February 4, 1998 GSBCA 14327-RELO In the Matter of IRWIN BERNSTEIN Irwin Bernstein, Boca Raton, FL, Claimant. J. Patrick O'Toole, Director, Division of Travel Management, Social Security Administration, Baltimore, MD, appearing for Social Security Administration. GOODMAN, Board Judge. Claimant, Mr. Irwin Bernstein, is an Administrative Law Judge employed by the Social Security Administration's (SSA's) Office of Hearings and Appeals (OHA) in OHA's Fort Lauderdale, Florida, office. He was authorized by SSA to perform an official change of station from New York, New York, to Fort Lauderdale, Florida, effective May 27, 1997. SSA acknowledges that the move was for the benefit of the agency and, accordingly, reimbursement of all relocation expenses allowed by the Federal Travel Regulation (FTR) was authorized. As the result of his move, Mr. Bernstein sold his residence in New York, a cooperative dwelling. Prior to the sale of his co-op, Mr. Bernstein telephoned Mr. David Tarr, a relocation policy analyst in the agency's Division of Travel Management (DTM). Mr. Bernstein called with questions regarding the reimbursable settlement expenses connected with the sale of his co-op. Specifically, Mr. Bernstein wanted to know if the "flip tax," associated specifically with the sale of co-ops in the New York vicinity, was a reimbursable expense. "Flip tax" is the common term used for a resale waiver fee. A cooperative apartment association in New York has the right of first refusal to repurchase a shareholder s interest when the shareholder wishes to sell, or may waive that right if the shareholder pays a set fee. Payment of the fee allows the shareholder to then dispose of his ownership on the open market, rather than having to resell his ownership interest to the cooperative, presumably at a price less than market value. See Ethan F. Roberts, B- 230741 (Sept. 19, 1988). In the instant case, the flip tax was referred to as a "transfer fee" in the by-laws of claimant s cooperative association, and this fee was $500 per share. Claimant owned 30.5 shares, which resulted in a fee of $15,250. This condition in the by-laws existed when claimant originally purchased his unit and his shares, and he has informed the Board that he was aware of same before entering into his contract of sale for the purchase of his unit. Mr. Tarr erroneously advised Mr. Bernstein that the flip tax was reimbursable. Subsequently, Mr. Bernstein submitted a claim for reimbursement of his settlement expenses, including the $15,250 flip tax, to DTM for payment. When Mr. Bernstein's claim was audited, payment of the flip tax was denied, based upon previous decisions of the General Accounting Office (GAO) which the agency asserted specifically prohibit reimbursement of this expense. After receiving the letter denying the flip tax reimbursement, claimant again telephoned Mr. Tarr protesting the denial. Claimant was not contesting DTM's interpretation or application of the regulations; rather, he claimed entitlement to the flip tax based on the fact that he was incorrectly advised by Mr. Tarr that the expense would be reimbursed. Mr. Tarr apologized to claimant for the misinformation that had been provided, but apprised claimant that the erroneous advice of Government employees may not serve as the basis for a claim that otherwise is expressly barred by statutory regulation. Claimant's response to this was that he would not have accepted the reassignment to Fort Lauderdale if Mr. Tarr had correctly advised him that the flip tax expense would not be reimbursed. On September 16, 1997, claimant submitted to DTM a supplemental voucher reclaiming the flip tax for which the agency had denied reimbursement, together with a letter requesting reconsideration of the denial. In his letter, claimant asserts that he had more than one conversation with Mr. Tarr, who assured him that the flip tax would be reimbursed; that based upon this assurance, he decided to accept the relocation; that he relied to his detriment upon this information and purchased a home in Florida factoring in the amount of the flip tax which he believed would be reimbursed. Claimant states further: I had relied in good faith on the representation made to me, to my detriment, which has created major financial problems. I ask that you reconsider and allow me to recover the flip tax. This is not a question of whether I should have known, but in fact, what I was assured and relied upon same. The agency's response to the request for reconsideration is as follows: Mr. Bernstein offers no new or compelling argument for the reimbursement of the "flip tax." His request for reimbursement is based solely on the fact that he was originally misinformed that he would be reimbursed for this expense. In his letter, Mr. Bernstein states that he "had more than one conversation with Mr. Tarr" and was repeatedly assured that the "flip tax" would be reimbursed. He further implies that he would not have accepted the reassignment offered to him had he known that he would not be reimbursed for the "flip tax" upon the sale of his co-op. Mr. Tarr recalls having only one conversation with Mr. Bernstein, in which he advised that the "flip tax" would be reimbursed. Mr. Tarr does not recall, however, any