BNSF Railway Company v. United States

Case: 13-10014 Document: 00512904642 Page: 1 Date Filed: 01/15/2015

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

January 15, 2015

No. 13-10014

Lyle W. Cayce

Clerk

BNSF RAILWAY COMPANY, formerly The Burlington Northern and Santa

Fe Railway Company, as successor by merger to Burlington Northern

Railroad Company and The Atchison Topeka and Santa Fe Railway

Company,

Plaintiff – Appellee

v.

UNITED STATES OF AMERICA,

Defendant – Appellant

Appeal from the United States District Court

for the Northern District of Texas

Before HIGGINBOTHAM, OWEN, and HIGGINSON, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

ON PETITION FOR REHEARING

Treating the petition for rehearing en banc as a petition for panel

rehearing, the petition for rehearing is GRANTED. We WITHDRAW our

earlier opinion, BNSF Railway Company v. United States, 1 in its entirety, and

SUBSTITUTE the following:

1 745 F.3d 774 (5th Cir. 2014).

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BNSF Railway Company (“BNSF”) filed suit seeking refunds of certain

taxes that it, and its predecessor companies, paid pursuant to the Railroad

Retirement Tax Act (“RRTA”). BNSF claimed that it overpaid when it included

(i) Non-Qualified Stock Options (“NQSO”), and (ii) certain moving expenses as

taxable compensation. The parties stipulated to the facts and, on cross-

motions for summary judgment, the district court granted summary judgment

in favor of BNSF on all its refund claims. We REVERSE.

I.

BNSF is a rail carrier 2 that operates an international railroad system

consisting of approximately 32,000 miles of rail throughout the Western

United States and Canada. BNSF was formed by the 1996 merger of The

Atchison Topeka and Santa Fe Railway Company with the Burlington

Northern Railroad Company. 3 At issue in this case are (i) Burlington Northern

Railroad Company’s 1993, 1994, and 1995 tax years; (ii) The Atchison Topeka

and Santa Fe Railway Company’s 1994 and 1995 tax years; and, (iii) BNSF’s

1996, 1997, and 1998 tax years.

As a rail carrier, BNSF and its employees are subject to the Railroad

Retirement Tax Act (“RRTA”). 4 BNSF now seeks a refund of the employer and

employee portions of taxes paid on the exercise of NQSOs and certain moving

expenses.

A.

During the tax years at issue, BNSF offered salaried employees and

executives a combination of Incentive Stock Options (“ISO”) 5 and NQSOs. The

2 As defined by Part I of the Interstate Commerce Act, 49 U.S.C. § 3(a) and 26 U.S.C.

§ 3231(g).

3 The companies are collectively referred to as BNSF.

4 26 U.S.C. §§ 3201 et seq.

5 The taxation of the ISOs is not at issue. An employee does not recognize income on

the grant or exercise of an ISO. When the stock acquired by the exercise of the ISO is disposed

of, the employee must recognize capital gain, as measured by the difference between the

2

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stated purpose of the stock option plans was to provide employees with a

competitive compensation package. 6 At the time the stock option plans were

adopted, BNSF paid its employees and executives salaries that were below

industry average, but because of the stock option plans, provided an overall

compensation package that was above industry average. 7 Each year, BNSF’s

Board of Directors determined the number of stock options to grant. 8 Once the

number was determined, BNSF awarded stock options in part as compensation

for services rendered by employees and in part as an award for job

performance. 9 These options were then awarded as either ISOs or NQSOs. 10

Additionally, BNSF’s Board of Directors determined the final deadline for

exercising the options and the vesting period for each option grant. 11

When an employee exercised a NQSO, the employee would pay the price

for the share that was the market price on the day the option was granted (the

“strike price”). 12 Approximately 90-95% of the time, the employee would then

sell the share at the same time, such that the employee would only receive the

difference between the strike price and the exercise price. 13 Alternatively, the

employee could keep the stocks, either by paying the broker the strike price

when executing the option or by selling enough stock to cover the strike price

and taxes, and then keeping the remaining shares. 14

strike price and the disposition price. See 26 U.S.C. § 421. To qualify for favorable tax

treatment, either (i) the option must be held for at least two years from the date of the grant

or (ii) the stock must be held for at least one year from the date of exercise. See id. at §

422(a)(1). A premature exercise or sale is a “disqualifying disposition” and any income from

such a disposition is treated as ordinary income. See id. at § 421(b).

6 First Stipulation of Fact, ¶ 68.

7 Id. at ¶ 69.

8 Id. at ¶ 70.

9 Id. at ¶ 71-72.

10 Id. at ¶ 73.

11 Id. at ¶ 75.

12 Id.

13 Id. at ¶ 11.

14 R. 995–96.

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NQSOs were exercised in one of two ways: (i) non-executive employees

exercised their NQSOs through BNSF’s transfer agent, 15 and (ii) executive

employees were permitted to use their private brokers to exercise their

NQSOs. 16 Non-executive employees would either fax or hand-deliver an

exercise notification sheet to BNSF’s compensation department, who would

then authorize BNSF’s transfer agent to exercise the option. 17 The transfer

agent would then either forward the stock certificate to the employee or

disburse the net gain amount on the sale of the stock. For executives, the

transfer agent would directly transfer the purchased shares to the executive’s

private broker. 18

BNSF did not directly pay cash or send the stock certificate to the

employee, but it did record all transaction information into a stock option

tracking system. BNSF would calculate the amount of RRTA taxes due and

would inform the transfer agent of the amount of tax to be withheld. 19

During the years at issue, 3,192 BNSF employees exercised NQSOs,

representing $348,805,183.03 total spread on exercise. 20 BNSF and its

employees paid a total of $16,432,583.01 in RRTA taxes on exercised NQSOs. 21

B.

