Amicus Curiae Brief — BNSF Railway Company, Petitioner v. Michael D. Loos

No. 17-1042

IN THE

Supreme Court of the United States

————

BNSF RAILWAY COMPANY,

Petitioner,

v.

MICHAEL D. LOOS,

Respondent.

————

On Writ of Certiorari to the

United States Court of Appeals

for the Eighth Circuit

————

BRIEF OF THE ASSOCIATION OF

AMERICAN RAILROADS AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

————

KATHRYN D. KIRMAYER

DANIEL SAPHIRE

Counsel of Record

ASSOCIATION OF

AMERICAN RAILROADS

425 3rd Street, S.W.

Washington, D.C. 20024

(202) 639-2505

dsaphire@aar.org

Counsel for Amicus Curiae

Association of

American Railroads

July 27, 2018

WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D. C. 20002

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ................................

ii

STATEMENT OF INTEREST OF AMICUS

CURIAE............................................................

1

SUMMARY OF THE ARGUMENT ....................

2

ARGUMENT ........................................................

4

TIME-LOST FELA PAYMENTS ARE

COMPENSATION UNDER THE RRTA AND

ARE SUBJECT TO RRTA PAYROLL

TAXES ..............................................................

4

A. Railroad Workers Who Are Injured on

the Job May Collect Damages for Lost

Wages Under the Federal Employers’

Liability Act ..............................................

5

B. Railroad Employees are Eligible for

Railroad Retirement Benefits Which are

Funded by Payroll Taxes Levied on Their

Compensation Under the RRTA ..............

7

C. The Court Below Was Wrong When it

Held That FELA Time-Lost Awards Are

Not Subject to RRTA Taxes, as Were

Other Lower Courts Which Reached the

Same Result Using A Different Rationale

...................................................................

9

D. Railroad Employees’ RRA Benefits are

Enhanced By Their Receipt of Pay for

Time Lost and Therefore Railroad

Retirement Taxes Must Be Paid on TimeLost Awards ..............................................

13

CONCLUSION ....................................................

21

(i)

ii

TABLE OF AUTHORITIES

CASES

Page(s)

Cowden v. BNSF Ry. Co.,

2014 U.S. Dist. LEXIS 91454

(E.D. Mo. 2014) ................................... 11, 12, 19

DeBiasio v. Illinois Cent. R.R.,

52 F.3d 678 (7th Cir. 1995) .......................

6

Florida E. Coast Ry. Co. v. United States,

470 F.2d 513 (Ct. Cl. 1972) .......................

14

Frazier v. Norfolk & W. Ry. Co.,

996 F.2d 922 (7th Cir. 1993) .....................

5, 6

Galveston By Bd. of Trustees v. United States,

22 Cl. Ct. 600 (Cl. Ct. 1991)......................

14

Green v. Denver & Rio Grande W. R.R.,

59 F.3d 1029 (10th Cir. 1995) ...................

8

Hance v. Norfolk S. Ry Co.,

571 F.3d 511 (6th Cir. 2009) .....................

18

Heckman v. Burlington N. Santa Fe Ry. Co.,

837 N.W.2d 532 (Neb. 2013) .....................

13

Hisquardo v. Hisquardo,

439 U.S. 572 (1979) ...................................

18

Jacques v. R.R. Retirement Bd.,

736 F.2d 34 (2d Cir. 1984) ........................

16

Liberatore v. Monongahela Ry. Co.,

140 A.3d 16 (Pa. Super 2016) ............. 13, 16, 17

Loy v. Norfolk S. Ry. Co.,

2016 U.S. Dist. LEXIS 48824

(N.D. Ind. 2016) ........................................ 11, 12

Marlin v. BNSF Ry. Co.,

163 F.Supp.3d 576 (S.D. Iowa 2016) ........ 11, 12

iii

TABLE OF AUTHORITIES—Continued

Page(s)

Mickey v. BNSF Ry. Co.,

437 S.W.3d 207 (Mo. 2014) ................. 12, 17, 19

Munoz v. Norfolk S. Ry. Co.,

2018 Il. App. (1st) 171009

(Ill. App. 2018) ..........................................

