out at § 274(e)(5) and that covers expenses for
recreational, social, and similar activities primarily for the benefit of employees
would not apply since Congress, rather than the individual Member, was the
employer of those attending the party and thus the requisite employer-employee
relationship between the individual incurring the expense and those benefitting from
it was absent.
Certain Other Business Expenses.
Amounts paid from a Member's personal funds to defray the costs of reasonable
salaries for staff employees who were in addition to those paid from official
congressional allowances and who were needed to handle an unusually heavy
workload have been held to be deductible business expenses incurred as an
employee.67 That same ruling also held, however, that costs similarly incurred for
extra office equipment could only be recovered over time through deductions for
depreciation (under IRC §§ 167 and 168) rather than all at once in the year in which
they were actually paid.
A later ruling68 amplified Revenue Ruling 73-464 to make clear that, under
appropriate circumstances, not only staff salaries, but also office rent and "supplies"
(i.e., items consumed within the taxable year) are deductible under IRC § 162(a).69
Legal expenses incurred by a Member of Congress in connection with litigation
relating to congressional redistricting have been held to be nondeductible "personal"
expenses of the kind contemplated by IRC § 262 rather than deductible business
expenses within the meaning of IRC §162.70
67
Rev. Rul. 73-464.
68
Rev. Rul. 84-110.
69
See, Frank v. United States, 577 F.2d 93 (9th Cir. 1978), which held that expenses
incurred by a Senate staff employee in performing official duties were deductible under IRC
§ 162 even though the sum of these expenses consistently exceeded that employee's annual
Senate salary.
70
Rev. Rul. 67-457.
CRS-15
Charitable Contributions
Like any other taxpayer, a Member of Congress is allowed a deduction under
IRC § 170 for charitable contributions made during the taxable year. There have
been a few rulings, however, which have specifically focused on charitable
contributions made by Members of Congress. Several have confirmed the allowance
of deductions for certain types of contributions. For example, a 1956 ruling held that
a Member's return of a portion of his salary to the Treasury was a deductible
charitable contribution.71
A deduction has been disallowed for the donation of a Member's congressional
papers to a university. The essential rationale was that the Member had a zero basis
in the materials donated.72
Moving Expenses
A deduction is allowed under IRC § 217 for moving expenses incurred during
the taxable year in connection with the commencement of work by the taxpayer at a
new "principal place of work." The IRS has specifically ruled that a claim of a
deduction under IRC § 217 by a new Member of Congress for the expenses of
moving to the Washington, D.C., metropolitan area is not inconsistent with a claim
of a deduction under IRC § 162 for the same taxable year for living expenses
incurred while residing in the Washington area.73 The ruling did go on to point out,
however, that the same expenses could not be deducted under both sections.
Contributions Returned to Donors
The IRS has ruled that contributions collected by a trust established to finance
travel by a Member of Congress that remained unspent as of the date the trust was
terminated and that were subsequently returned to donors could be deducted by the
Member as a business loss.74
71
Rev. Rul. 56-126.
72
See, James H. Morrison, 71 T.C. 64 (1979), affirmed sub. nom. Morrison v.
Commissioner, 611 F.2d 98 (5th Cir. 1980).
73
Rev. Rul.73-468.
74
Rev. Rul.76-276. This ruling had also held that contributions to a trust established to
finance travel by a Member of Congress and that Member's staff in performing official
duties are not excludable "gifts" within the meaning of IRC §102 but rather must be
included in the Member's gross income. See, discussion of illegal or prohibited payments.
CRS-16
Miscellaneous
Withholding
Subchapter A of the IRC75 relates to "withholding from wages." For purposes
of the rules regarding withholding, IRC § 3401(a) defines the term "wages" to mean,
in pertinent part, "all remuneration ... for services performed by an employee for his
employer. In its turn, IRC § 3401(c) then defines the term "employee" to include,
inter alia, an ... elected official of the United States." Thus, federal income taxes
must be withheld from congressional salaries.
Excise Tax on Acts of Self-Dealing with Private Foundations
If a Member of Congress participates in any act of "self-dealing" with a private
foundation, the Member is subject to the heavy excise tax imposed under IRC §
4941. Various acts of self-dealing are described under subsection (d) of IRC § 4941
and under 26 C.F.R. §§ 53.4941(d)-1 and 53.4941(d)-2. All involve transactions or
other dealings between a private foundation and a so-called "disqualified person."
For relevant purposes, the term "disqualified person" is defined specifically to
include an individual holding "an elective public office in the ... legislative branch
of the Government of the United States."76
75
IRC §§ 3401 et seq.
76
IRC §§ 4946(a)(1)(I) and 4946(c)(1)).
------------------------------------------------------------------------------
For other versions of this document, see http://wikileaks.org/wiki/CRS-RL30868