From 1994 to 1996, many BNSF employees were required to relocate as

a result of the consolidation and restructuring of operations, the merger, and

employee promotions and transfers. 22 Whenever BNSF asked an employee to

move, it would pay a substantial portion of the moving expenses. 23 In total,

15 R. 952 n3.

16 R. 988–89.

17 R. 989.

18 R. 990.

19 Id.

20 Id.

21 R. 987.

22 R. 991.

23 R. 971.

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BNSF paid approximately $135,000,000 in employee moving expenses during

the period at issue. 24

These payments were made pursuant to a written policy in BNSF’s

relocation manuals for non-union employees and pursuant to collective

bargaining agreements for union employees. 25 Typically, BNSF paid moving

expenses in one of two ways: (i) by direct payment to the service providers, or

(ii) by a lump sum payment to employees, who could generally keep any excess

payment over expenses actually incurred and who were not required to provide

substantiation. 26 When BNSF paid a lump sum, it typically did so through a

third-party agent hired by BNSF to administer the moving-expenses benefit

program. 27 The lump sum payments were calculated by using a benchmark

based on average reimbursement amounts paid by similarly situated

companies. Typically, the lump sum payment was $20,000 for homeowners

and $10,000 for non-homeowners. 28 Additionally, BNSF generally paid

employees a ‘tax gross-up’ to cover additional tax due on these moving expense

benefits. 29

BNSF considered certain moving expenses to be properly excluded

moving expense payments and reimbursements under 26 U.S.C. § 217. BNSF

did not withhold federal income tax or RRTA employment tax on these

expenses, and accordingly, these expenses are not at issue. 30 BNSF provided

a number of other moving expense benefits that were not excludable under §

217, including: professional relocation company expenses, babysitting

expenses, car rental expenses, home sale costs (including appraisals, title

24 R. 976.

25 R. 991.

26 Stipulations of Fact, ¶ 80; Plt.’s Mot. Summ. J. Exh. 112.

27 Id.

28 Def.’s Mot. Summ. J., Exh. J.

29 Id.

30 Stipulations of Fact, ¶ 78.

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searches, and inspections), meals, pest extermination, pet relocation services,

personal property storage, and reimbursement for lease cancellation fees. 31

BNSF claims that these expenses were not provided as compensation for

employees’ services to BNSF, but instead were provided as a means of

retaining qualified and knowledgeable employees. 32 In short, BNSF claims

that without these moving expense benefits, employees would have been

unable to relocate and thereby forced to resign. Accordingly, BNSF claims that

these benefits were paid to stay competitive.

C.

From 1993 to 1998, BNSF, and its predecessors-in-interest, filed refund

claims for both the employer and employee portions of the RRTA tax paid on

NQSOs exercised during that time period. 33 Additionally, BNSF filed formal

refund claims for the employer portion of tax paid on moving expenses for 1994

through 1998, 34 as well as the employee portion for 1994, 1995, and 1998. 35

The Internal Revenue Service (“IRS”) granted the refund claims for the

employer portion of the RRTA tax paid on moving expenses for 1996 through

1998, and although the IRS now claims those refunds were in error, the IRS

does not seek recovery of those refunds as the relevant statute of limitations

has expired.

With respect to the employee portions of tax paid on moving expenses for

1996 and 1997, BNSF did not file a formal refund claim. 36 When BNSF

amended its federal railroad retirement tax returns (Form CT-1) for tax years

1996 and 1997, it included an attachment stating that BNSF “is not requesting

31 Id. at ¶ 80 (identifying 28 distinct moving expenses that BNSF paid).

32 R. 992.

33 R. 998.

34 R. 949–50.

35 Id.

36 BNSF recently filed formal refund claims for these taxes on September 6, 2013. See

Appellee’s Rule 28.4 Letter (Sept. 6, 2013).

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refund of the employee with this Form CT-1 . . . [h]owever, [BNSF] is

separately filing a claim for refund of the employee taxes over-collected with

respect to the above-described payments on a Form 843.” 37 Yet, BNSF never

filed a formal claim for refund of these employee taxes on a Form 843 for either

1996 or 1997 prior to the filing of this suit.

On June 30, 2011, BNSF brought this suit in the district court, seeking

refunds of the employer and employee portions of RRTA tax paid on NQSOs,

the employer portion of RRTA tax paid on moving expenses benefits in 1994

and 1995, and the employee portion of RRTA tax paid on moving expenses in

1996 through 1998. On cross-motions for summary judgment, the district court

granted summary judgment in favor of BNSF. In so doing, the district court

held that NQSOs are not compensation for purposes of the RRTA, and that

moving expenses are properly excluded from income under the RRTA.

Additionally, the district court held that BNSF provided sufficient notice to the

IRS to warrant jurisdiction over the refund claims for employee taxes paid on

moving expenses in 1996 and 1997.

II.

“We review a district court’s grant of summary judgment de novo and

apply the same standards as the district court.” 38 Accordingly, “[s]ummary

judgment is proper if the pleadings and evidence show there is no genuine issue

of material fact and the moving party is entitled to judgment as a matter of

law.” 39

III.

A.

