# Temple University--Of the Commonwealth System of Higher Education v. United States

> Court of Appeals for the Third Circuit · July 22, 1985 · 769 F.2d 126

URL: https://www.frixlaw.com/law-library/cases/9473814

## Case

- **Full name:** TEMPLE UNIVERSITY—Of the Commonwealth System of Higher Education, Appellant, v. UNITED STATES of America
- **Court:** Court of Appeals for the Third Circuit
- **Decided:** July 22, 1985
- **Citations:** 769 F.2d 126; 7 Employee Benefits Cas. (BNA) 1156; 56 A.F.T.R.2d (RIA) 5538; 1985 U.S. App. LEXIS 20882
- **Precedential status:** Published
- **Opinion:** Dissent by Weis
- **Judges:** Seitz, Weis, Rosenn
- **Cited by:** 51 later opinions in the Frix Law Library

## Citator (automated)

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## Opinion text

WEIS, Circuit Judge,
dissenting.
I dissent because the majority fails to accord proper consideration to the wording of the statute, and gives undue weight to a revenue ruling as well as to the 98th Congress’ interpretation of a statute enacted some 45 years earlier.
Plaintiff contends that certain payments into retirement funds for the years 1979 to 1982 on behalf of its employees were not subject to Social Security taxes (FICA). The question in this case is whether the statute includes within “wages” the salary reduction amounts.
The logical place to begin is with the statutory language. The exclusion from FICA wages of payments for retirement annuities, or similar arrangements, dates back to 1939. 53 Stat. 1373 . Section 209 of the Act defined “wages” subject to the FICA tax as:
“[A]ll remuneration for employment, ... except that such term shall not include
(1) [an amount in excess of the Social Security base];
(2) The amount of any payment made to, or on behalf of, an employee under a plan or system established by an employer (including any amount paid by an employer for ... annuities ...) on account of
A. retirement____”
The House Report explained that the definition
“excludes all payments made by the employer to or on behalf of an employee ... under a plan or system providing for retirement benefits (including pensions), ____ These payments will be excluded even though the amount or possibility of such payments is taken into consideration in fixing the amount of remuneration and even though such payments are required, either expressly or impliedly, by the contract of employment.”
H.Rep. No. 728, 76th Cong., 1st Sess., reprinted, in 1939-2 Cum.Bull. 538, 548. Parallel references appear in the Senate Report. See S.Rep. No. 734, 76th Cong., 1st Sess., reprinted in 1939-2 Cum.Bull. 565, 575-76.
The House Report articulated the reason for excluding from FICA wages, among other items, payments by an employer to purchase retirement annuities: “This will save employers time and money but what is more important is that it will.eliminate any reluctance on the part of the employer to establish such plans due to the additional tax cost.” H.Rep. No. 728, 76th Cong., 1st Sess., reprinted in 1939-2 Cum.Bull. at 543.
The pertinent part of the definition of wages was not changed until 1983. In the meantime two revenue rulings were issued by the Internal Revenue Service. In 1953, Revenue Ruling 181 discussed the taxability of the amount paid by an employer as premiums for an employee’s annuity. The ruling stated,
“The payment of the insurance premium by the employer does not fall within the meaning of the term ‘wages’ as defined in section 1621 of the Code or section 1426(a)(3) [later codified at 3121] of the Federal Insurance Contributions Act. Therefore, such payment is not subject to withholding either for Federal employment or income tax purposes.”
Twelve years later, the IRS issued Revenue Ruling, 65-208. 1965-2 Cum.Bull. 383. An employee had agreed to a salary reduction in a specified sum, which was used to purchase a retirement annuity. The amount was properly excluded from the employee’s wages for income tax purposes under section 403(b), but the ruling opined that the sums were nevertheless within the definition of wages for FICA purposes. The ruling “distinguished” the one issued in 1953, saying that the earlier case contemplated the situation “where an organization uses its own funds for the purchase of an annuity contract, rather than one where the employees take a voluntary *137 reduction in salary to provide the necessary funds.”
The 1965 ruling cited no authority for its position, did not discuss the 1939 legislative history for the statutory provision, and did not attempt to explain how the interpretation was consistent with the statutory language.
As noted, the definition of “wages” was changed in 1983. By this time the financial stability of the Social Security system was at stake, and congressional emphasis shifted from ease of employer administration to conservation of funds. As part of the overhaul, Congress deleted the word “retirement” and expressly included in the FICA wage base payments “made by reason of a salary reduction agreement” for the purchase of an annuity contract. These amendments were made applicable to remuneration paid after December 31, 1983. 97 Stat. 125 .