12

New Orleans & N. E. R.R.,

247 U.S. 367 (1916) ...................................

5

Norfolk S. Ry. Co. v. Williams,

2018 Ala. Civ. App. LEXIS 101

(Ala. Civ. App. 2018) ................................. 13, 17

Norton v. R.R. Retirement Bd.,

69 F.3d 282 (8th Cir. 1995) .......................

18

Phillips v. Chicago Cent. & Pac. R.R.,

853 N.W.2d 636 (Iowa 2014) ....................

13

Redfield v. Insur. Co. of N. Am.,

940 F.2d 542 (9th Cir. 1991) .....................

12

Sloas v. CSX Transp., Inc.,

616 F.3d 380 (4th Cir. 2010) .....................

8

Standard Office Bldg. Corp., v. United States,

819 F.2d 1371 (7th Cir. 1987) ................... 12, 14

State of Calif. v. Cent. Pac. R.R.,

127 U.S. 1 (1888) .......................................

6

Southern Ry. v. Gray,

241 U.S. 333 (1916) ...................................

5

STATUTES

26 U.S.C. §74(c) ............................................

20

26 U.S.C. §104 .............................................. 13, 20

iv

TABLE OF AUTHORITIES—Continued

Page(s)

26 U.S.C. §104(a)(2)................................ 12, 19, 20

26 U.S.C. §106(b) ..........................................

20

26 U.S.C. §106(d) ..........................................

20

26 U.S.C. §108(f)(4) ......................................

20

26 U.S.C. §117 ..............................................

20

26 U.S.C. §119 ..............................................

20

26 U.S.C. §127 ..............................................

20

26 U.S.C. §132 ..............................................

20

26 U.S.C. §422(b) ..........................................

20

26 U.S.C. §423(b) ..........................................

20

26 U.S.C. §§3101 et seq. ...............................

12

26 U.S.C. §§3201-3241 .................................

1

26 U.S.C. §3201(a) & (b) ...............................

8

26 U.S.C. §3202(a) ........................................

9

26 U.S.C. §3202(b) ........................................

9

26 U.S.C. §3221(a) & (b) ...............................

8

26 U.S.C. §3231(e)(1) .................................... 9, 15

26 U.S.C. §3231(e)(5) ....................................

20

26 U.S.C. §3231(e)(6) ....................................

20

26 U.S.C. §3231(e)(9) ....................................

20

26 U.S.C. §3231(e)(10) ..................................

20

26 U.S.C. §3231(e)(11) ..................................

20

26 U.S.C. §3231(e)(12) ..................................

20

v

TABLE OF AUTHORITIES—Continued

Page(s)

42 U.S.C. §410(a)(9)......................................

7

45 U.S.C. §§51-60 .........................................

1

45 U.S.C. §51 ................................................

5

45 U.S.C. §56 ................................................

5

45 U.S.C. §§231–231v...................................

1

45 U.S.C. §231(f)(1) ......................................

15

45 U.S.C. §231(h)(1) & (2) ............................

15

45 U.S.C. §231a(a)(1)....................................

15

45 U.S.C. §231a(a)(1)(ii) ...............................

8

45 U.S.C. §231a(a)(1)(iv) ..............................

8

45 U.S. C. §231a(b) .......................................

15

45 U.S.C. §231f .............................................

2

46 U.S.C. §30104 ..........................................

5

Federal Railroad Safety Act, Pub. L.

No. 91-458, 84 Stat. 971 (1970) ................

6

Interstate Commerce Act of 1887, c.104, 24

Stat. 379 ....................................................

6

Railway Labor Act, c. 347, 44 Stat. 577

(1926) .........................................................

6

Safety Appliances Act of 1893, c. 196,

27 Stat. 531 ...............................................

6

REGULATIONS AND

ADMINISTRATIVE MATERIALS

20 C.F.R. §210.5(d) .......................................

15

vi

TABLE OF AUTHORITIES—Continued

Page(s)

20 C.F.R. §211.1 ...........................................

15

20 C.F.R. §211.2(b)(2) ...................................

15

20 C.F.R. §211.3(a) .......................................

15

26 C.F.R. §31.3202-1(a) ...............................

9

26 C.F.R. §31.3202-1(e) ................................

9

26 C.F.R. §31.3231(e)-1(a)(3)-(4) .................. 10, 15

IRS Rev. Rul. 61-1, 1961-1-C.B. 14, 1961

WL 12630 (1961) .......................................