37 R. 585, 591.

38 Hernandez v. Yellow Trans., Inc., 670 F.3d 644, 650 (5th Cir. 2012) (citing Adams v.

Travelers Indem. Co. of Conn., 465 F.3d 156, 163 (5th Cir. 2006)).

39 Id. (citing Rule 56(a), Fed.R.Civ.P.).

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Our resolution of the NQSO issue is informed by a brief history of the

RRTA. Unlike most American employers and employees, rail carriers and

their employees are subject to the RRTA instead of the Federal Insurance

Contributions Act 40 (“FICA”). By the 1920s, nearly 80% of railroad workers

were employed by rail carriers offering pensions. 41 These employer-provided

pension plans were rife with problems such as inadequate funding, capricious

terminations, and limited benefits for disabled employees. 42 Because the

planned social security system would not provide benefits for work before 1937,

and was not planned to pay benefits for several years thereafter, Congress

intervened in the railroad retirement system in the 1930s by enacting the

Railroad Retirement Act 43 (“RRA”) and the RRTA. 44

Like FICA, the RRTA imposes a tax on both employers and employees to

fund the RRA’s retirement and disability benefits. 45 Unlike FICA, there are

two tiers of taxes and benefits under the RRTA and RRA. Tier I provides

benefits and taxes in a manner almost identical to FICA and, in essence, is the

social security analog for railroad workers; indeed, the Tier I rates are

statutorily linked to FICA. 46 Tier II functions like a private pension plan and

is essentially an extension of the system of railroad pension plans that then

existed when the RRA and RRTA were enacted in the 1930s. 47 The Tier II

benefits are tied to an employee’s “earnings and career service.” 48

40 28 U.S.C. §§ 3101 et seq.

41 See Kevin Whitman, An Overview of the Railroad Retirement Program, 68 Soc. Sec.

Bulletin 2 (2008).

42 Id.

43 45 U.S.C. §§ 231 et seq.

44 See Whitman, supra n.41.

45 See, e.g., Std. Office Bldg. Corp. v. United States, 819 F.2d 1371, 1373 (7th Cir.

1987).

46 See Hisquierdo v. Hisquierdo, 439 U.S. 572, 575 (1979).

47 Id. at 574.

48 Id.

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Under Tier I, the RRTA imposes “on the income of each employee a tax

equal to the applicable percentage of the compensation received during any

calendar year by such employee for services rendered by such employee.” 49

Compensation is then defined as “any form of money remuneration paid to an

individual for services rendered as an employee to one or more employers,”

subject to certain enumerated exceptions. 50 In the applicable Treasury

Regulation, the IRS has defined RRTA “compensation” as having “the same

meaning as the term wages in section 3121(A) . . . except as specifically limited

by the [RRTA.]” 51 The parties sharply dispute whether NQSOs are

“compensation” as used in the RRTA.

The Government argues that the term “compensation” and the phrase

“any form of money remuneration” as used in the RRTA is inherently

ambiguous. Thus, the Government argues that the Treasury Regulation

definition for “compensation”, that is, that it should have the same meaning as

“wages” under FICA, should be awarded Chevron 52 deference. The

Government notes that this definition supports the remedial purposes of the

RRTA, and avoids rendering superfluous statutory exclusions from RRTA

compensation. Thus, in the Government’s view, NQSOs are “compensation”

because they qualify as “wages” under FICA.

In contrast, BNSF argues that “compensation” and “any form of money

remuneration” are not ambiguous. BNSF explains that the plain language

meaning of “any form of money remuneration” is any form of “payment or

compensation in cash or other medium of exchange authorized by

governmental authorities.” 53 BNSF thus argues that NQSOs cannot qualify

49 26 U.S.C. § 3201(a).

50 26 U.S.C. § 3231(e)(1).

51 26 C.F.R. § 31.3231(e)-1(a)(1).

52 Chevron USA, Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837 (1983).

53 Br. of Appellee at 21.

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as money because they are not cash or other medium of exchange authorized

by governmental authorities, and therefore, are not “compensation” under the

RRTA.

To this end, the district court held that NQSOs are not “compensation”

under the RRTA. The district court explained that:

The common accepted meaning of the words ‘any form of money

remuneration’ could reasonably be thought to include cash

(whether coin or paper money or a combination of the two), or a

paycheck drawn on an account of the employer at a financial

institution, or a wire transfer of pay check funds to the employee’s

bank account, or script issued to an employee by an employer for

use as the employer’s company store. . . . There is no ‘ordinary,

contemporary, common meaning’ of the words ‘money

remuneration’ that would include receipt by such an employee of

an NQSO or the financial gain realized by such an employee from

a later exercise of the option. 54

B.

We disagree. In answering the question of what “compensation” and

“any form of money remuneration” mean, we start with the familiar two-step

framework set out in Chevron v. National Resources Defense Council, Inc. 55

First we must ask “whether Congress has directly spoken to the precise

question at issue. If the intent of Congress is clear, that is the end of the

matter; for the court, as well as the agency, must give effect to the

unambiguous expressed intent of Congress.” 56 In evaluating the clarity of

Congressional direction, we apply the “traditional tools of statutory

interpretation,” 57 including “text, structure, purpose, and legislative history.” 58

54 R. 998-99.

55 467 U.S. 837 (1984). In Mayo Foundation for Medical Education and Research v.

United States, 131 S. Ct. 704 (2011), the Supreme Court made clear that IRS regulations

receive Chevron deference. Id. at 711-14.