indication on Mr. Bernstein's part that his acceptance of the reassignment hinged on the reimbursement of this single expense. It was also Mr. Tarr's impression that Mr. Bernstein already had accepted the reassignment, and he believed that Mr. Bernstein was calling prior to the sale of the co-op to verify which of his closing costs would be reimbursed. SSA's position is that the reimbursement of a "flip tax" is clearly and specifically prohibited by statute. It is also our position that the regulations prohibit the reimbursement of an expense that is not allowed by the FTR based solely of the fact that an employee was given erroneous advice to the contrary. We also feel that while a potential transferee certainly must consider all of the financial implications of accepting a change in duty assignment, the decision as to whether or not to accept a reassignment should not be based primarily on the relocation reimbursements and entitlements connected to that reassignment. We regret that erroneous information was provided by a member of our staff. However, the misinformation did not lead Mr. Bernstein to incur an unnecessary expense; he would have had to pay the "flip tax" upon the sale of his co-op regardless of whether or not he believed it would be reimbursed. We can find no statutory authority allowing us to reimburse Mr. Bernstein for the disputed "flip tax" expense . . . . In his letter requesting reconsideration, claimant requests that in the event the agency does not reverse its previous decision, the matter be forwarded to this Board for review. Accordingly, by letter dated September 25, 1997, the agency forwarded its denial and request for review on behalf of claimant. Discussion There is no dispute as to the essential facts in this case. The agency admits that its employee erroneously advised claimant that the flip tax was reimbursable. The claimant does not argue that the flip tax is in fact reimbursable under statute or regulation, but only that he relied to his detriment on the erroneous information. The agency questions whether the claimant actually decided to accept the position based upon the assurance that the flip tax was reimbursable, and also asserts that even if this were the case, a transferee should not make a decision solely on the basis of the reimbursement of certain expenses. We need not decide whether the agency's assurances were the basis of claimant's decision to accept the assignment, because even if this were the case, it would not afford claimant relief in this matter. With regard to reimbursement of real estate expenses, the FTR authorizes reimbursement of specific expenses (broker's fees and real estate commissions; advertising, selling, and appraisal costs; and legal and related expenses) and miscellaneous expenses which are enumerated as follows: Reimbursable and non-reimbursable expenses. (d) Miscellaneous expenses--(1) Reimbursable items. The following expenses are reimbursable in connection with the sale and/or purchase of a residence . . . . (i) FHA or VA fee for the loan application. (ii) Loan origination fees and similar charges such as loan assumption fees and loan transfer fees. (iii) Cost of preparing credit reports. (iv) Mortgage and transfer taxes. (v) State revenue stamps. (vi) Other fees and charges similar in nature to those listed in paragraphs (d)(1)(i) through (v) of this section, unless specifically prohibited in paragraph (d)(2) of this section. (vii) Charge for prepayment of a mortgage or other security instrument in connection with the sale of a residence at the old official station to the extent the terms in the mortgage or other security instrument provide for this charge. (viii) Mortgage title insurance policy, paid for by the employee, on a residence purchased by the employee for the protection of, and required by, the lender. (ix) Owner's title insurance policy, provided it is a prerequisite to financing or the transfer of the property; or if the cost of the owner's title insurance policy is inseparable from the cost of other insurance which is a prerequisite to financing or the transfer of the property. (x) Expenses in connection with construction of a residence, which are comparable to expenses that are reimbursable in connection with the purchase of an existing residence. . . . . (2) Nonreimbursable items. Except as otherwise provided in paragraph (d)(1) of this section, the following items of expense are not reimbursable: (i) Owner's title insurance policy, "record title" insurance policy, mortgage insurance or insurance against loss or damage of property, and optional insurance paid for by the employee in connection with the purchase of a residence for the protection of the employee; (ii) Interest on loans, points, and mortgage discounts; (iii) Property taxes; (iv) Operating or maintenance costs; (v) No fee, cost, charge, or expense determined to be part of the finance charge under the Truth in Lending Act, Title I, Pub. L. 90-321, as amended, and Regulation Z issued by the Board of Governors of the Federal Reserve System (12 CFR Part 226), unless specifically authorized in paragraph (d)(1) of this section; and (vi) Expenses that result from construction of a residence. (e) Losses due to prices or market conditions at the old