18

IRS Rev. Rul. 85-97, 1985-2. C.B. 50, 1985

WL 287177 (1985) .....................................

19

IRS, Technical Advice Memorandum

8115012, 1980 WL 137627 (1980) ............

19

IRS, Technical Advice Memorandum

9322001, 1993 WL 187036 (1993) ............

19

OTHER AUTHORITIES

Gen. Accounting Office, Federal Employers’

Liability Act: Issues Associated with

Changing How Railroad Work-Related

Injuries Are Compensated (1996) .............

5

R.R. Ret. Bd., 2017 Annual Report ..............

8

R.R. Ret. Bd., Pay for Time Lost from

Regular Railroad Employment, Form 1B4, (06-95).................................................... 10, 16

R.R. Ret. Bd., Railroad Retirement

Handbook (2015) ................................. 7, 8, 9, 15

STATEMENT OF INTEREST OF

AMICUS CURIAE1

Amicus curiae Association of American Railroads

(AAR) is an incorporated, nonprofit trade association

representing the nation’s major freight railroads, many

smaller freight railroads, Amtrak, and some commuter

authorities. AAR’s members operate approximately

83 percent of the rail industry’s line haul mileage,

produce 97 percent of its freight revenues, and employ

95 percent of rail employees. In matters of significant

interest to its members, AAR frequently appears on

behalf of the railroad industry before Congress, the

courts and administrative agencies. AAR seeks to

participate as amicus curiae to represent the views of

its members when a case raises an issue of importance

to the railroad industry as a whole.

AAR is participating in this case as amicus curiae

because it involves two federal statutes that apply

uniquely to the railroad industry: the Federal Employers’

Liability Act (FELA), 45 U.S.C. §§51-60 and the Railroad

Retirement Tax Act (RRTA), 26 U.S.C. §§3201-3241.

These statutes affect all railroads, and involve the

expenditure of significant sums of money: the payment

of hundreds of millions of dollars in settlements and

verdicts under FELA, and the payment of billions of

dollars in taxes under the RRTA, which fund billions

of dollars in benefits provided under the Railroad

Retirement Act (RRA). 45 U.S.C. §§231–231v.

1

Both parties have consented to AAR’s filing of an amicus

brief. Pursuant to Rule 37.6, AAR states that no person or entity

other than AAR has made monetary contributions toward this

brief, and no counsel for any party authored this brief in whole or

in part.

2

AAR works closely with its members to ensure

consistent and correct application of FELA around the

country. Similarly, AAR works with its members and

the Railroad Retirement Board (RRB)—an independent agency in the executive branch of the federal

government charged with administering the RRA,

45 U.S.C. §231f—to ensure that the railroad retirement

system is administered in an equitable and efficient

manner, and in accordance with the requirements of

the law.

SUMMARY OF THE ARGUMENT

The Eighth Circuit’s decision, which held that FELA

awards for lost wages are not subject to RRTA payroll

taxes, should be reversed. Railroad employees who

are injured on the job may bring negligence suits

against their employing railroad under FELA. Lost

wages often make up a significant portion of the

damages sought and recovered in those suits.

Railroad employees are also covered by a unique

retirement system under which they become eligible

for retirement, disability and other benefits based on

their years of service and creditable compensation.

The railroad retirement system is comparable to the

Social Security system in some ways, but differs in

others. RRA benefits are funded by payroll taxes

levied under the RRTA on the compensation received

by employees and paid by employers, which employers

must collect and pay to the IRS.

The Eighth Circuit held that damages for lost wages

(so-called “time-lost” awards) are not taxable because

they do not meet the definition of compensation under

the RRTA. Compensation is defined as “any form of

money remuneration paid to an individual for services

rendered as an employee to one of more employers.”