56 Id. at 842-43.

57 Id. at 843 n.9.

58 Citizens Coal Council v. Norton, 330 F.3d 478, 481 (D.C. Cir. 2003) (quoting Pharm.

Research & Mfrs. Of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001)); see also City of

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Second, if we “determine[] Congress has not directly addressed the precise

question at issue,” we “do[] not simply impose [our] own construction on the

statute.” 59 Rather, we must decide “whether the agency’s answer is based on

a permissible construction of the statute.” 60

1.

In applying the traditional tools of statutory interpretation to the phrase

“any form of money remuneration,” 61 we bear in mind the Supreme Court’s

admonition that we cannot interpret these words in isolation, but “must

interpret the statute as a symmetrical and coherent regulatory scheme.” 62 We

start with the text. The phrase “money remuneration” does not appear to us

to have an ordinary, common-sense definition. Moreover, while the word

“remuneration” is broad, the modifier “money” must narrow it to some degree

– the question is how far did Congress go in circumscribing the term? Here, as

the Supreme Court and our own court have recognized, dictionary definitions

can be helpful in defining the parameters of statutory language. 63

In using dictionaries to inform our Chevron analysis we must be

cautious. As our en banc court held in Mississippi Poultry Association, Inc. v.

Madigan, we have rejected a “per se ‘dictionary rule,’” where “[if] a dictionary

(or dictionaries) contain more than one definition that makes some sense under

Arlington, Tex. v. F.C.C., 133 S. Ct. 1863, 1876 (Breyer, J., concurring in part and concurring

in the judgment) (“[T]he statute’s text, its context, the structure of the statutory scheme, and

canons of textual construction are relevant in determining whether a statute is ambiguous.”).

59 Chevron, 467 U.S. at 843.

60 Id.

61 26 U.S.C. § 3231(e)(1).

62 Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133

(2000).

63 See, e.g., Mayo Found. for Med. Educ. & Res. v. United States, 131 S. Ct. 704, 711

(2011) (recognizing that dictionary definitions can be employed at Chevron step one);

Rapanos v. United States, 547 U.S. 715, 732-33 (2006); Tex. Sav. & Comm. Bankers Ass’n v.

Fed. Housing Fin. Bd., 201 F.3d 551, 555 (5th Cir. 2000) (relying on a dictionary definition to

determine whether a statute is ambiguous at Chevron step one).

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the statute, then it is ambiguous.” 64 We recognized then, and reaffirm now,

that:

[S]uch an approach would also effect a radical shift in power from

Congress to administrative agencies, as follows: For the agency

interpretation to trump Congress, the agency must be entitled to

deference; for the agency to be entitled to deference, there must be

ambiguity; if every word for which secondary and tertiary

meanings are to be found in some English language dictionary is

deemed to be ambiguous for Chevron purposes, essentially every

non-technical word in every statute would have the potential of

being ambiguous; consequently, the agency's choice of definition

would trump Congress' word usage every time—subject only to the

vague caveat that the agency's choice “makes some sense” under

the statute. 65

Nonetheless, so long as dictionary definitions are used only to illuminate true

ambiguity, rather than to create ambiguity where no honest disagreement

about meaning exists, such definitions may be employed.

With that qualifier in place, we recognize that dictionary definitions of

“money” are less than helpful. On the one hand, most dictionaries offer narrow

definitions that confine “money” to “a medium of exchange,” 66 and define

“medium of exchange” as “anything generally accepted as payment in a

transaction and recognized as a standard of value.” 67 On the other hand, other

dictionaries define “money” more broadly as “assets or compensation in the

form [of] or readily convertible to cash,” 68 “[a]ssets that can easily be converted

6431 F.3d 293, 307 (5th Cir. 1994) (en banc).

65Id.

66 See, e.g., Merriam-Webster's Collegiate Dictionary 750 (10th ed. 1994) (defining

“money” as “something generally accepted as a medium of exchange, measure of value, or a

means of payment: as a: officially coined or stamped metal currency”); Black's Law Dictionary

1096 (9th ed. 2009) (defining “money” as a “medium of exchange currently authorized or

adopted by a government as part of its currency”).

67 Black’s Law Dictionary 1072 (9th ed. 2009).

68 Webster’s Third New International Dictionary 1458 (1993).

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to cash,” 69 and “[c]apital that is invested or traded as a commodity.” 70 And

when “money” is used as an adjective, rather than as a noun, it may carry a

different meaning—such as, “of or pertaining to capital or finance” 71—or it may

simply be superfluous. 72 While these definitions are not so conclusive as to

resolve the issue, we recognize that they do suggest multiple meanings of the

word “money.” Nor are contemporary sources, of which we have been able to

find only a few which have used the phrase “money remuneration,”

determinative. Some suggest that money remuneration refers to cash

payments. 73 Others, however, use money remuneration more generally, to

refer to forms of compensation other than in-kind benefits. 74

Second, we turn to the structure of the statute. Here, section 3231(e)(1),

which defines “compensation” as “any form of money remuneration,”

specifically excludes four classes of payments from falling within the definition

of compensation: (1) health insurance payments made by or on behalf of the

69 Black’s Law Dictionary (9th ed. 2009).

70 Id.

71 Rand House Webster’s Unabridged Dictionary 1241 (2d ed. 2001).

72 See Bryan Garner, A Dictionary of Modern Legal Usage 571 (2d ed. 1995).

73 See, e.g., Termination of Contracts of Employment of Salaried Employees and

Technical Staff, 35 Int'l Lab. Rev. 803, 819 (1937) (“[T]he words ‘remuneration’ and ‘salary’

are taken to mean the total income of the employee, including, in addition to the money

remuneration, any other advantages and additional payments, namely, tips, percentages,

discounts, premiums, free dwellings, and other similar benefits.”).