and new posts of duty. Losses are not reimburseable when they are incurred by an employee: (1) Due to failure to sell a residence at the old official station at the price asked, or at its current appraised value, or at its original cost; (2) Due to failure to buy a dwelling at the new official station at a price comparable to the selling price of the residence at the old official station; or (3) Any similar losses. (f) Other expenses of sale and purchase of residences. Incidental charges made for required services in selling and purchasing residences may be reimbursable if they are customarily paid by the seller of a residence at the old official station or if customarily paid by the purchaser of a residence at the new official station, to the extent they do not exceed amounts customarily charged in the locality of the residence. (g) Overall limitations--(1) Sale of the residence at the old official station. The total amount of expenses that an agency may reimburse in connection with the sale of the residence at the old official station shall not exceed 10 percent of the actual sales price of the residence. 41 CFR 302-6.2(a)-(g) (1997). Pursuant to the above regulation, the total expenses reimbursed for the sale of a residence at the old official station shall not exceed ten percent of the actual sales price. As the sale price of claimant s cooperative unit was $150,000, reimbursement is limited to a total of $15,000. Claimant previously claimed $27,095 in reimburseable expenses for the sale of his residence and received reimbursement of $11,845, which were all his expenses claimed except for the $15,250 flip tax. Even if he were entitled to reimbursement of the flip tax, he would only be entitled to receive an additional $3,155. The GAO has issued several decisions concerning the reimbursement of the flip tax. In William D. Landau, B-226013 (Oct. 28, 1987), GAO ruled that real estate expense reimbursements are strictly governed by FTR 302.6.2(d)(vi), which authorizes reimbursement of fees which are "similar in nature to" the specific fees listed in paragraphs (d)(1)(i) through (v) of the section, unless specifically prohibited in paragraph (d)(2). Since none of the specifically-listed authorized expenses relate to the purchase of a right to sell, a resale waiver fee is not sufficiently similar to them to permit reimbursement.[foot #] 1 The GAO held with regard to the flip tax: Essentially, it is a cooperative apartment owner's purchase of a right to dispose of his apartment interest on the open market. As such, it is our view that it is not sufficiently similar in nature to any of the items listed . . . to permit reimbursement. This fee appears to be unique to transactions involving cooperatively- owned residences, and we are unaware of any other authority in the Federal Travel Regulation[] which would authorize payment of this expense. Accordingly, the agency action disallowing the claim is sustained. This same conclusion was reached in Ethan F. Roberts, B- 230741 (Sept. 19, 1988). We find the reasoning in these GAO decisions reasonable and persuasive. We agree that the flip tax is not similar in nature to the specific fees listed in paragraphs (d)(1)(i) through (v) of the above regulation. Charges listed in those paragraphs arise from the preparation of loan applications and are otherwise associated with the origination of loans or other transaction costs, such as mortgage and transfer taxes, and state revenue stamps. Additionally, the flip tax may not be reimbursed pursuant to paragraph (f) of the regulation, as it is not an incidental charge made for required services in selling the residence customarily paid by the seller of a residence. We find no authority under the above regulation to reimburse claimant for the flip tax. Claimant knew upon purchase of his unit that regardless of when or why he eventually sold it, the flip tax would be paid to the cooperative association. As such, this cost was not for services rendered to accomplish the transfer, but was inherent in the sale of the unit, hence a market condition. Presumably, claimant would have included this cost in his selling price and attempt to recoup same. To the extent that the sale price did not include recoupment of the flip tax, then claimant incurred a loss as the result of a market condition, which is not compensable pursuant to paragraph (e)(3) of the regulation. The fact that claimant was erroneously advised by a Government employee that the flip tax was reimbursable does not afford claimant relief in this matter. Unfortunately, that ----------- FOOTNOTE BEGINS --------- [foot #] 1 The decision dealt with a prior version of the relevant regulation, whose language was substantially similar to the current version. ----------- FOOTNOTE ENDS ----------- claimant was misinformed by a Government official provides no legal basis for the payment of a claim for which there is no authority. It is a well settled rule of law that the Government cannot be bound by the erroneous advice or action of its agents. Kevin S. Foster, GSBCA 13639-RELO, 97-1 BCA 28,694 (1996); John J. Cody, GSBCA 13701-RELO, 97-1 BCA 28,688 (1996). Claimant is not entitled to reimbursement of the flip tax. _____________________ ALLAN H. GOODMAN Board Judge