    Meeting the Uniformed Military Services’ Payroll During a
                Period of Lapsed Appropriations

The Secretary of Defense may m eet the August 3 1, 1982, payroll for the uniform ed m ilitary services
  w ithout violating the A ntideficiency A ct, even though there are insufficient appropriated funds
  rem aining in the payroll account to cover the am ounts of social security and federal income tax that
  will be w ithheld sim ultaneously with issuance of the paychecks. T his 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 Septem ber 30, 1982, and there is no legal obligation on the part of any em ployer to have in hand
  o r to transfer to the Treasury any w ithheld funds until those paym ents are actually due.

Rinds withheld from an em ployee’s pay are not considered legally transferred to the em ployee at the
   tim e a paycheck is issued, therefore, the prohibition in A rticle 1, § 9 , Clause 7, against draw ing
   money from the T reasury in advance of an appropriation is not im plicated by the tim ely issuance of
   paychecks in this case.


                                                                                  August 25, 1982

T   he   S ecretary   of   D   efen se


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 M anagem ent 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 contem plated.
   The issues presented arise only if the President vetoes the enrolled bill,
presently before him for his approval or disapproval, which makes government-
wide 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
$ 6 5 2 ,0 0 0 ,0 0 0 , that w ill be w ithheld sim ultaneously with issuance o f the
paychecks.


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    U nder existing regulations issued by the Secretary of the Treasury, 26 C.F.R.
 §§ 3 1 .6 3 0 2 ( c ) - ! e t seq . (1 9 8 1 ), th ere is a legal re q u ire m en t th at the
$65 2,000,000 so withheld be transferred to the appropriate accounts at the
Treasury by August 31, 1982. The Secretary of the Treasury has, however,
determ ined to adjust that “due d ate” to Septem ber 30, 1982. Once this change is
accom plished by a regulation issued by the Secretary, a draft of which has been
provided to m e, the $652,000,000 will not have to be paid over to the appropriate
accounts at Treasury until Septem ber 30. In addition, the Chief Counsel of the
Internal Revenue Service has inform ed this Department by letter of August 24,
 1982, that there is no requirement imposed under federal statutes or regulations
for an employer, otherw ise subject to all of the statutory responsibilities imposed
by the various provisions of the United States Code governing FICA and federal
incom e tax w ithholding, to have in hand, or otherwise in escrow at the time
paychecks are issued, the am ount of funds necessary to cover the em ployer’s
responsibilities under those statutes.1In 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 em ployee’s paycheck until such tim e 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 A ugust 31, then it would be doubtful that the military personnel
involved could receive their full take-hom e pay because of the superior obligation
o f the D epartm ent of Defense, as an em ployer under the relevant tax laws, see,
e .g .. Comp. G en. B-161457 (M ay 9, 1978), to make timely payment into those
tax accounts. However, because th e Secretary of the Treasury will adjust that date
to Septem ber 30, no payment w ill be due on August 31, 1982. Thus, your
D epartm 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 determ ine to pay full take-home pay to the
uniform ed m ilitary 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 o f funds has occurred as a
m atter of law at the tim e 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 A rticle I, § 9, Clause 7 of the Constitution that no funds be “drawn
from the Treasury” in the absence o f an appropriation. By way of example, your
D epartm ent has propounded the following hypothetical: a m ilitary officer re­
ceives gross pay in a specific pay period of $ 1,000, $200 of which is required by
law to be w ithheld 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 D efense merely acting as his “agent” for purposes of paying over
that m oney into the Treasury at th e 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 sam e m anner
as th e private se c to r e m p lo y e r” C o m p Gen B -1 6 1 4 5 7 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
em ployee’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 judgm ent 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
C ongress.” 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. A tt’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 n ote that on A u g u st 24, 1982, you certified by letter to the Director, O ffice o f M anagem ent and B u d g et, 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 w ith the opinion o f the A ttorney G en eral of January 16,
1981, regarding the applicability o f the A ntideficiency A ct, 31 U S C § 665(a), to the em ploym ent o f personal
serv ices in excess o f that authorized by law during this period.


                                                             29
any legal requirem ent that any such transfer occur until September 30, 1982.
   In conclusion, I believe that the action to be taken by the Secretary o f the
Treasury to adjust the date on which these funds must be paid over to the
appropriate accounts at Treasury from A ugust 31 to September 30, 1982, the
absence of any legal compulsion for the Departm ent of Defense as an employer to
escrow or set aside funds which will not be due until September 30, and the fact
that no em ployee o f the Department of Defense paid pursuant to this transaction
can legally becom e obligated to the U nited States for payment of the funds
w ithheld all com bine to render legal the issuance to those employees of full take-
hom e paychecks on August 31, 1982.

                                                 Sincerely,
                                                 E   dw ard   C . Schm ults
                                                 Acting Attorney General




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