74 See, e.g., Alexander Baykov, The Development of the Soviet Economic System: An

Essay on the Experience of Planning in the U.S.S.R., at 43 (1947) (“As the purchasing power

of money declined very rapidly, money remuneration began to play a much less important

part in the total ‘wages’ of workers than the supply of bare necessities in kind.”); Salaries of

School-Teachers in Colonial America, 28 Monthly Lab. Rev. 27, 31 (1929) (“Besides the money

remuneration, the districts boarded the teachers.”); Employment and Unemployment, 19

Monthly Labor Review 146, 174 (1924) (“If the agent is furnished subsistence, the cost thereof

is deducted from his money remuneration.”); see also, 2 Wisc. Stat. 2401 (E.E. Brossard, ed.,

1923) (“Where an employee of the county receives board and maintenance in addition to

money remuneration, the value of such board and maintenance forms part of his earnings

and should be deducted from the amount of his exemptions . . . .”).

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employer, 75 (2) tips, (3) “an amount paid specifically . . . for travelling or other

bona fide and necessary expenses,” 76 (4) other remuneration which would not

be treated as wages under 26 U.S.C. § 3121(a)(5), a section of FICA which

excludes from wages a defined list of “payment[s] made to, or on behalf of, an

employee or his beneficiary.” 77 Given this structure, the statutory

interpretation canon of noscitur a sociis is helpful. This canon recognizes that

“an ambiguous term may be given more precise context by the neighboring

words with which it is associated.” 78 In this context, the four excluded

categories provide insight into the meaning of “any form of money

remuneration”: for the four terms must be of the sort that would have fallen

within the bounds of the statutory definition of “money remuneration,” had

Congress not explicitly excluded them. Here, the statute refers repeatedly in

those exceptions to “payments –a more expansive term than currency or cash,

which suggests in turn that “money remuneration” should be interpreted

broadly. 79

75 26 U.S.C. § 3231(e)(1)(i) (“[T]he amount of any payment (including any amount paid

by an employer for insurance or annuities, or into a fund, to provide for any such payment)

made to, or on behalf of, an employee or any of his dependents under a plan or system

established by an employer which makes provision for his employees generally (or for his

employees generally and their dependents) or for a class or classes of his employees (or for a

class or classes of his employees and their dependents), on account of sickness or accident

disability or medical or hospitalization expenses in connection with sickness or accident

disability or death, except that this clause does not apply to a payment for group-term life

insurance to the extent that such payment is includible in the gross income of the employee.”).

76 Id. § 3231(e)(1)(iii).

77 See id. § 3231(e)(1)(iv) (excluding “any remuneration which would not (if chapter 21

applied to such remuneration) be treated as wages (as defined in section 3121(a)) by reason

of section 3121(a)(5).”) Section 3121(a)(5) excludes from compensation “any payment made

to, or on behalf of, any employee or his beneficiary,” including trust payments, annuity

payments, certain pensions, exempt government deferred compensation plan, and several

other similar compensation metrics.

78 United States v. Stevens, 559 U.S. 460, 474 (2010) (internal quotation marks

omitted).

79 In United States v. Quality Stores, Inc., 134 S. Ct. 1395, 1400 (2014), the Supreme

Court analyzed the scope of FICA’s “wages” definition by using statutory exceptions. See id.

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Similarly, section 3231(e) contains a number of more general exclusions

from “compensation,” many of which mention non-cash benefits. For example:

section 3231(e)(12) excludes ISOs from compensation, section 3231(e)(5)

excludes non-cash employee achievement awards from compensation, and

section 3231(e)(9) excludes the value of meals and lodgings provided to

employees from compensation. In interpreting this section, we are bound by

the canon that we ought not “interpret[] any statutory provision in a manner

that would render another provision superfluous.” 80 Given this canon, reading

“money remuneration” as equivalent to cash payment, as BNSF posits, would

render these non-cash exceptions to compensation meaningless.

Third, we look to the purpose of the RRTA. To begin, it is well-

established that the RRTA and FICA are parallel statutes, and courts often

look to FICA when interpreting the RRTA. 81 In general, under “the in pari

materia canon of statutory interpretation, statutes addressing the same

subject matter generally should be read as if they were one law.” 82 Here, FICA

uses an expansive definition of wages, defined as “all remuneration for

employment, including the cash value of all remuneration (including benefits)

paid in any medium other than cash.” 83 Given the similarities between the

statutes, there is an argument that we ought read “compensation” in the RRTA

(“That exception would be unnecessary were severance payments in general not within

FICA’s definition of ‘wages.’”).

80 Bilski v. Kappos, 561 U.S. 593, 607-08 (2010).

81 See, e.g., North Dakota State Univ. v. United States, 255 F.3d 599, 604 (8th Cir.

2001) (noting that the RRTA is “the equivalent of FICA for railroad employees”); Montana

Rail Link, Inc. v. United States, 76 F.3d 991, 993 (9th Cir. 1996) (noting that the RRTA

“served as the functional equivalent” of social security “for railroad employers”); Chicago

Milwaukee Corp. v. United States, 40 F.3d 373, 374 (Fed. Cir. 1994) (noting that the RRTA is

similar to FICA); Std. Office Bldg. Corp., 819 F.2d at 1373 (RRTA “is to the railroad industry

what the Social Security Act is to other industries”).

