November 5, 2012 Updated Guidance on the "10-year rule"To: FEA Members Worldwide
From: HT Nguyen, FEA Executive Director/General Counsel
Re: Updated Guidance on the "10-year rule" for Personally Owned Quarters (POQs)
Date: November 5, 2012
PLEASE NOTE CAREFULLY that the following guidance applies ONLY to educators in the FEA bargaining unit.
I. Background Information
In February 2012, DoD issued a revised DoD Instruction (DoDI) 1400.25, Subchapter 1250. FEA learned that the revised DoDI contained the following language concerning personally owned quarters (POQs):
"The annual rent payable for personally owned quarters (POQ) is based on the purchase price or appraised value of the property, converted to U.S. dollars at the exchange rate in effect at the time of purchase. Employees who own, or are purchasing a POQ, may not be paid quarters allowances under a rental contract if the POQ is within the employee's local area of work." (emphasis added)
The first line above is the general rule concerning payment of Living Quarters Allowance (LQA) to those who own POQs, which has been in effect for many years. However, the second line (underlined above) is completely new language.
II. FEA Actions
Following the issuance of the revised DoDI 1400.25, FEA sent an official request to DoDEA requesting their position on whether or not they intended to implement the above-cited language. In that request, FEA stated our position and legal arguments, namely that DoDEA cannot implement this new language in our bargaining unit, as this change violates the decisions of Arbitrators Seidenberg, Jascourt and Feldman, as well as the Negotiated Agreement.
DoDEA headquarters officials recently confirmed to FEA that DoDEA agrees that the changes to DoDI 1400.25, Subchapter 1250 will not be implemented in the Association's bargaining unit, as they conflict with the above-cited arbitration decisions and the Negotiated Agreement. Please note that DoDEA has informed FEA that this decision applies only to the FEA bargaining unit. Accordingly, please find below FEA's updated guidance on the "10 year rule," which applies only to educators in the FEA bargaining unit.
FEA Guidance on the "10 year rule" for Educators in the FEA Bargaining Unit (as of November 2, 2012)
Several educators who are approaching the 10 year mark of living in their Personally Owned Quarters (POQs) have contacted the Association regarding what options they have with these POQs. Generally speaking, the Department of State Standardized Regulations (DSSR) provides that 10% of the purchase price of the POQ may be paid over 10 years in lieu of LQA. However, the Association has been very active in litigation and in reaching some understandings/settlements with management to settle or resolve legal action concerning what happens prior to the end of this 10-year period.
I. Where can I find the regulations governing POQs?
Generally speaking, the Department of State Standardized Regulations (DSSR) governs the payment of LQA for POQs. The regulation that most specifically deals with the issue of POQs is DSSR section 136. The DSSR is a government-wide regulation, and cannot normally be changed by the Association through bargaining.
II. I purchased a POQ, but am now approaching the end of the 10-year period. What options do I have?
As a general rule, under DSSR section 136, employees in some overseas locations, who are otherwise eligible for LQA, may elect to purchase Personally Owned Quarters (POQs), and may receive 10% of the purchase price of the POQ in the form of LQA for 10 years after the purchase of the POQ. However, the DSSR regulations also state that at the end of the 10-year period, should the employee elect to continue owning and living in the POQ, payments will be limited to utilities.
For educators in the Association's bargaining unit ONLY, the following are the options that may be available to you.
- You can sell the POQ and move into rental quarters. Once you move into rental quarters, you can receive LQA for the rental quarters indefinitely.
- As a result of an understanding reached with management to settle an Association grievance, at the end of the 10-year period, you are no longer required to sell your POQ before moving into rental quarters. In other words, you can continue to own your POQ and move into rental quarters. However, you will no longer be eligible to receive any LQA or utilities for the POQ. Instead, you will be entitled only to LQA for the rental quarters. You may rent out your POQ, and you may keep any rent you collect from the POQ, subject to taxes and other requirements.
- As a result of legal efforts by the Association, the decision by Fact Finder Jacob Seidenberg for the Federal Services Impasses Panel (FSIP) allows educators in the Association's bargaining unit to sell their POQ to a RELATIVE who is not their spouse (i.e. your son/daughter or parents). Then, you may rent back the property from the new owner, and get rental quarters LQA indefinitely. However, this sales transaction MUST be a "bona fide" sale. In other words, you must meet the local laws concerning the sales of real estate to the letter to avoid possible allegations of fraud by the government. This means that the family member must be of a legal age to own property under the local laws, the transaction must be transparent, and you must transfer ALL rights of POQ ownership in the sale. After the sale, please realize that you are no longer the legal owner of the property and that you will lose any and all ownership rights. THIS OPTION SHOULD BE EXERCISED WITH EXTREME CAUTION.
- Of course, you may also continue to reside in the POQ, but at the end of the 10-year period, the payments for the 10% of the purchase price as LQA will end, and you will only be eligible for utilities payments for the POQ from that time forward. You will not be eligible to receive any other LQA while you continue to reside in the POQ as the owner.
