European Stars and Stripes (Newspaper) - August 16, 1991, Darmstadt, Hesse                                Friday August 16, 1991 the stars and stripes b Page 7 overseas allowance taxes to end agreement Means millions in refunds for Dod by Chuck Vinch Washington Bureau Washington the internal Revenue service has conceded defeat in a six year Legal Battle Over whether housing and Cost of living allowances paid to defense department civilians overseas Are subject to special Security and medicare taxes. In a letter dated aug. 1, the irs informed the defense finance and accounting service that it would not take the Case to the supreme court following a Federal appeals court ruling in March that said the taxation is improper. That decision clears the Way for the defense department to reimburse its More than 50,000 overseas civilian employees a and Many others who left Federal service while the Case dragged on a for millions of dollars in taxes that have been withheld on allowances since 1985. A a we re really pleased that this is finally settled that the withholding will Stop and that the Money will be refunded a said Sandra Vickstrom a spokeswoman for the overseas education association the plaintiff in the court Case. Notices will go out this week to overseas payroll offices advising them to Stop withholding the tax said Kay Drews the accounting services Deputy general counsel. Defense accounting service and irs officials will soon meet to work out the process for issuing refunds to employees. No Date has been set for that meeting and Drews could not say How Long it would take for employees to receive re funds. A a it a going to be a Complex process a Drews said. A there Are thousands of employees several payroll offices plus several irs regional offices that Are going to be involved in  she also could not say what the total amount of the refunds or the average individual refund might be. But Richard Hirn a Washington lawyer representing the overseas education association in the Case estimated that average individual refunds could total More than $300 per year with some going As High As $2,000 per year. Employees covered by the Federal employee retirement system created in 1983 have had their allowances taxed for social Security and medicare at an annual rate of 8.51 percent. Those covered by the old civil service retirement system have had their allowances taxed for medicare Only at a rate of 1.45 percent a year. 0 the defense accounting Agency will handle refunds Only for those employees who signed consent forms allowing defense officials to file Blanket refund claims on their behalf in Case the irs lost the court Case Drews said. Because the consent forms Are filed with local payroll offices Drews could not say what percentage of overseas employees have signed them. Other employees have filed claims on their own behalf Over the years. The Pentagon first announced in 1989 that it would gather the consent forms covering employees As far Back As 1986 As a precautionary move. Defense officials later extended that Blanket refund policy to cover tax years 1990 and 1991. 1 a employees who declined to sign consent forms Are on their own to seek refund claims from the irs Drews said. Such claims can be filed retroactively As far Back As three years. Defense finance officials also  arduous task of trying to track Down an unknown number of employees who have left Federal service while the Case has wound through the courts. At Issue in the court proceeding was whether overseas allowances could be considered wages for tax purposes. The court ruling essentially says they arc not because they arc meant to be a reimbursements for additional expenses incurred because of the employees jobs rather than direct compensation. Congress had Long exempted overseas allowances from taxation for that very reason. But when lawmakers imposed social Security and medicare taxes on Federal employees in 1984, the new Laws did not specify How the allowances were to be treated for those taxes. The Navy began withholding taxes on the allowances in Early 1985, based on the services interpretation of the new social Security Laws. When employees complained the Navy sought an opinion from the irs. In March 1986, the Revenue service issued an opinion that said such taxation was proper. The overseas education association then decided to test the taxation policy and hired Hirn to sue the government on behalf of 18 department of defense dependents schools teachers in Bermuda. In october 198 5, the Pentagon general counsel directed the other services to begin taxing the allowances. Despite internal opposition the withholding began in the air Force in january 1987 and in the army in january 1988. A we told Dod they were foolish to extend the withholding to the army and air Force while the Case was in litigation a Hirn said. A we told them they a have to