HomeMy WebLinkAboutMINUTES - 06071988 - 1.71 R
TOBdARD OF SUPIERVISORS
FROM: Phil Batchelor CzItra
County Administrator C )sta
DATE: May 26 , 1988 Cay
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SUBJECT: �" ,l�
Legislation: HR 3312 (Matsui)
SPECIFIC REQUEST(S) OR RECOMMENDATION S) & BACKGROUND AM JUSTIFICATION
RECOMMENDATIONS:
1 . Oppose Internal Revenue Service notice 87-13 which
interprets Section 457 of the Internal Revenue Code and,
instead, support HR 3312 by Congressman Matsui which
specifies that non-elective benefits are to be taxed when
taken rather than when accrued.
. 2 . Direct the County Administrator to transmit the Board' s
position on this issue to Congressmen Matsui, Miller and
Dellums.
BACKGROUND:
Under federal law, as it existed prior to the Tax Reform Act of
1986 , non-elective benefits, such as sick leave and vacation,
were taxed as ordinary income only when taken. The IRS has
interpreted changes included in the 1986 Tax Reform Act as
requiring that such benefits be taxed when accrued rather than
when taken. This would mean that the Auditor-Controller would
have to determine as of December 31st each year the as yet
untaxed value of accrued vacation and sick leave and tax them as
income. This is inequitable as well as an overwhelming
administrative headache. Any vacation or sick leave accrued
during a calendar year would have to be separately calculated and
taxed. Whenever any of this time is taken off in a future year,
it would have to be exempted from taxes. Each year the Auditor
would have to distinguish accrued time which has not been taxed
from that which has already been taxed in a prior year and then
tax the new accruals. Likewise whenever any vacation or sick
leave is taken, the Auditor would have to determine whether those
specific hours . had already been taxed or not and then treat the
time accordingly.
This interpretation is inequitable because in many cases an
employee may actually lose vacation time because of the limit of
two years on the maximum time an employee can accrue vacation
time. In addition, many employees resign without using some or
CONTINUED ON ATTACHMENT: YES SIGNATURE; &M�
_X RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE -
_� APPROVE OTHER
S1GNATUR
E(S)'
ACTION OF BOARD ON June 7, 1988 - APPROVED AS RECOMMENDED OTHER _
VOTE OF SUPERVISORS
1 HEREBY CERTIFY THAT THIS IS A TRUE
UNANIMOUS (ABSENT AND CORRECT COPY OF AN ACTION TAKEN
AYES; NOES: AND ENTERED ON THE MINUTES OF THE BOARD
ABSENT: ABSTAIN: OF SUPERVISORS ON THE DryAT•�E SHOWN.
CC: County Administrator ATTESTED UN ` f�s�
County Audi tor-Controller PHIL BATCHELOR, CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
V l�yC
M382/7-83 BY DEPUTY
Page 2
all of their sick leave and thereby lose it. Therefore, taxing
benefits which an employee may never use is exceedingly unfair.
In addition, under current practice, time accrued at one pay rate
is taxed at the rate the employee is entitled to when the time is
taken. As a result, the federal government could actually lose
tax revenue by taxing the benefits at the time they are accrued
rather than when they are taken.
Congressman Matsui has introduced HR 3312 in order to clarify
that it is the Congress ' s intent to make all non-elective
benefits tax exempt until they are utilized. Both on the basis
of the inequity of the current interpretation and because of the
administrative headache involved, the Auditor-Controller and this
office urge the Board to support HR 3312 and oppose the Internal
Revenue Service interpretation of Section 457 of the Internal
Revenue Code.