Buying a new house (at the end of the 10-year period) while you are still assigned to the same duty location is not an option. You will not receive any LQA for your new POQ.
III. I want to sell my POQ to a family member (The third option above). What constitutes a "bona fide" sale?
When considering the sale of the POQ to a family member (see option #3 above), please note carefully that under the language of the Seidenberg decision, the sale of a POQ to a family member must be a "bona fide" sale- in other words, a sale at market value- NOT a gift or a sale for a nominal fee. For example, if you are selling the POQ to your daughter, but you "sell" the POQ for only half the market value of the house, then this is actually a partial gift to the daughter. If you sell the house to your son for a nominal fee, such as $1, then this would also not be a market value bona fide sale.
In other words, in order to obtain the benefits of the Seidenberg decision, the POQ sale MUST not only be a transaction that fulfills all of the conditions to be a legitimate transaction under the local real estate laws and regulations, but it must also be a legitimate market value sale to the family member. If the "sale" does not appear to be a market value transaction and a true bona fide sale, not only is management likely to question whether this meets the conditions to allow you to receive LQA, but it is also possible that this might be considered to be defrauding the government, with possible severe criminal and civil penalties.
IV. Who does DoDEA consider to be a "family member" under the third option listed in Part II above?
In an email message dated September 29, 2011, the DoDEA headquarters official responsible for making overseas benefits and allowances determinations defined DoDEA's position on who qualifies as a "family member":
"Based on a Federal Service Impasse Panel (FSIP) decision, the rule that limits annual rent to one-tenth of the purchase price of a residence owned by an employee or the employee's spouse, shall not apply when employee resides in quarters owned by a family member other than spouse.
Therefore, under the FSIP decision, an employee is eligible to receive the full LQA if the employee were to sell his/her home to a family member other than their spouse and rent the house back from the family member. Excluding the spouse, under the FSIP decision, family members as defined in Section 040.m of the DSSR would include the following relatives:
- Children of the employee or spouse, including step and adopted children and those under legal guardianship of the employee or spouse when such children are expected to be under such legal guardianship at least until they reach age 21.
- Parents (including step and legally adoptive parents) of the employee or spouse.
- Sisters and brothers (including step or adoptive sisters, or step and adoptive brothers) of the employee or the spouse.
To qualify under the FSIP decision, the employee must provide a certified true copy of official documentation confirming the transfer of property or sale of the home to one of the above family members (other than the spouse) under the law of the country.
In addition, in order for us to verify that the home has been sold or gifted to one of the above family members, we would need documentation confirming the family member's relationship to the employee or employee's spouse. (i.e. birth certificate). Official determinations on eligibility for LQA under the FSIP decision can only be made after receipt and review of all of the documentation.
If there are any questions on the sale of the property or documentation submitted, our legal department may be asked to review the paperwork. In addition, the employee must submit SF-1190s with a new rental contract showing the family member as their landlord and the employee as the renter. Requests for determinations under the FSIP decision should be forwarded to this office."
V. If I select one of the options in Part II, what is the first thing I must do?
If you decide to use one of the above options (in part II), the Association would STRONGLY advise any bargaining unit member to contact management FIRST, and get "pre-approval" from management for the proposed plan of action.
In other words, you need to contact management, explain what you intend to do, and ask management if such a transaction will allow you to receive LQA and if it meets all the rules and regulations. This recommendation is to protect the bargaining unit member. If the move has management's approval before any action is taken, then it reduces the chances that management can later claim that LQA was improperly provided.
It would also be the Association's strong recommendation to bargaining unit members that if management approves your proposed action, please do NOT deviate from the approved plan. In other words, if you tell management that you plan on taking an action, and management approves that plan, do not go out and do something different from what you informed management you would. If you change the pre-approved plan without approval from management, and management subsequently determines that the change would result in you being ineligible for LQA, management could charge you with defrauding the government, in addition to acting to recoup any LQA paid.
VI. How do I get a "pre-approval" from management?
In order to get "pre-approval" from management, you will need to submit a form, labeled "Request for Determination of Eligibility for Foreign Allowances and Benefits," together with a written explanation of what you intend to do. This form must be submitted to the DoDDS official at DoDDS headquarters in charge of making these determinations. The Association would suggest contacting your Human Resources office at the local DSO or your Customer Service Representative (CSR) to determine which individual you should submit this form to at DoDEA headquarters.
Please submit this completed form, with an explanation of what you intend to do. After review, management will contact you and let you know of their determination. Assuming that management "pre-approves" your planned course of action, you may then proceed. If management disapproves, you will need to find out why and what you must do to correct the issue BEFORE taking any further steps.
VII. Additional Information
If you have any questions or need further clarification regarding the information in this legal update, please contact your Uniserv Director, or the FEA Washington Legal Department for assistance.
IMPORTANT NOTICE: This guidance was issued on November 5, 2012. Any information contained in this guidance is based on the information and status of these issues as of that date and applies ONLY to educators in the FEA bargaining unit. Please be aware that information contained in this guidance may have changed, been updated, or may be obsolete. Please visit the FEA website to check for any changes or updates to the guidance contained above. Thank you.