3

The Court held that such awards are not taxable

because they are not made for “services rendered,” but

instead are compensation for periods of time when “the

employee did not actually render any services.” This

unduly restrictive reading of the term “compensation”

would call into question not just the taxability of timelost awards, but also the taxability of other payments

made to employees for periods when they do not

actually perform services, such as vacation and sick

pay. Virtually every other lower court that has

addressed this issue has rejected this interpretation of

RRTA compensation.

However, a number of those courts have held that

even though time-lost awards are compensation, they

are not taxable under the RRTA because personal

injury damages are excluded from gross income under

section 104 of the Internal Revenue Code. Those courts

have reasoned that compensation is a subset of gross

income, and if time-lost awards are not gross income

they necessarily cannot be compensation. As did the

Eighth Circuit, those courts also have misread the law

and failed to account for the close connection between

“compensation” under the RRA and “compensation”

under the RRTA.

A proper reading of the RRTA—which takes into

account the purpose of RRTA payroll taxes—requires

that FELA time-lost awards be subject to RRTA taxes.

The railroad retirement system is an integrated statutory scheme under which benefits paid under the RRA

are funded by taxes levied under the RRTA. Both

eligibility for, and the level of, benefits payable to a

retired railroad employee under the RRA are based on

the employee’s years of services and the amount of

compensation with which the employee is credited. For

the purpose of calculating the benefits for which

4

a railroad worker will become eligible, payments

received for time lost (including pay received due to a

personal injury) are considered compensation and

included in determining both the employee’s “years of

service” and creditable compensation. As a result,

when a FELA award for lost wages is made, and

treated as a payment for time lost under the RRA, the

employee realizes a distinct benefit because such

treatment serves to increase the employee’s years of

service and creditable compensation. Because railroad

employees receive RRA credit for the time-lost FELA

awards they receive, those awards must be treated as

compensation that is subject to the payroll taxes that

support those RRA benefits.

ARGUMENT

TIME-LOST FELA PAYMENTS ARE

COMPENSATION UNDER THE RRTA AND

ARE SUBJECT TO RRTA PAYROLL TAXES.

This case concerns the interplay between two federal

statutes that are unique to the railroad industry:

FELA and the RRTA. FELA is a federal negligence law

that provides compensation to employees who are

injured on the job. The RRTA levies taxes that fund

benefits under the RRA, a statute which created and

governs the railroad retirement system. The court

below held that payments made to railroad employees

under FELA for wages lost as a result of an injury—

”time-lost” awards—are not subject to RRTA taxes.

Not only is the ruling below based on an incorrect

reading of the statute, it violates the Congressional

design because it exempts time-lost awards from the

taxes that are specifically earmarked to fund RRA

pension benefits, even while the payment of such

awards to employees serves to enhance the benefits

those employees receive.

5

A. Railroad Workers Who Are Injured on the

Job May Collect Damages for Lost Wages

Under the Federal Employers’ Liability

Act.

FELA was enacted over a century ago, predating the

modern no-fault workers’ compensation laws which

became universal for the rest of U.S. industry in the

decades after FELA’s enactment. See Gen. Accounting

Office, Federal Employers’ Liability Act: Issues Associated

With Changing How Railroad Work-Related Injuries

Are Compensated 15 (1996).2 Congress incorporated

into FELA the concept of common law negligence as

the basis for recovery. 45 U.S.C. §51; New Orleans &

N. E. R.R., 247 U.S. 367, 371 (1916) (“negligence is

essential to recovery”); Southern Ry. v. Gray, 241 U.S.

333, 339 (1916) (The rights and obligations under

FELA depend upon “applicable principles of common

law. . . . Negligence by the railway company is

essential to a recovery.”).

When a railroad employee is injured on the job,

unless the parties can reach a settlement the employee

must bring a lawsuit in state or federal court in order

to recover. 45 U.S.C. §56 (granting state and federal

courts concurrent jurisdiction in FELA cases). In these

FELA lawsuits, injured workers may seek both economic and noneconomic damages. See Frazier v. Norfolk

& W. Ry. Co., 996 F.2d 922, 925 (7th Cir. 1993).

