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NATIONAL SECURITY AGENCY I 0/CNCEFSTNAI. AFFAIRS
CENTRAL SECURITY SERVICE
FORT GEORGE G. MEADE, MARYLAND 20755400 pc, ?4385 /
Serial:
18 November 1986
MEMORANDUM FOR THE OFFICE OF CONGRESSIONAL AFFAIRS, CENTRAL
INTELLIGENCE AGENCY
SUBJECT: NSA Proposals for FY-88 Intelligence Authorization Act
1. This responds to your letter of 16 October 1986 in which
you request legislative language for NSA proposals to be included
into the FY-88 Intelligence Authorization Bill.
2. Summarized below are six proposals including a revised
version of the Foreign Cryptographic Control Bill. Legislative
language and sectional analyses for each provision are attached
at Tabs A-F.
a. Tax Exemption of Allowances Paid to Certain NSA
Employees. An amendment to section 912(1) of the Internal Reve-
nue Code to exempt from taxation allowances provided to certain
NSA and DIA personnel. The same allowances provided to Foreign
Service members and CIA personnel are currently exempted from
taxation under section 912(1). The NSA portion of the proposal
has already been cleared by OMB and has been sent to Congress.
The Intelligence Authorization Act may be an appropriate vehicle
for enacting this legislation. (A copy of the Speaker Letter
prepared by DoD is attached at Tab G.)
b. Retroactive Pay for Certain NSA Employees. An amend-
ment to the NSA Act of 1959 (50 U.S.C. S402 note) to allow the
Director, NSA, to pay certain senior NSA employees additional
pay to which they would have been entitled during fiscal years
1980 and 1981 under a 1984 Seventh Circuit decision (Squillacote
v. U.S., 739 F.2d 1208 (7th Cir. 1984), cert. denied, 105 S.C.
2021 (1985)) if NSA's Senior Cryptologic Executive Service (SCES)
had been established at the same time as the Senior Executive
Service (SES).
c. Foreign Cryptography Control. An amendment to Title
10 to provide the Secretary of Defense and the Director, NSA,
with the statutory authority to prevent the introduction of foreign
manufactured cryptography into the United States Government and
government-contractor inventory and to bar foreign-owned, controlled,
or influenced companies from accessing United States Government
cryptography.
d. Transportation of Remains. An amendment to Title 5
to authorize the payment of expenses for transportation of
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remains, dependents, and effects of an employee of the United
States who dies while on a rotational tour of duty within the
United States at a place away from his or her pemanent home.
e. Pay Advance. An amendment to Title 5 to authorize
advances of up to three months' pay to employees reassigned for
permanent duty to a new location within the United States in
like manner as is authorized in cases of transfers overseas.
f. NSA Graduate Studies Program. An amendment to the
NSA Act of 1959 to provide statutory authority for the establish-
ment by the Director, NSA, of a graduate training program for
critical skills.
3. Please contact me with any questions you may have con-
cerning our submissions.
Ends:
a/s
Legislative Regulatory Counsel
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TAX EXEMPTION FOR ALLOWANCES PAID TO CERTAIN NSA
AND DIA EMPLOYEES
Section : Section 912(1) of chapter 1 of title 16, United
States Code, is amended by inserting at the end thereof the
following new paragraphs:
"(E) subsection (b) of section 9 of the National Security
Agency Act of 1959, as amended (50 U.S.C. section 402 note),
whenever the allowance would be excluded from gross income under
paragraphs (1)(A) or (1)(B) of this section.
"(F) subsection 1605(a) of title 10, United States Code,
whenever the allowance would be excluded from gross income under
paragraph 1(A) of this section."
SECTIONAL ANALYSIS
Section would amend section 912(a) of the Internal
Revenue Code of 1954 to grant comparable tax treatment of
allowances currently provided to certain Department of Defense
personnel under section 9(b)(1) of the National Security Act of
1959 and section 1605 of title 10, United States Code.
The Intelligence Authorization Act of 1982 (Public Law 97-89)
amended the National Security Agency Act of 1959 to allow the
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Director, National Security Agency, to provide allowances and
benefits to certain civilian employees of the Department of
Defense which were comparable to those provided to the State
Department's Foreign Service and to employees of the Central
Intelligence Agency. During the implementation of this statute,
it was discovered that comparability of the allowances could not
be achieved unless the tax exemption provided for Foreign Service
and Central Intelligence Agency employees under section 912(1)(A)
and (B) of the Internal Revenue Code was also available for
civilians employed and assigned to the National Security Agency.
