Rev. Rul. 80-23

1980-1 C.B. 17, 1980-4 I.R.B. 5.

                       Internal Revenue Service
                                 Revenue Ruling

           UNEMPLOYMENT BENEFITS; REWOOD NATIONAL PARK EXPANSION ACT

                          Published: January 28, 1980

Section 85.--Unemployment Compensation

  Unemployment benefits; Redwood National Park Expansion Act. Benefits received as "terminal pay" under the Redwood National Park Expansion Act are not includible in gross income under section 85 of the Code.

ISSUE

  Are certain benefits and payments made under Pub. L. No. 95-250, 92 Stat. 163 (1978) (the Redwood National Park Expansion Act), subject to the provisions of section 85 of the Internal Revenue Code?

FACTS

  The Redwood National Park Expansion Act (the 'Redwood Act') was enacted by Congress on March 27, 1978, and provides for terminal pay benefits to employees of private employers affected by the expansion of the Redwood National Park. Among the benefits are the following:

    (1)  Weekly layoff and vacation replacement benefits under section 207 of the Act.

    (2)  Severance payments under sections 208 and 209 of the Act.

LAW AND ANALYSIS

  Section 85 of the Code provides that recipients of unemployment benefits must include a portion of such benefits in gross income if the recipient's adjusted gross income (determined without regard to this section and without regard to the disability income exclusion provided in section 105(d)) and the unemployment compensation benefits exceed a specified 'base amount' for the taxable year.  The amount includible in gross income is the lesser of (1) one- half of the excess of the unemployment compensation benefits and adjusted gross income (as previously determined) over the base amount, or (2) the amount of the unemployment compensation benefits.  The term 'unemployment compensation' is defined in section 85(c) as meaning any amount received under a low of the United States or of a state, which is in the nature of unemployment compensation.

  Section 201(18) of the Redwood Act defines the payments provided for in sections 207, 208, and 209 as 'terminal pay' and provides that regardless of the designations used to distinguish among them, the payments are intended and shall be deemed to be severance pay and, as such, shall be treated for federal income tax purposes in the same manner as is provided by California State law. Section 17148 of the California Revenue and Taxation Code (1979 Supp.) provides that gross income does not include payments for severance pay or terminal pay to an individual who is terminated from his or her employment as a direct result of the expansion of a federal redwood park in Northern California by reason of legislation enacted by Congress in 1977 or 1978.  In addition, section 201(19) of the Redwood Act provides that the amount of terminal pay for an employee shall be reduced by the amount of the federal and state income taxes that would be required to be withheld by an employer from wages equal to such terminal pay, if paid to an employee with the same number of income tax exemptions as the recipient.  Section 201(19) also provides for the withholding and payment of social security contributions on terminal pay.

  Although the benefits provided under sections 207, 208, and 209 of the Redwood Act meet the definition of unemployment compensation for purposes of section 85 of the Code, subjecting such amounts to tax under section 85 would interfere with the specific taxing provisions of the Redwood Act and result in a situation analogous to one of double taxation.

HOLDING

  The benefits and payments made under sections 207, 208, and 209 of Pub. L. No. 95-250, 92 Stat. 163 (1978), (the Redwood National Park Expansion Act), are not includible in gross income under the provisions of section 85 of the Code.

Rev. Rul. 80-23, 1980-1 C.B. 17, 1980-4 I.R.B. 5.