Damage claims for past and future lost wages often

are a major component of a FELA suit. During the past

three years, railroads reported to the Federal Railroad

2

The maritime industry, by virtue of the Jones Act, also is

covered by the FELA. 46 U.S.C. §30104. Virtually all other

employers and employees in the United States are covered by a

state or federal no-fault workers’ compensation law.

6

Administration an annual average of 2,983 on-duty

injuries resulting in time away from the job.

http://safetydata.fra.gov/OfficeofSafety/publicsite/Que

ry/casemp.aspxQuery4.09WorkerSafetyReport. Not

surprisingly, many of the hundreds of FELA suits filed

against railroads each year seek recovery for wage loss

incurred when the employee was unable to work due

to the injury. Often such awards constitute a significant portion of the damages awarded. See e.g., DeBiasio

v. Illinois Cent. R.R., 52 F.3d 678, 687 (7th Cir. 1995)

(plaintiff awarded $51,000 for past lost earnings and

$1,150,000 for future lost earnings); Frazier, 996 F.2d

at 925 (plaintiff awarded $2.3 million had sought

$114,600 in past lost wages and $430,000 in future lost

earnings).

FELA is but one example of how Congress historically has singled out railroads for unique treatment,

motivated in part by the industry’s outsized role in the

national economy. See State of Calif. v. Cent. Pac. R.R.,

127 U.S. 1, 39-40 (1888) (describing efforts by Congress

to promote expansion of the railroad industry as a

means of promoting the country’s economic development). Given the pervasive role railroads played in

national commerce, Congress frequently focused first

on railroads as it extended its authority over industry

and the national economy. E.g., Interstate Commerce

Act of 1887, c.104, 24 Stat. 379 (economic regulation);

Safety Appliances Act of 1893, c. 196, 27 Stat. 531

(safety); Railway Labor Act, c. 347, 44 Stat. 577 (1926)

(labor relations); Federal Railroad Safety Act, Pub. L.

No. 91-458, 84 Stat. 971 (1970) (safety).

Today, railroads are just one of several transportation modes that play a major role in interstate, and

international, commerce. However, in the areas of

economic regulation, employer liability, safety, and

7

labor relations, railroads remain subject to unique

statutory schemes that operate parallel to (though at

times starkly differently from) the comparable laws

that govern most other industries. When applying

statutes to which railroads—and only railroads—are

subject, courts must be mindful of the specific goals

and purposes Congress intended to advance, and how

Congress intended those laws to interrelate.

B. Railroad Employees are Eligible for

Railroad Retirement Benefits Which are

Funded by Payroll Taxes Levied on Their

Compensation Under the RRTA.

As with compensation for work-related injuries,

railroads and their employees are treated differently

from other industries when it comes to retirement and

related benefits. They are not covered by the Social

Security system that covers virtually all other employers and employees (and self-employed individuals) in

the United States. See 42 U.S.C. §410(a)(9) (excluding

service performed by employees of carriers by railroad

from the definition of service under the Social Security

Act). Instead, they are covered by the RRA, a

retirement security system that was enacted around

the same time as Social Security. R.R. Ret. Bd.,

Railroad Retirement Handbook 1-2 (2015) (available

at https://www.rrb.gov/Sites/default/files/2017-04/RR

B%20Handbook%20%282015%29.pdf.). The RRA provides retirement and disability benefits to railroad

workers, their spouses and survivors.

The RRA provides two tiers of benefits: tier I

benefits are comparable to the benefits provided under

the Social Security system, but are based on railroad

retirement age and service requirements; tier II provides additional retirement benefits, above and beyond

what Social Security provides, that are comparable to

8

private multiemployer pension plans. Tier II also

provides other benefits not available under Social

Security. See e.g., 45 U.S.C. §231a(a)(1)(iv) (providing

an occupational disability benefit).3 Eligibility requirements under the RRA differ from Social Security, and

in some cases are more favorable to long–term railroad

employees. See e.g., 45 U.S.C. §231a(a)(1)(ii) (permitting workers aged 60 with at least 30 years of service

to retire with an unreduced benefit). See generally

Railroad Retirement Handbook at 15-20.

The substantial sums paid in railroad retirement

benefits each year require a reliable funding source.