82 Wachovia Bank v. Schmidt, 546 U.S. 303, 315-16 (2006) (internal quotation marks

and citation omitted).

83 26 U.S.C. § 3121(a).

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as generally commensurate with this definition. Moreover, as the Supreme

Court has recently reaffirmed, we must broadly interpreted “compensation” in

the FICA context, in part to accomplish the remedial purpose of the statute, 84

suggesting we ought do the same here. This is far from an inevitable read,

however: we are equally bound by the canon that “[s]tatutory definitions

control the meaning of statutory words,” 85 and given that the two statutes do

use different ways of defining “compensation,” this could indicate that we

ought read RRTA to have a different, and narrower, definition of compensation

than FICA. 86 Nonetheless, that the purpose of the statute supports multiple

interpretations does suggest the provision’s ambiguity.

Finally, we turn to legislative history. 87 The original 1934 Railroad

Retirement Act used the term “compensation,” without further definition. 88

When that act was declared unconstitutional, Congress separated the taxing

and benefit statutes, and the 1935 iteration of the taxing statute 89 defined

“compensation” as “any form of money remuneration for active service,

received by an employee from a carrier, including salaries and commissions,

but shall not include free transportation[.]” 90 The use of the phrase “any form

of” and the specific exclusion of free transportation in this iteration suggests

that Congress understood “money remuneration” to encompass non-cash

84 See, e.g., United States v. Quality Stores, Inc., 134 S. Ct. 1395, 1399-1400 (2014);

Social Sec. Bd. v. Nierotko, 327 U.S. 358, 364 (1964).

85 Burgess v. United States, 533 U.S. 124, 129 (2008).

86 There is also the general canon that “different words within the same statute

should, if possible, be given different meanings.” Firstar Bank, N.A. v. Faul, 253 F.3d 982,

991 (7th Cir. 2001). This canon would also point toward different meanings, but given that

we are comparing two different statutes, this principle is of less certain applicability.

87 We recognize that the Supreme Court has spoken with skepticism about the use of

legislative history, especially where, as here, it can lend itself to multiple meanings. See, e.g.,

Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) (“[L]egislative history

is itself often murky, ambiguous, and contradictory.”).

88 48 Stat. 1283 (1934).

89 49 Stat. 974 (1935).

90 Id. at § 1(d).

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benefits. Counseling against that conclusion is the fact that at the time the

RRTA was enacted existing railroad pension plans were based on an

employee’s cash compensation only, rather than on other, broader types of

compensation, despite the fact that some railroad companies apparently

offered stock-option benefits. 91 Given this tangled past, the best we can say is

that legislative history does not decide the issue.

In light of the indeterminate text, structure, purpose, and legislative

history of this statutory provision, we cannot conclude the Congress has

“spoken clearly” as to the meaning of “money remuneration.” 92 We must

proceed to Chevron’s second step.

2.

At Chevron step two we ask whether the IRS’s definition “is based on a

permissible construction of the statute.” 93 When answering that question, we

must remember the limitations of our task: “The court need not conclude that

the agency construction was the only one it permissibly could have adopted to

uphold the construction, or even the reading the court would have reached if

the question initially had arisen in a judicial proceeding.” 94

Treasury Regulation § 31.3231(e)-1 provides that the “term

compensation [as is relevant for the RRTA] has the same meaning as the term

wages in section 3121(a) . . . except as specifically limited by the [RRTA.]” 95

Section 3121 provides that the term “‘wages’ means all remuneration for

employment, including the cash value of all remuneration (including benefits)

91 See, e.g., Murray W. Latimer, Industrial Pension Systems in the United States and

Canada 20-21, 30-31, 106-108 (1933 ed.); Nat’l Indus. Conference Bd., Studies in Industrial

Relations: Employee Stock Purchase Plans 18-22 (1928).

92 City of Arlington, Tex. v. F.C.C., 133 S. Ct. 1863, 1875 (2013) (Breyer, J., concurring

in part and concurring in the judgment).

93 Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).

94 Id. at 843 n.11.

95 26 C.F.R. § 31.3231(e)-1.

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paid in any medium other than cash[.]” 96 We conclude this interpretation is

reasonable. First, as discussed above, the statutory term “money

remuneration” does not, as a textual matter, exclude the broader definition of

compensation put forth by the regulation. Second, the structure of the statute

supports the regulatory interpretation: as discussed above, section 3231

excludes from the definition many examples of non-cash compensation,

including, as is particularly relevant for these purposes, “qualified stock

options.” 97 If “money remuneration” was narrowly defined, these provisions

would be rendered redundant. The IRS’s regulatory action, which

accommodates each of section 3231(e)’s enumerated exceptions, is

reasonable. 98 Moreover, this analytical approach–and conclusion–is consistent

with the Supreme Court’s recent decision in United States v. Quality Stores,

Inc., where the Court, interpreting FICA’s definition of “wages,” looked to the

surrounding exceptions to define the scope of the word. 99

Next, the IRS’s decision to interpret “compensation” in RRTA

commensurate with FICA finds comfort in the “elementary principle of

statutory construction that similar language in similar statutes should be

interpreted similarly.” 100 As the Eleventh Circuit stated, “it is difficult to

envision an act that more closely resembles [FICA] than does the [RRTA].” 101

While we recognize that both statutes use somewhat different formulations of

96 26 U.S.C. § 3121(a).

