Rev. Rule 57-566, 1957-2 Cum. Bull. 589, presents a factual situation similar to the one before this Court. A federal civil service employee, who was improperly suspended, was allowed back-pay treatment of a lump sum payment for the suspension period.
The Commissioner cited 5 U.S.C. § 652 (b) (presently recodified and amended, 5 U.S.C. § 5596), which provided that a wrongfully discharged employee "shall for all purposes except the accumulation of leave be deemed to have rendered services during such period," as the basis for allowing back-pay treatment. The Pennsylvania Education Code does not contain a similar provision. However, nothing to the contrary is provided, and Mrs. Brodsky was in fact treated, for all purposes, as if she had rendered services to the school system during her period of discharge.
Therefore, assuming that section 1303(b)(1) requires either that actual services be performed, or that services be deemed to be performed, I am persuaded that there was constructive performance of services in this case.
There is also significant doubt that section 1303(b)(1) requires that services be actually or constructively performed. As Judge Disney pointed out in his dissenting opinion in Stearns, supra at 425, section 1303(b)(1)(B) applies to payments which would have been paid but for the intervention of a "dispute as to liability of the employer to pay such remuneration, which is determined after the commencement of court proceedings." Since the statute specifies the existence of a dispute and the institution of a lawsuit, it would appear that instances in which an employee leaves the employ of his employer, and subsequently sues for his lost wages, are contemplated by the section.
Therefore, section 1303(b)(1) would apply to situations where an employee remains in the employ of his original employer, and situations in which the employee remains available to resume his employment, notwithstanding the fact he has undertaken interim employment during the litigation of his lawsuit. Under this interpretation, Mrs. Brodsky would clearly be entitled to the benefits of section 1303.
The payment in question was made to an employee pursuant to a contract for services. Under any common-sense appraisal of the realities of the situation, this was "back-pay." To hold otherwise would be utterly inconsistent with the apparent intent of Congress as expressed in section 1303.
In light of the disposition which I have made of the taxpayers' section 1303(b)(1)(B) claim, it is not necessary to determine the alternative claims that section 1303(b)(1)(C) and section 1303(b)(3) also apply. Furthermore, there is no necessity to decide whether it is permissible for the taxpayers to rely now on section 1305, relating to damage awards received pursuant to a judicial decree, even though this legal theory was not asserted in the refund claim filed with the Commissioner.
Conclusions of Law
1. This Court has jurisdiction over the parties and subject matter.
2. Venue is proper in this judicial district.
3. Section 1303 of the Int. Rev. Code of 1954, 68A Stat. 335, is applicable to the lump sum payment of $15,701.28 made to Mrs. Brodsky on June 20, 1961, by the Philadelphia School District.
4. Plaintiffs are entitled to a refund in the amount of $753.73, and to have their tax liability for 1961 recomputed to reflect the fact that the Commissioner's reduction of their medical deduction for 1961 was improper.
And now, this 3rd day of February, 1969, it is hereby ordered, as follows:
1. In Civil Action No. 37911, judgment is entered in favor of plaintiffs in the sum of $753.73, plus interest from October 2, 1964, and that
2. The commissioner shall recompute plaintiffs' 1961 tax liability to reflect the fact that his reduction of plaintiffs' medical deduction for that year was improper.