At the end of fiscal 2016, 222,100 age and disability

annuities, 145,900 spousal annuities, and 116,800

survivor annuities were being paid. R.R. Ret. Bd., 2017

Annual Report at 4 (available at https://www.

rrb.gov/sites/default/files/2017-09/2017AnnualReport.

pdf). In fiscal year 2016, about $12.3 billion in

retirement benefits were paid to those beneficiaries.

Id. at 1, 15.

The “payroll taxes levied on covered employers and

their employees” under the RRTA are the “primary

source of income to the railroad retirement and survivor program.” 2017 Annual Report, at 7; Railroad

Retirement Handbook at 45. The RRTA imposes

separate payroll taxes on “compensation” paid by

railroad employers and received by railroad employees

to fund each tier of benefits. 26 U.S.C. §3201(a) & (b)

(imposing tier I and tier II payroll tax on compensation

received by employees); 26 U.S.C. §3221(a) & (b)

3

Some courts have permitted railroad employees to receive

both unreduced FELA awards and occupational disability

benefits for the same work-related injuries. E.g., Sloas v. CSX

Transp., Inc., 616 F.3d 380, 392 (4th Cir. 2010); Green v. Denver

& Rio Grande W. R.R., 59 F.3d 1029, 1032-33 (10th Cir. 1995).

9

(imposing tier I and tier II payroll tax on compensation

paid by employers). Compensation is defined as “any

form of money remuneration paid to an individual for

services rendered as an employee to one of more

employers.” 26 U.S.C. §3231(e)(1).

Tier I taxes are the equivalent of the Social Security

payroll taxes and fund Social Security-equivalent

benefits (as well as Medicare). Tier II payroll taxes

fund the benefits that are available to railroad

employees but not to Social Security beneficiaries. Tier

II taxes have a different earnings base (the maximum

amount of earnings that is subject to the tax each year)

than tier I taxes, and utilize a different rate for

employees and employers, which can fluctuate year to

year based on the “average account benefit ratio”—a

ratio of fund assets to benefits and expenses. Railroad

Retirement Handbook at 46.

The RRTA requires that railroad employers collect

the taxes owed by their employees by deducting the

proper amounts from the employee’s compensation

and paying those amounts to the IRS. 26 U.S.C.

§3202(a); 26 C.F.R. §31.3202-1(a). The law is clear that

the employer has an absolute obligation to pay the

taxes to the IRS and not to anyone else. 26 U.S.C.

§3202(b); 26 C.F.R. §31.3202-1(e).

C. The Court Below Was Wrong When it Held

That FELA Time-Lost Awards Are Not

Subject to RRTA Taxes, as Were Other

Lower Courts Which Reached the Same

Result Using A Different Rationale.

Following the law, in the case below petitioner

BNSF withheld, and paid to the IRS, an amount that

covered respondent Loos’ payroll tax obligation on the

portion of his FELA verdict that was attributable to

10

time lost. Pet. Br. at 11. This was consistent with the

long-standing views of both the RRB and the IRS. “All

compensation under the Railroad Retirement Tax Act

(RRTA) is subject to the Tier I and Tier II tax rates . . .

This is also true of pay for time lost.” R.R. Ret. Bd.,

Pay for Time Lost from Regular Railroad Employment,

Form 1B-4, at 8 (06-95). The RRB explains that “[p]ay

for time lost is compensation paid by a railroad

employer which is creditable under the [RRA] and

which is attributable to lost earnings for an identifiable period of absence from active service.” Id. at 1. In

addition, Treasury regulations interpret compensation under the RRTA to include time-lost payments. 26

C.F.R. §31.3231(e)-1(a)(3)-(4).4 Thus, both the IRS and

RRB take the position that time-lost payments

constitute compensation for the purpose of both calculating benefits and levying taxes, and that railroads

and their employees must pay RRTA payroll taxes on

time-lost payments made to employees, including

awards made under FELA.