97 Id. § 3231(e)(12).

98 We recognize that there is an argument that this interpretation would render the

“money” in “money remuneration” superfluous, at least if a narrow dictionary definition of

money is used. However, BNSF’s proposed definition would render many of the section

3131(e) exceptions superfluous, and given these competing, imperfect constructions, we

cannot say that the agency’s interpretative choice is not reasonable, especially in light of the

multiple ways in which “money remuneration” can be interpreted.

99 134 S. Ct. 1395, 1400 (2014).

100 United States v. Sioux, 362 F.3d 1241, 1246 (9th Cir. 2004) (citing Northcross v.

Bd. of Educ. Memphis City Schools, 412 U.S. 427, 428 (1973)).

101 Duckworth v. Allianz Life Ins. Co. of N. Am., 706 F.3d 1338, 1344 (11th Cir. 2013).

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the word “compensation,” the decision to interpret them together–which we

have concluded the language of the statute allows–is not unreasonable.

Finally, we address one issue raised by the district court and brought to

our attention again by BNSF. The IRS regulation notes that compensation

“has the same meaning as the term wages in [FICA] . . . except as specifically

limited by the [RRTA].” 102 The district court concluded that the term “money

remuneration” represented a “controlling special limitation.” 103 We cannot

agree. As discussed above, we believe “money remuneration” is an ambiguous

general term, and one which need not be understood as a special limitation,

especially in light of section 3231’s careful listing of twelve categories of specific

exceptions. 104

We hold that section 31.3231(e)-1’s definition of “compensation” is a

reasonable definition and thus NQSOs are properly taxed as compensation

under the RRTA.

IV.

A.

We next turn to whether the claimed moving expenses are properly

excluded from compensation under the RRTA. We begin with the

Government’s argument that BNSF has failed to perfect its refund claims for

the employee tax paid on moving-expense benefits in 1996 and 1997. The

Government first argues that BNSF’s alleged informal claims for these years

do not qualify under the informal claim doctrine as informal claims, and second

argues that BNSF’s failure to perfect the refund claims prior to filing suit

requires dismissal of these refund claims.

102 26 C.F.R. § 31.3231(e)-1(a)(1).

103 BNSF Ry. Co. v. United States, 904 F. Supp. 604, 614 (N.D. Tex. 2012).

104 See 26 U.S.C. § 3231(e)(1)-(12).

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We agree. 26 U.S.C. § 7422(a) provides a limited waiver of sovereign

immunity that permits taxpayers to file suits seeking refunds. Section 7422(a)

provides that “[n]o suit shall be maintained in any court for the recovery of any

internal revenue tax alleged to have been erroneously . . . collected . . . until a

claim for refund or credit has been duly filed with the Secretary[.]” To be duly

filed, (i) the claim must be filed within the time limits set by 26 U.S.C. §

6511(a) 105 and (ii) the claim must “set forth in detail each ground upon which

a credit or refund is claimed and facts sufficient to apprise the Commissioner

of the exact basis thereof.” 106 A failure to comply with these requirements

requires threshold dismissal. 107

If a taxpayer fails to file a formal claim within the statutory time limits,

the taxpayer’s claim may still be preserved by the well-established informal

claim doctrine. 108 Under the informal claim doctrine, “an informal claim is

sufficient if it is filed within the statutory period, puts the IRS on notice that

the taxpayer believes an erroneous tax has been assessed, and describes the

tax and year with sufficient particularity to allow the IRS to undertake an

investigation.” 109 But even if the informal claim is timely, “the doctrine is

predicated on an expectation that these formal deficiencies will at some point

be corrected.” 110 This is because “[i]nformal claims have been likened to

pleadings, for which technical deficiencies can generally be corrected by

105 See, Alexander Proudfoot Co. v. United States, 454 F.2d 1379, 1382 n.6 (Ct. Cl.

1972).

26 C.F.R. § 301.6402–2(b)(1).

106

See United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 5–8 (2008); United

107

States v. Dalm, 494 U.S. 596 (1990).

108 See PALA, Inc. Employees Profit Sharing Plan and Trust Agreement v. United

States, 234 F.3d 873, 877 (5th Cir. 2000) (“While its theoretical underpinnings remain

shrouded in some obscurity, the informal claim doctrine has received the endorsement of the

Supreme Court.” (citing United States v. Kales, 314 U.S. 186, 194 (1941))).

109 Id. (citing Kales, 314 U.S. at 194–95).

110 Id. at 879.

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amendment so as to relate back to the original date of filing suit.” 111

Importantly, where courts have applied the informal claim doctrine, “the

taxpayers followed their informal submissions with proper formal claims

before initiating litigation.” 112 Thus, a taxpayer’s “subsequent failure to file a

formal claim bar[s] the court from exercising any jurisdiction over the

claim.” 113

Although the informal claims that BNSF filed for the employee tax paid

on moving-expense benefits in 1996 and 1997 may satisfy the informal claims

doctrine, it is undisputed that BNSF failed to perfect those claims prior to filing

the present suit. Accordingly, BNSF’s refund claims for those years must be

dismissed.

B.

We next turn to the merits. The parties agree that certain moving

expenses are properly excluded under § 3231(e)(5), 114 which provides that

benefits excludable under § 132 115 are excluded from RRTA compensation.

BNSF argues that moving expenses not excludable under § 3231(e)(5) are

properly excluded under § 3231(e)(1)(iii). Section 3231(e)(1)(iii) provides, in

pertinent part, that:

[Compensation] does not include . . . an amount paid

specifically—either as an advance, as reimbursement

or allowance—for travelling or other bona fide and

necessary expenses incurred or reasonably expected to

be incurred in the business of the employer[.]