The Intelligence Authorization Act for Fiscal Year 1984 (Public
Law 98-215) amended title 10, United States Code, to provide
certain allowances and benefits to personnel assigned to Defense
Attache Offices and Defense Intelligence Agency Liaison Offices
overseas comparable to those provided by the Secretary of State
to officers and employees of the Foreign Service under chapter 9
of Title I of the Foreign Service Act of 1980. Although section
1605 was designed to establish equivalence between DAO/DIALO
civilians and Foreign Service personnel with respect to many
allowances and benefits, the actual value of the allowances and
benefits to DAO and DIALO personnel is less than the value of
the benefits to Foreign Service personnel, since the benefits
granted under the Foreign Service Act are tax free by virtue of
section 912 of the Internal Revenue Code while those granted
under section 1605 are not exempt from taxation.
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The current inequity in taxation has been compounded by subsection
12323(b) of the Tax Reform Act of 1986 (Public Law 99-570). This
subsection provides that civilian employees of the Department of
Defense stationed in Panama may exclude from gross income allowances
which are comparable to the allowances excludable under section
912(a) of the Internal Revenue Code by employees of the Department
of State stationed in Panama. Thus, it appears that any Defense
Intelligence Agency or National Security Agency personnel stationed
in Panama will, in future taxable years, be able to exclude from
their gross income Foreign Service-equivalent allowances and
benefits granted to them.
As a result of the provisions discussed above, there is now a
situation where the tax laws treat identical allowances and benefits
differently for NSA and DIA civilian personnel stationed overseas
from that of Foreign Service personnel. Moreover, under the Tax
Reform Act of 1986, the tax laws now treat identical allowances
and benefits differently for NSA and DIA civilian personnel in
Panama from all other NSA and DIA civilian personnel stationed
overseas. The addition of the proposed paragraphs (E) and (F)
to section 912(1) of the Internal Revenue Code of 1954 will provide
equal tax treatment for identical allowances and benefits received
by NSA, DIA, and Foreign Service civilian personnel stationed
around the world.
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CHANGES IN EXISTING LAW
Subsection 912(1) of title 26, United States Code, as follows:
Sec. 912. Exemption for certain allowances.
The following items shall not be included in gross income,
and shall be exempt from taxation under this subtitle:
(1) Foreign areas allowances.--In the case of civilian
officers and employees of the Government of the United States,
amounts received as allowance or otherwise (but not amounts received
as post differentials) under--
(A) chapter 9 of title I of the Foreign Service Act
of 1980,
(B) section 4 of the Central Intelligence Agency
Act of 1949, as amended (50 U.S.C. sec. 403e),
(C) title II of the Overseas Differentials and
Allowances Act, or
(D) subsection (e) or (f) of the first section
of the Administrative Expenses Act of 1946, as
amended, or section 22 of such Act-,
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(E) subsection (b) of section 9 of the National
Security Agency Act of 1959, as amended
(50 U.S.C. section 402 note), whenever
the allowances would be excluded from
gross income under paragraphs (1)(A) or
(1)(B) of this section, or
(F) subsection 1605(a) of title 10,
United States Code whenever the allowance
would be excluded from gross income under
paragraph (1)(A) of this section.
COST ANALYSIS
The enactment of this section would result in the loss to the
government of income tax revenues otherwise collectible on the
exempted sums.
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PROPOSED SECTION TO THE DRAFT INTELLIGENCE AUTHORIZATION ACT 1988:
Retroactive Pay for Certain NSA Employees
Sec. . Notwithstanding any other law, the Director
of the National Security Agency may, in his discretion, pay retro-
actively to present and former members of the Senior Cryptologic
Executive Service any additional pay to which they would have
been entitled had the Senior Cryptologic Executive Service been
established on July 13, 1979. Such retroactive payments may
only be made to those employees of the National Security Agency
whose basic pay was at or above the rate of basic pay of grade
16 of the General Schedule at some time between July 13, 1979,
and March 14, 1982, and who subsequently became members of the
Senior Cryptologic Executive Service prior to 8 June 1982. Such
retroactive payments may be made from any funds appropriated for
prior fiscal years which remain available.