The Eighth Circuit disagreed and held that RRTA

taxes are not owed on time-lost payments. Pet. App. 1a

– 24a. Reading the RRTA’s definition of compensation

narrowly, the court held that time-lost payments are

not taxable because they are not made for “services

rendered,” but instead are compensation for periods of

time when “the employee did not actually render any

services.” Pet App. 20a. This crabbed reading of the

definition of compensation has grave implications for

the railroad retirement system beyond the tax treatment of FELA time-lost awards. If FELA time-lost

4

The regulation states that “[t]he term compensation is not

confined to amounts paid for active service, but includes amounts

paid for an identifiable period during which the employee is

absent from the active service of the employer . . . .”

11

awards are not subject to RRTA taxes because they are

payments for time periods during which services were

not actually rendered by the employee, there is no

logical reason why other payments for time periods

during which services are not rendered—like vacation,

holiday, and sick pay—also would not be taxable.

Under the rationale of the court below there is no way

to distinguish those types of payments—also made

for periods when an employee does “not actually

render any services”—from time-lost awards. Thus,

the decision below calls into question whether large

sums of money regularly paid to railroad employees

are subject to RRTA taxes. Many millions of dollars in

payroll taxes, which heretofore have been levied

without controversy, would be at stake. Wage-related

data showing the magnitude of these payments

provided to the Surface Transportation Board by

railroads are available at https://www.stb.gov/eco

ndata.nsf/dc81d49e325f550a852566210062addf?Open

View&Start==1& Count=300&Expand=1#1.

Other courts have reached the same outcome as

the Eighth Circuit even while rejecting its reading of

the definition of compensation under the RRTA.

See Cowden v. BNSF Ry. Co., 2014 U.S. Dist. LEXIS

91454, at *23 (E.D. Mo. 2014) (“[T]he Court finds an

FELA award of lost pay falls within the definition of

‘compensation’ under the RRTA. Contrary to Plaintiff’s

arguments, Plaintiff’s verdict is not excluded from the

definition of ‘compensation’ under the RRTA merely

because personal injury prevented Plaintiff from performing his job duties.”); Marlin v. BNSF Ry. Co., 163

F.Supp.3d 576, 579 (S.D. Iowa 2016) (agreeing with

Cowden conclusion that FELA judgments for lost pay

fall within the definition of compensation for RRTA

purposes) Loy v. Norfolk S. Ry. Co., 2016 U.S. Dist.

LEXIS 48824 (N.D. Ind. 2016) (same). See Pet. Br. at

12

18-22, and n. 20 (explaining why the narrow definition

of “compensation” adopted by the Eighth Circuit is

incorrect and listing cases that have rejected that

interpretation).5

However, those courts have offered an alternative,

equally erroneous, rationale for holding that time-lost

awards are not taxable under the RRTA. Despite

concluding that FELA time-lost awards are compensation under the RRTA, they have held that such awards

are not subject to RRTA taxes because they are

excluded from gross income under 26 U.S.C. §104(a)(2)

as “damages . . . received . . . on account of personal

physical injuries.” Cowden, 2014 U.S. Dist. LEXIS

91454, at *26-29; Marlin, 163 F.Supp.3d at 581-82;

Loy, 2016 U.S. Dist. LEXIS 48824, at *11-14. The

Missouri Supreme Court also concluded that FELA

awards are not subject to RRTA payroll taxes because

personal injury awards are not subject to federal

income taxes pursuant to 26 U.S.C. §104(a)(2), nor to

payroll taxes under the Federal Insurance Contributions

Act (FICA), 26 U.S.C. §§3101 et seq., the statute which

funds Social Security benefits. Mickey v. BNSF Ry.

Co., 437 S.W.3d 207, 211-12 (Mo. 2014).6 But these courts

also have misread the statute and upset the symmetry

between the benefit and tax sides of the railroad

retirement coin. Standard Office Bldg. Corp., v. United

States, 819 F.2d 1371, 1373 (7th Cir. 1987) (The RRA

5

However, a recent Illinois appellate court adopted the

reasoning of the court below. Munoz v. Norfolk S. Ry. Co., 2018

Il. App. (1st) 171009 (Ill. App. 2018).

6

See Redfield v. Insur. Co. of N. Am., 940 F.2d 542, 548 (9th

Cir. 1991) (income excludable from income taxes under §104 also

is excluded from FICA payroll taxes).