111 Id.

112 Green-Thapedi v. United States, 549 F.3d 530, 533 (7th Cir. 2008).

113 Id.; see also, PALA, 234 F.3d at 877.

114 Compensation “[s]hall not include any benefit provided to or on behalf of an

employee if at the time such benefit is provided it is reasonable to believe that the employee

will be able to exclude such benefit from income under [§ 132.]” 26 U.S.C. § 3231(e)(5).

115 “[G]ross income shall not include any fringe benefit which qualifies as a . . .

qualified moving expense reimbursement.” 26 U.S.C. § 132.

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BNSF explains that those moving expenses not excluded under § 3231(e)(5)

should be excluded under § 3231(e)(1)(iii) because they were bona fide and

necessary expenses incurred in its business. BNSF states that these expenses

were paid, not as compensation to employees, but as a means of retaining

skilled and knowledgeable workers.

The district court agreed, holding that “BNSF has satisfied its summary

judgment burden to establish that the relocation benefits in question were

necessary to the business of BNSF . . . and were reasonably expected by them

to be incurred.” 116 The district court explained that there was “no suggestion

that any of those relocation benefits were not benefits actually or in reality

provided for the employees in connection with employee relocations required

by the business of the employer.” 117

The Government appeals this decision, arguing that because the RRTA

provides a specific exclusion from moving expenses in § 3231(e)(5), it is not

appropriate to include such expenses under the more general exclusion found

in § 3231(e)(1)(iii). Additionally, the Government explains that such a broad

reading of § 3231(e)(1)(iii) would render the narrower exception under §

3231(e)(5) superfluous.

We agree, informed by two statutory interpretation canons: the specific-

general canon and the rule against superfluities. The specific-general canon

applies where there is a specific statutory provision that would be subsumed

by a general statutory provision. 118 Here, § 3231(e)(5) provides a specific

116 BNSF Ry. Co. v. United States, 904 F. Supp. 2d 604, 617 (N.D. Tex. 2012).

117 Id. at 616.

118 See, e.g., Hinck v. United States, 550 U.S. 501, 506 (2007) (describing the “well-

established principle” that “a precisely drawn, detailed statute preempts more general

remedies” (internal quotation marks and citations omitted)); EC Term of Years Trust v.

United States, 550 U.S. 429, 433 (2007) (same); Radzanower v. Touche Ross & Co., 426 U.S.

148, 153 (1976) (“Where there is no clear intention otherwise, a specific statute will not be

controlled or nullified by a general one, regardless of the priority of enactment.” (quoting

Morton v. Mancari, 417 U.S. 535, 550-51 (1974))).

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exclusion for certain moving expenses, while § 3231(e)(1)(iii) provides a

broader exclusion for travelling expenses and bona fide and necessary business

expenses. Although § 3231(e)(1)(iii) could be read to include moving expenses,

such a reading would subsume the specific exclusion for moving expenses;

indeed, such a broad reading would subsume almost all the specific exclusions

found in § 3231(e). For example, § 3231(e)(5) also excludes certain employee

achievement awards. 119 If a rail carrier justifies an employee achievement

award as bona fide and necessary to recruit and retain well-qualified

employees in a competitive industry, then under the broad interpretation

offered by BNSF, and accepted by the district court, such expenses would

already be excluded under § 3231(e)(1)(iii). A similar problem arises under the

rule against superfluities, 120 as the broad interpretation of § 3231(e)(1)(iii)

renders virtually every exception in § 3231(e) inoperative.

We conclude that a more reasonable interpretation of § 3231(e)(1)(iii)

permits exclusion of payments to employees for traveling expenses and bona

fide and reasonable expenses related to travel, an interpretation harmonizing

§ 3231(e)(1))(iii) and § 3231(e)(5) as required by the specific-general canon and

the rule against superfluities. To be sure, BNSF argues that the provisions

can be harmonized under the broad interpretation by understanding §

3231(e)(5) to exclude items that benefit the employee, while understanding §

3231(e)(1)(iii) to exclude items that benefit the employer. Well stated, but the

argument fails to persuade, as even such an understanding does not address a

broad interpretation of § 3231(e)(1)(iii) rendering the remaining § 3231(e)

exceptions inoperative.

119 Section 3231(e)(5) excludes benefits reasonably excluded from income under § 74(c),

which is an “[e]xception for certain employee achievement awards.”

120 See, e.g., Colautti v. Franklin, 439 U.S. 379, 392 (1979) (a cardinal rule of statutory

construction is that “a statute should be interpreted so as not to render one part inoperative”).

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C.

BNSF argues that even if the disputed moving expenses are not properly

excluded under § 3231(e)(1)(iii), some of the disputed moving-expenses do not

qualify as “compensation” under the RRTA, because they are provided as in-

kind benefits. The district court did not address this argument, as it concluded

that all of the moving expenses were properly excluded.

A review of the record makes clear that these disputed moving-expense

benefits were paid in various ways, including: direct payment to the service

provider, advances to the employee, reimbursements to the employee, and

allowances to the employee. A determination will need to be made on an

expense by expense basis as to whether the benefit qualifies as “compensation”

under the RRTA.

On remand, the district court should parse the disputed moving expenses

to determine (i) whether each disputed moving expense qualifies as

“compensation” as explicated in Part III of this opinion, and (ii) whether each

disputed moving expense may be properly excluded as a traveling expense, or

a bona fide and reasonable expense related to travel.

V.

For these reasons we REVERSE the district court and REMAND for

further proceedings consistent with this opinion.

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