Concern about the financial soundness of the Social Security System continued, and in 1984 Congress addressed the potentially disruptive effect of the Rowan decision discussed in the majority opinion. The 1984 provision made retroactive the part of the 1983 amendment which specifically counteracted Rowan. Despite what was said in the Committee reports, the legislation passed in 1984 did not change the effective date of the definition of wages as modified in 1983. Because the relevant exclusion from the FICA definition of wages between 1939 and 1983 was not altered by statute, the amended definition does not apply to the period at issue here— 1979-1982.
Ignoring the statutory language and the pertinent legislative history, the IRS refers to the 1965 ruling as the “controlling authority before Rowan.” That characterization is inaccurate because the ruling was neither “controlling” nor “authority.”
The IRS does not mention the limited efficacy these rulings are accorded by the Service itself. A cautionary note appears at the beginning of the Cumulative Bulletin:
“The rulings reported ... are for the information of taxpayers and their counsel as showing the trend of official opinion in the administration of the Bureau of Internal Revenue; the rulings other than Treasury Decisions have none of the force or effect of Treasury Decisions and do not commit the Department to any interpretation of the law which has not been formally approved and promulgated by the Secretary of the Treasury.
Unless otherwise specifically indicated, all published rulings and decisions have received the consideration and approval of the Chief Counsel for the Bureau of Internal Revenue.”
A revenue ruling is simply the opinion of the Service’s legal counsel which has not received the approval of the Secretary nor of Congress. A ruling is not a regulation and does not bind the IRS. As one court colorfully explains, a ruling is “made to order for the Commissioner by his legal staff, and [has] no more binding or legal force than the opinion of any other lawyer.” United States v. Bennett, 186 F.2d 407, 410 (5th Cir.1951). See also Dixon v. United States, 381 U.S. 68, 73-75 , 85 S.Ct. 1301, 1304-1306 , 14 L.Ed.2d 223 (1965). In Biddle v. Commissioner, 302 U.S. 573, 582 , 58 S.Ct. 379, 383 , 82 L.Ed. 431 (1938), the Supreme Court cautioned that “departmental rulings not promulgated by the Secretary are little aid in interpreting a tax statute.”
This court has also spoken to the subject on a number of occasions. In Geib v. New York State Teamsters Conference Pension & Retirement Fund, 758 F.2d 973, 976 (3d Cir.1985), we pointed out that “although revenue rulings may be helpful, they do not have the force of law.” See also Bencivenga v. Western Pa. Teamsters & Employers Pension Fund, 763 F.2d 574 (3d Cir.1985). Becker v. C.I.R., 751 F.2d 146 (3d Cir.1984), illustrates that a taxpayer relies on revenue rulings at his peril because the Commissioner is free to — and does — revoke them retroactively, at any time.
*138 The majority and the district court emphasize the 1965 revenue ruling but, when properly evaluated, it provides inadequate support. The ruling is simply an attempt by the legal staff of the IRS to legislate.
Revenue Ruling 65-208 contradicts the statutory language as well as the legislative history. The statute reads “all payments made by the employer to or on behalf of an employee” for retirement are excluded. The legislative history explains that “these payments will be excluded even though the amount or possibility of such payments is taken into consideration in fixing the amount of remuneration.” Moreover, as noted earlier, the impetus for the definition of wages came from a congressional desire to encourage the establishment of retirement, disability, and medical payment plans to supplement the minimal social security benefits which then existed. Revenue Ruling 65-208 completely overlooked the relevant congressional policy expressed some 26 years before the ruling was rendered.
In addition, the ruling is inconsistent with the 1953 ruling as well as Treasury Regulation 31.3121(a)(2)-l(d), the text of which is lifted almost verbatim from the Committee reports of the 1939 Act. The government’s explanation of the inconsistency is unconvincing.
The effort to legitimatize the 1965 revenue ruling relies on the legislative history of the 1983 and 1984 amendments. But the Supreme Court has admonished that the views of members of a later Congress are entitled to little, if any, weight in interpreting the actions of an earlier Congress. International Brotherhood of Teamsters v. United States, 431 U.S. 324 , 354 n. 39, 97 S.Ct. 1843 , 1864 n. 39, 52 L.Ed.2d 396 (1977). It is the intent of the Congress that enacted the provision not the views of a subsequent Congress that controls. United States v. Vogel Fertilizer Co., 455 U.S. 16, 34 , 102 S.Ct. 821, 832 , 70 L.Ed.2d 792 (1982).
Even the limited weight accorded the views of a subsequent Congress necessarily decreases as the interval between sessions lengthens. As the Court noted in United Air Lines, Inc. v. McMann, 434 U.S. 192 , 200 n. 7, 98 S.Ct. 444 , 449 n. 7, 54 L.Ed.2d 402 (1977), “Legislative observations 10 years after passage of the Act are in no sense part of the legislative history.” Certainly, the overlap in membership between the Congress which passed the 1939 Act and that which some 44 years later considered the 1983 amendments was at best infinitesimal.