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SECTIONAL ANALYSIS
Section would authorize the Director, NSA, to make a
one-time retroactive payment to certain Senior Cryptologic Execu-
tive Service (SCES) employees equivalent to the retroactive pay
for fiscal years 1980 and 1981 made to Senior Executive Service
(SES) personnel pursuant to a 1984 circuit court decision,
Squillacote v. United States, 739 F.2d 1208 (7th Cir. 1984),
cert. denied, 105 S.C. 2021 (1985). The Director would also be
permitted to pay affected employees any amounts subsequently
determined by any court to be due to SES employees by virtue of
their membership in the SES between July 13, 1979, the date after
United States Government employees were first converted to SES,
and March 14, 1982, the date positions in the National Security
Agency were first converted to the SCES. The section further
provides that such payment shall be made from any funds appro-
priated for prior fiscal years which remain available.
In Squillacote, the Seventh Circuit Court of Appeals deter-
mined that pay for the SES was improperly capped at Executive
Level V in fiscal years 1980 and 1981. During these fiscal years,
no positions within the National Security Agency were included
in the SES because Section 3132(a) of Title 5, United States
Code, specifically excluded the National Security Agency from
participating in the SES. However, during fiscal years 1980 and
1981, the Agency employed a number of employees whose rate of
basic pay was equal to or greater than the rate of basic pay for
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grade 16 of the General Schedule and who subsequently were
converted to the Senior Cryptologic Executive Service. The pay
of these employees was capped at Executive Level V pursuant to 5
U.S.C. S 5308.
In Public Law 97-89, the Intelligence Authorization Act of
1982, 95 Stat. 1150, NSA was given authority to implement a Senior
Cryptologic Executive Service which was to operate in much the
same way as the SES and to pay SCES members the same amounts as
members of the SES are paid. In early 1982, NSA began the process
of converting senior grade employees to the SCES positions. By
June 1982, the initial process of converting employees to the
SCES was completed. The proposed legislation would permit the
Director of NSA to retroactively pay employees who were subsequently
converted to the SCES the amounts they would have received had
they been converted to the SCES at the same time other government
agencies converted employees to the SES.
COST AND BUDGET DATA
We estimate the cost to be $700,000.
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A BILL
To protect United States Government telecommunications from inter-
ception and interference by foreign powers, and for other purposes.
Be it enacted by the Senate and House of Representatives of
the United States:
SEC. 2. (a) Chapter 4 of title 10, United States Code, is amended
by adding at the end thereof the following section:
"140d. Cryptographic Security
"(a) To ensure the security of communications relating to activi-
ties of the United States Government and to control the dissemina-
tion of cryptographic information, the Secretary of Defense shall
issue regulations governing the purchase, use and disposal of
cryptographic equipment used by the United States Government, by
United States Government contractors, and by others who have
been granted access to cryptographic equipment by the United
States Government.
"(b) All agencies and instrumentalities of the United States
Government, United States Government contractors, and others who
have been granted access to cryptographic equipment by the United
States Government shall comply with regulations issued pursuant
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to subsection (a). Such regulations shall be promulgated after
coordination with the heads of departments and agencies as deter-
mined by the President.
"(c) Regulations issued pursuant to subsection (a) shall be
submitted to the Permanent Select Committee on Intelligence and
the Committee on Armed Services of the House of Representatives,
and the Select Committee on Intelligence and the Committee on
Armed Services of the Senate, no later than thirty days before
such regulations take effect.
"(d) The Secretary of Defense may delegate the authority granted
by subsection (a) only to the Deputy Secretary of Defense and
the Director, National Security Agency.
"(e) In addition to any administrative, contractual, or other
remedy that may be available, the Attorney General is authorized,
upon request of the Secretary of Defense, to institute a civil
action pursuant to section 1345 of title 28, United States Code,
to enforce compliance with regulations issued pursuant to subsec-
tion (a). In a civil action instituted pursuant to this subsection,
the district court may order injunctive or other equitable relief,
including but not limited to specific performance of obligations
imposed by regulations issued pursuant to subsection (a) and the
forfeiture to the United States of equipment or the proceeds
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from equipment sold, used, or disposed of contrary to such regu-
lations.
