Board of Contract Appeals General Services Administration Washington, D.C. 20405 _______________________ January 7, 2000 _______________________ GSBCA 15069-RELO In the Matter of JEFFREY P. NIELSEN Jeffrey P. Nielsen, Beavercreek, OH, Claimant. Charles N. Stockwell, Travel Branch, Directorate of Travel and Vendor Pay, Defense Finance and Accounting Service, Denver, CO, appearing for Department of Defense. HYATT, Board Judge. Claimant, Jeffrey P. Nielsen, a civilian employee of the Department of the Air Force, has requested the Board's review of the Defense Finance and Accounting Service's (DFAS's) calculation of his relocation income tax (RIT) allowance. DFAS seeks to collect an overpayment in the amount of $419.58. Mr. Nielsen contends that the formula used by DFAS yielded an unfair result in his case and that he has not been properly reimbursed for "substantially all" the tax liability he incurred as a result of reimbursement of his moving expenses. For the reasons stated, we find that the calculation of the RIT allowance accorded with the regulations, and we must deny Mr. Nielsen's claim. Background The Board has described, in Robert J. Dusek, GSBCA 14325- RELO, 98-1 BCA 29,440 (1997), the statutory and regulatory framework applicable to the process of calculating allowances payable to relocated employees to offset increased taxes incurred as a result of the reimbursement of certain moving expenses. In essence, when an employee is transferred, in the interest of the Government, from one permanent duty station to another, the agency reimburses the employee for many of the expenses incurred incident to the transfer. The amounts reimbursed are reported to the Internal Revenue Service (IRS) as taxable income to the employee. See id. at 146,172-73. By law, agencies are to reimburse transferred employees for "substantially all" taxes incurred as a result of reimbursed moving expenses. 5 U.S.C. 5724b (Supp. III 1997). This statutory provision is implemented in the Federal Travel Regulation (FTR) and also in the Joint Travel Regulations (JTR) applicable to civilian employees of the Department of Defense (DoD). The formula established in these regulations does not allow agencies to take into account unearned income, such as interest and dividends, when determining an employee's combined marginal tax rate. 41 CFR 302-11.5(h), - 11.8(d), (e) (1999); JTR C16005-H, C16008-D. Mr. Nielsen, who was transferred from Japan to Wright Patterson Air Force Base in November 1996, does not dispute that the formulas established in the FTR and JTR work as intended most of the time. His complaint is that the result is unfair in his situation. In claimant's case, his earned income including reimbursed moving expenses was near the upper end of the fifteen percent marginal tax bracket. As a result, when income from savings and investments was added in, his actual tax bracket was twenty-eight percent. Thus, he was reimbursed for a tax rate of fifteen percent on his moving expenses, when in actuality he paid taxes on those expenses at a twenty-eight percent level. Discussion The direction to reimburse employees for "substantially all" of the taxes incurred for reimbursed moving expenses does not mean that employees will be reimbursed for every dollar of tax liability incurred as the result of having received relocation benefits and allowances. Herman S. Ransom, GSBCA 15151-RELO (Dec. 28, 1999); Sol Gilman, GSBCA 14938-RELO, 99-2 BCA 30,506; John F. Stinson, GSBCA 14625-RELO, 99-1 BCA 30,246; William A. Lewis, GSBCA 14367-RELO, 98-1 BCA 29,532. The FTR states as follows: The prescribed procedures, which yield an estimate of an employee's additional tax liability due to moving expense reimbursements, are to be used uniformly. They are not to be adjusted to accommodate an employee's unique circumstance which may differ from the assumed circumstances stated in paragraph (b)(1) of this section. 41 CFR 302-11.8(b)(2). With regard to the RIT allowance, the regulations further state that only earned income, that is, gross compensation reported on Internal Revenue Service Form W-2 or amounts reported as self-employment income on Schedule SE of Form 1040, may be used in calculating the marginal tax rate. Mr. Nielsen's situation arises because his earned income was on the high end of the range taxed at fifteen percent and his interest income put him into the twenty-eight percent bracket, thus causing him to pay taxes on moving expenses at the twenty-eight percent rate. Applying the formula in the JTR, DFAS arrived at a fifteen percent tax bracket based on earned income and calculated the RIT allowance accordingly. Mr. Nielsen states that this resulted in his paying substantially more in taxes on the reimbursed moving expenses than was offset by the RIT allowance. He further argues that the RIT allowance only offset some sixty- two percent of his increased tax liability, which he argues does not meet the regulatory intent to insure that "substantially all" of the increased taxes are reimbursed. He argues that to meet this intent DFAS should have calculated his RIT allowance using a twenty-eight percent bracket, which would entitle him to an additional RIT allowance of $345.10. The Board has previously addressed a similar situation in which a claimant objected that the computation of the RIT allowance based solely on earned income resulted in payment of taxes at a higher bracket than that yielded by the formula. Linda R. Drees, GSBCA 14436-RELO, 99-1 BCA 30,198 (1998). Although claimant is correct that the regulations intend that "substantially all" of the taxes attributable to reimbursed moving expenses will be reimbursed, the regulatory scheme is not designed to ensure that the exact amount of increased tax liability, or even most of it, will be reimbursed. Rather, the implementing regulations undertake only to ensure that employees who are reimbursed for moving expenses are compensated for the impact on the tax bracket applicable to salary, wages, and self- employment income. See Lewis, 98-1 BCA at 146,421. Agencies are instructed to apply the rules uniformly and are prohibited from making adjustments to the formula to accommodate individual circumstances. Neither the agency nor the Board may depart from the specified formula to calculate claimant's RIT allowance entitlement. Since DFAS properly calculated the allowance in accordance with applicable regulations its actions must be sustained. ____________________________ CATHERINE B. HYATT Board Judge