In the legislative history to the 1983 amendments, the Committee said it intended to “codify” the 1965 revenue ruling, the validity of which was called into doubt after the Rowan decision. S.Rep. No. 23, 98th Cong., 1st Sess. 39, reprinted in 1983 U.S.Code Cong. & Ad.News 143, 180; H.Rep. No. 25, id. at 298 . I read this observation as a concession that the revenue ruling was not authoritative and that a statutory amendment was necessary to effect its aim. It should be noted, also, that the 1983 amendments went further than the revenue ruling by absorbing into the FICA wage base the employer’s contribution, which had previously not been included.
The 1983 amendments were consistent with Congress’ concern about the solvency of the Social Security system. As the House Report states, “The primary focus of your Committee’s bill is on restoring the financial soundness of the Old Age and Survivors Insurance (OASI) program which is facing severe cash shortfalls over the next seven years.” H.Rep. No. 25, 98th Cong., 1st Sess., 1983 U.S.Code Cong. & Ad.News 219. Despite that concern, Congress did not make the 1983 amendments to the definition retroactive but provided they would be applicable only to remuneration paid after December 31, 1983. Consequently, neither the 1983 nor the 1984 amendments have any effect on the claim that Temple has submitted for the years 1979-1982.
My analysis of the wording of the FICA statute and its legislative history does not depend on the Supreme Court’s holding in Rowan. Although that decision provides *139 additional support for my conclusion, it is not essential to it.
If Rowan were to be applied to this case a synopsis of the reasoning would begin by noting that Congress, in the early history of the Social Security Act, clearly intended that the term wages would mean the same in both the income tax and the FICA contexts. The Service concedes that the payments to the pension fund were not subject to income tax, and therefore they were not subject to the FICA tax.
However, the Supreme Court’s holding was repudiated by Congress in 1983 and made retroactive in 1984. Congress has often disagreed with a judicial construction of a statute and has then amended it, but generally such amendments are applied only prospectively.
The Supreme Court has held that retroactive imposition of a tax for one year has generally been though not to violate due process. See United States v. Darusmont, 449 U.S. 292 , 101 S.Ct. 549 , 66 L.Ed.2d 513 (1981). One case held that a two-year period was not excessive when a state legislature met only bi-annually and the retroactivity was limited to the intervening period. Welch v. Henry, 305 U.S. 134 , 59 S.Ct. 121 , 83 L.Ed. 87 (1938). See also United States v. Hudson, 299 U.S. 498 , 57 S.Ct. 309 , 81 L.Ed. 370 (1937); Milliken v. United States, 283 U.S. 15 , 51 S.Ct. 324 , 75 L.Ed. 809 (1931); Cooper v. United States, 280 U.S. 409 , 50 S.Ct. 164 , 74 L.Ed. 516 (1930).
If the 1984 amendments are applied to the case at hand, Congress would be reaching back five years to 1979 and, in addition, would be undertaking the function of construing a statute enacted and re-enacted by previous Congresses. I am not convinced by the majority’s treatment of these problems and note that they have cited no case which approves retroactive taxation similar to that attempted by Congress here.
My approach to this case, however, does not require that I determine whether Congress could properly make the 1983 amendments of “wages” retroactive because Congress clearly did not do so. The 1984 language does not state that the section at issue is to be applied retroactively. The majority concedes that fact but nevertheless, because of statements in the legislative history pertinent only to the Rowan provision, supplies wording that Congress did not include in the statute. This is contrary to what the Supreme Court said in Iselin v. United States, 270 U.S. 245, 251 , 46 S.Ct. 248, 250 , 70 L.Ed. 566 (1926), — the courts should not enlarge a statute so that “what was omitted, presumably by inadvertence, may be included within its scope. To supply omissions transcends the judicial function.”
Although Congress did not relish the idea of refund suits like the one at hand, in 1984 it confined its efforts to counteracting the Rowan decision and did not disturb the plainly worded effective date assigned to the definition of wages in 1983. Perhaps the omission was inadvertent, but that does not appear in the legislative history.
Furthermore, I see no need for the court to be unduly solicitous about curing statutory deficiencies to aid the IRS in doubtful cases. The Service insists on adherence to the technical requirements of the Code when convenient. That approach is not improper, but the same rule should apply when it is the taxpayer who benefits. He who lives by the sword of rigid adherence to technicalities should not be surprised at being nicked in return from time to time.
I believe that under the language of the applicable section of the Internal Revenue Code the taxpayer is entitled to a refund. I dissent from its denial.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9473814. Public record. Not legal advice.