"(f) Nothing in this section shall be deemed to affect or reduce
the authorities conferred by the Federal Property and Administra-
tive Services Act of 1949, as amended, on the Administrator of
General Services, the Secretary of Commerce, or the Director of
the Office of Management and Budget.
"(g) Nothing in this section shall alter or affect the authori-
ties of the Director of Central Intelligence, including the au-
thority to protect intelligence sources and methods and activities
of the Central Intelligence Agency, from unauthorized disclosure.
"(h) As used in this section --
"(1) 'Contractors' means individuals, sole proprietors,
associations, partnerships, corporations, and other entities
performing under contracts with the United States and includes
subcontractors.
"(2) 'Cryptographic equipment' means all equipment, documents,
material, devices, or information used to provide security or
protection to telecommunications by converting information to a
form unintelligible to an unauthorized recipient and by reconverting
such information to its original form for authorized recipients;
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specifically to aid in, or as an essential element of, such a
conversion and reconversion process; and crypto-ancillary equip-
ment, crypto-production equipment, and authentication equipment;
and
"(3) 'Agencies and instrumentalities of the United States
Government' means executive departments, military departments,
agencies, and independent establishments of the United States,
and the armed forces, but does not include the Congress or the
Judiciary."
b. The Table of Contents of Chapter 4 of title 10, United States
Code, is amended by adding at the end thereof the following:
"140d. Cryptographic Security."
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SECTIONAL ANALYSIS
Section 2(a) amends Chapter 4 of Title 10 by adding a new
section 140d - Cryptographic Security. This new section provides
the Secretary of Defense, and if he delegates his authority, the
Deputy Secretary of Defense and the Director, NSA, statutory
authority to promulgate regulations governing the purchase, use,
and disposal of cryptographic equipment in order to maintain the
integrity of communications security equipment used by the United
States Government, its contractors, and others granted access to
such equipment by the government. Regulations issued pursuant
to this authority would maintain an appropriate level of control
over the introduction of foreign-manufactured cryptography into
the United States Government and government-contractor inventory
and regulate the access to United States Government cryptography
by foreign-owned, controlled, or influenced companies.
Subsection (b) provides that regulations issued by the
Secretary of Defense will be promulgated after coordination with
the heads of departments and agencies determined by the Presi-
dent to have a role in these matters. These regulations will be
submitted to the Congressional committees enumerated in subsection
(c) no later than thirty days before they are to take effect.
Subsection (e) specifically provides authority to institute
civil judicial proceedings to enforce compliance with regulations
issued pursuant to this Section.
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Nothing in this section shall be deemed to affect or reduce
the authorities conferred by the Federal Property and Administra-
tive Services Act of 1949, as amended, on the Administrator of
General Services, the Secretary of Commerce, or the Director of
the Office of Management and Budget. Nor shall this section
alter or affect the authorities of the Director of Central Intel-
ligence (DCI), including his authority to protect intelligence
sources, methods and activities from unauthorized disclosure or
his responsibility to act as Executive Agent of the United
States Government for technical security countermeasures.
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A BILL
To amend Title 5, United States Code, to authorize payment
of expenses for transportation of remains, dependents, and effects
of certain employees of the United States.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, that Chapter
57 of Title 5, United States Code, is amended as follows:
Sec. 1. Subsections (1) and (2) of Section 5742(b) are
amended to read as follows:
"(1) the expenses of preparing and transporting the
remains to the home or official station of the employee, or such
other place appropriate for interment as is determined by the
head of the agency concerned, if death occurred while the employee
was in a travel status away from his official station in the
United States, while performing official duties outside the United
States, while the employee was on a rotational tour of duty within
the United States, or while in transit thereto or therefrom; and
"(2) the expense of transporting his dependents, including
expenses of packing, crating, draying, and transporting household
effects and other personal property to his former home or such
other place as is determined by the head of the agency concerned,
if death occurred while the employee was performing official
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duties outside the United States, while the employee was on a
rotational tour of duty within the United States or while the
employee was in transit thereto or therefrom."