administer the Mother of All refund programs if the irs lost and Here it  the state department which handles payroll for All overseas Federal civilians outside the defense department consistently resisted irs efforts to implement the withholding policy. That meant irs employees working overseas never had to suffer the same tax bite on their overseas allowances As defense department civilians. Shiite Leader urges factions to help account for israeli mias Geneva apr As the . Secretary general waited to see if lebanese kidnappers would meet israeli demands for a hostage Swap Lebanon a shiite Leader on thursday urged the captors to cooperate. Israel wants solid information on the status of seven israeli servicemen missing in action in Lebanon for years. That is the stumbling Block to a Trade that would reportedly involve the servicemen the 11 remaining Western hostages and hundreds of arabs being detained by  comments in Lebanon by Sheik Mohammed Mehdi Shamseddine the country Stop ranked shiite Muslim cleric marked the first Call by a major shiite figure for an accounting of the israeli servicemen. A i ask the groups that have information on the missing israelis to reveal the information to the . Secretary general Javier Perez de Cuellar Shamseddine said. He said doing so would be a in the interest of releasing the hostages and detainees held by the jewish state. But Shamseddine also said reports that a hostage release was imminent were  Ariel Merari a terrorism expert at israelis Tel Aviv University said Shams Heddine Scall for More information on the israeli mias was a meaningful and  he said the Appeal would help the position of the Hezbollah factions favouring negotiations As opposed to those that argue against making a Deal. Hezbollah or party of god is believed to be the umbrella organization for groups holding hostages. However Merari noted that Only three of the seven missing israelis Are believed to be held by pro iranian factions influenced by Shamseddine. Perez de Cuellar said he was awaiting reaction from the lebanese kidnappers to israelis demand for solid information on the status of the israeli servicemen. A there will be no gestures before we receive reliable Clear and unequivocal information about our missing prisoners. We will not be moved or give in to any pressure a israelis Lead negotiator Uri Lubria said  also said Israel is a very very ready to help once information is Given on the mias. P6rez de Cuellar said earlier that if the Mia Issue could be settled a almost everything would be  president Bush appeared pleased with recent efforts to break the hostage deadlock. A sounds like flexibility on All sides a Bush said thursday in Kennebunkport Maine where he is vacationing. The . Secretary general and israeli negotiators predicted wednesday that High profile talks would give Way to quiet diplomacy after a hectic week that brought the release of three Western captives. Israeli negotiators met with the . Secretary general wednesday. Asked when the hostages might be released p6rez de Cuellar said a perhaps Days or weeks i done to know. It depends on How quickly i have a reaction from both sides he added however that four Days of intensive diplomacy in Geneva left him a More optimistic than  a i have a very Clear idea what the israelis want what the Western countries want what the captors j want a said p6rez de Cuellar who headed thursday for a round of i private visits in Europe. I after the talks he telephoned Iran a . Envoy Kamal Kharazi at the israelis request to Tell him about their a very firm  Iran is a key player in the hostage crisis because the westerners including five americans Are held by pro iranian shiite Muslim groups. A variety of lebanese and palestinian groups Are believed to Nave captured the israelis following israelis i982 invasion of Lebanon. Radical palestinian Leader Ahmed Jibril reported that three israeli servicemen Are alive and that the other four Are believed dead. Some israeli officials believe at least three of the mias Are alive but there has been no firm proof on the Fate of any of them. Perez de Cuellar has suggested the israelis make a Goodwill gesture by releasing some of their Arab detainees. Lugnani said this was not discussed during wednesdays 90-minute meeting. Israel and its Allied militia the South Lebanon army hold about 375 lebanese prisoners. In addition Israel has detained about 9,000 palestinians. Jibril Secretary general of the popular front for the liberation of Palestine general command said wednesday that he would demand that 18,000 palestinians jailed by Israel also be released in any Trade. Itheddine bowing to War dead japanese Empress Michiko and emperor Akiho pay their respects to their nations War victims during a memorial service at Tokyo a martial arts Hall on thursday. The ceremony marked the 46th anniversary of Japan a surrender in world War ii