Sec. 2. Section 5742(c) is amended by inserting after
"therefrom," the following:
"or while on a rotational tour of duty within the United
States,"
Sec. 3. For purposes of this Act, a "rotational tour of
duty within the United States" is a form of permanent change of
station whereby an agency transfers an employee away from the
agency headquarters to another post of duty in the United States
for a fixed period of time established by regulation with the
intent to return the employee to the agency headquarters by
permanent change of station relocation at the end of that period.
Sec. 4. The amendment made by this Act shall be effective
on the date of enactment of this Act.
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SECTIONAL ANALYSIS
Section 1 amends Section 5742(b)(1) of Title 5, United States
Code, to authorize an agency to pay the expenses of transporting
the remains, dependents, and effects of employees who die while
on a rotational tour of duty in the United States.
Section 2 amends Section 5742(c) of Title 5, United States
Code, by providing the agency head with the authority to pay the
expenses of transporting the remains of a dependent of the employee
described above who dies while residing with the employee.
Section 3 defines for purposes of this Act the term "rotational
tour of duty" as a form of a permanent change of station whereby
an agency transfers an employee away from the agency headquarters
to another post of duty in the United States for a fixed period
of time established by regulation with the intent to return the
employee to the agency headquarters by permanent change of station
relocation at the end of that period.
Section 4 provides that the effective date of the amendment
shall be the date of enactment.
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A BILL
To permit advances of pay to an employee upon the reassignment of
the employee to a post within the United States.
1 Be it enacted by the Senate and House of Representatives
2 of the United States in Congress assembled,
3 SEC. 1. Subchapter II of chapter 57 of title 5, United States
4 Code, is amended by adding at the end thereof the following
5 new section:
6 "35734. Advance of pay
7 "Under such regulations as the President may prescribe,
8 an advance of up to three months' pay may be paid to
9 an employee upon the reassignment of the employee for permanent
10 duty within the United States, its territories or possessions,
11 or the Commonwealth of Puerto Rico, with the same safeguards
12 required under section 5705 of this title."
13 SEC. 2. The table of sections at the beginning of such
14 chapter is amended by adding at the end of the portion
15 relating to subchapter II the following new item:
16 "5734. Advance of pay.".
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SECTIONAL ANALYSIS
The purpose of this proposal is to make available to
employees reassigned for permanent duty to new posts of duty
within the United States in the interests of the government,
advances of up to three months' pay--the same advances of pay as
are currently available to employees assigned to foreign areas.
COST AND BUDGET DATA
The enactment of this proposed legislation would result in
deminimus additional cost to the government in terms of interest
paid or not received by the government on the sums advanced.
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PURPOSE
To amend the National Security Agency Act of 1959 to authorize
the Secretary of Defense to establish a graduate training program
for critical skills. The National Security Agency Act of 1959,
50 U.S.C. ? 402 note, is amended as follows:
Sec. 1. Section 16(a) is amended to read as follows:
The purposes of this section are: 1 to establish an
undergraduate training program, which may lead to the baccalaureate
degree, to facilitate the recruitment of individuals, particularly
minority high school students, with a demonstrated capability to
develop skills critical to the mission of the National Security
Agency, including mathematics, computer science, engineering,
and foreign languages; and 2) to establish a graduate training
program which may lead to a graduate degree to facilitate the
retention of employees and the recruitment of new employees with
a demonstrated capability to develop skills critical to the mission
of the NSA.
Sec. 2. Section 16(b) is amended by inserting the words
"or graduate" after "undergraduate."
Sec. 3. Subsection (2) of Section 16(e) is amended by inserting
the words "or graduate" after "undergraduate."
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SECTIONAL ANALYSIS
This amends the National Security Agency Act of 1959 to
enable the Agency to establish a graduate program leading to a
graduate degree with the same provisions as the undergraduate
training program.
COST AND BUDGET DATA
The estimated cost of the program is as follows:
1988
$422,000
1989
$464,000
1990
$510,000
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A I. 41
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r w e w w.i.- - ,
DOD 99-98
Arrii 7, 198t
Honorable Thomas P. O'Neill
Speaker of the House of Representatives
Washington, D.C. .20515
Dear Mr. Speaker:
There is forwarded herewith a draft of legislation "To
amend Section 912(1) of the Internal Revenue Act of 1954 (26
U.S.C. ?912(1)) by including a paragraph which would grant
comparable tax treatment of allowances permitted to certain
Department of Defense personnel under Section 9(b)(1) of the
National Security Agency Act of 1959 (50 U.S.C. ?402 note)."
This proposal is part of the Department of Defense legisla-
tive program for the 99th Congress. The Office of Management and
Budget advises that, from the standpoint of the Administration's
program, there is no objection to the presentation of this
proposal for consideration of the Congress. It is recommended
that the proposal be enacted by Congress.
Purpose
The National Security Agency Act of 1959 (Public Law 86-36),
as amended by the Intelligence Authorization Act of 1982 (Public
Law 97-89), provides for certain administrative authorities for
the National Security Agency. Section 9(b) of the Act authorizes
the Director, National Security Agency, to provide benefits and
allowances to certain National Security Agency employees that are
comparable to those received by members of the State Department's
Foreign Service Corps or Central Intelligence Agency employees
stationed overseas. The intent of the Act was to remove inequi-
ties arising from the absence of statutory authority to pay to
National Security Agency employees the same benefits and allow-
ances that could be paid to either State Department or Central
Intelligence Agency personnel alongside whom they work.
During the implementation of the Act, an inequity appeared
in the tax treatment of certain allowances provided to the
National Security Agency employees. Often the allowances
provided to members of the Foreign Service, under Chapter 9 of
Title I of the Foreign Service Act of 1980, or Central Intelli-
gence Agency employees, under Section 4 of the Central Intelli-
gence Agency Act of 1949 (50 U.S.C. ?403e), were exempted
from taxation by Title 26, Section 912(1)(A) and (B) of the.
Internal Revenue Code. Comparable benefits paid to National
Security Agency employees however, may not be exempt because
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their enabling statutes were not among those listed under 26
U.S.C. ?912(1). Therefore, although the National Security
Agency employee would be entitled to the comparable allowance of
a Central Intelligence Agency of Foreign Service employee, the
taxation of his/her allowance would result in another inequity.
To remedy the disparity, we are proposing that Section
912(1) of the Internal Revenue Code be amended to allow tax
exemption of allowances paid to those National Security Agency
employees under Section 9(b)(1) of the National Security Agency
Act of 1959.
Cost and Budget Data
The enactment of this proposed legislation would result in
the loss to the government of income tax revenues otherwise
collectible on the exempted sums.
A draft bill and sectional analysis are enclosed.
Enclosure
Sincerely,
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P BILL
To amend Section 912(1) of the Internal Revenue Code of 1954
by including a paragraph which would grant comparable tax treat-
ment of allowances provided to certain Department of Defense
personnel under Section 9(b)(1) of the National Security Agency
Act of 1959 (50 U.S.C. ?402 note).
Be it enacted by the Senate and the House of Representatives
of the United States in Congress assembled, that Section 912(1)
of the Internal Revenue Code of 1954, as amended, is further
amended by adding at the end thereof the following paragraph:
"(E) Subsection (b) of Section 9 of the National Security
Agency Act of 1959, as amended (50 U.S.C. ?402 note), whenever
the allowance would be excluded from gross income under para-
graphs(l) (A) or (1)(B) of this section."
Sectional Analysis
The Intelligence Authorization Act of 1982 (Public Law 97-
89) amended the National Security Agency Act of 1959 to allow the
Director, National Security Agency, to provide allowances and
benefits to certain civilian employees of the Department of
Defense which were comparable' to those provided to the State
Department's Foreign Service and to employees of the Central
Intelligence Agency. During the implementation of this statute,
it was discovered that comparability of the allowances could not
be achieved unless the tax exemption provided for Foreign Service
and Central Intelligence Agency employees under Section 912(1)(A)
and (B) of the Internal Revenue Code was also available for
civilians employed and assigned to the National Security Agency.
The addition of the proposed paragraph (E) to Section 912(1)
will allow the same tax treatment for an allowance paid to a
Department of Defense employee under Section 9(b) of the National
Security Agency Act of 1959 as would be enjoyed by a member of
the Foreign Service Corps or an employee of the Central Intelli-
gence Agency under either paragraph (A) or (B) of the existing
statute.
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