13

is “the expenditure side of the coin” and the RRTA “is

the revenue side.”).

In contrast, other courts have correctly concluded

that time-lost payments are taxable compensation

for the purposes of the RRTA notwithstanding their

exclusion from gross income under 26 U.S.C. §104.

Phillips v. Chicago Cent. & Pac. R.R., 853 N.W.2d 636,

649 (Iowa 2014) (The RRA and RRTA are “inextricably

interconnected because the latter funds the former”

and it is “logical to read these two statutes in harmony

to conclude that compensation as used in the RRTA

implicitly includes time lost.”); Heckman v. Burlington

N. Santa Fe Ry, Co., 837 N.W.2d 532, 540 (Neb. 2013);

Liberatore v. Monongahela Ry. Co., 140 A.3d 16, 29

(Pa. Super 2016) (“Although the Mickey Court attempted

to disassociate the RRA and RRTA, we find the

statutes are inextricably intertwined, and must be

considered in pari materia. Indeed, without the benefits provided for in the RRA, there would be no need

for the taxing provisions of the RRTA.”); Norfolk S. Ry.

Co. v. Williams, 2018 Ala. Civ. App. LEXIS 101 (Ala.

Civ. App. 2018). These courts have focused on the

relationship between the RRTA and RRA—and the

connection between the taxes paid and benefits

received—in concluding that time-lost payments must

be treated similarly under both statutes.

D. Railroad Employees’ RRA Benefits are

Enhanced By Their Receipt of Pay for

Time Lost and Therefore Railroad Retirement Taxes Must Be Paid on Time-Lost

Awards.

The RRA, which is designed to provide specific

benefits to a specific class of beneficiaries, cannot be

considered as separate from and unconnected to the

RRTA, the statute that levies the taxes which fund

14

those benefits. Rather, these statutes must be seen

as inextricably interconnected, and payments that

are compensation under one must also be treated as

compensation under the other. As the Court explained

in Galveston By Bd. of Trustees v. United States, 22 Cl.

Ct. 600, 610 (Cl. Ct. 1991):

The taxes on employees and carriers under

RRTA . . . are earmarked to fund the

retirement, . . . and disability benefits payable

under the RRA . . . . The statutes that provide

the benefits to railroad employees and the

statutes that provide the supporting taxes are

parts of the same legislative scheme. They are

two sides of the same coin. Although the RRB

administers the employee benefits system,

and the IRS administers tax collections that

support the system, the statutory scheme is

highly integrated.

See also Standard Office Bldg. Corp., 819 F.2d at 1373

(The RRTA imposes “an employment or payroll tax on

both employer and employee, with the proceeds used

to pay pensions and other benefits.”); Florida E. Coast

Ry. Co. v. United States, 470 F.2d 513, 515 (Ct. Cl.

1972) (“The funding of [RRA] benefits . . . is provided

by an employment tax levied equally on the railroad

employers and their employees . . . .”). This close

connection between the two statutes should inform

this Court’s analysis.

The definition of compensation under the RRA is

highly relevant to the tax treatment of time-lost

awards, far more relevant than how such awards are

treated for income tax purposes, or how analogous

payments are treated under FICA. The RRA’s definition of “compensation” includes pay for “time lost,”

including pay for an “absence on account of personal

15

injury.” 45 U.S.C. §231(h)(1) & (2). While the definition

of compensation under the RRTA does not expressly

refer to time-lost payments, 26 U.S.C. §3231(e)(1), the

Treasury Department maintains the position that, as

it does under the RRA, compensation under the RRTA

includes “pay for time lost.” 26 C.F.R. §31.3231(e)1(a)(3)-(4). There is a sound reason for this.

Both eligibility for, and the level of, benefits payable

to a retired railroad employee under the RRA are

based on the employee’s years of service and the

amount of compensation with which the employee is

credited. 20 C.F.R. §211.1; Railroad Retirement

Handbook at 15 (“Benefits are based on earnings

credits and months of service.”). See 45 U.S.C.

§231a(a)(1) (describing eligibility for both retirement

and disability benefits); 45 U.S. C. §231a(b) (describing eligibility for supplemental retirement benefits).

And “[a]ny month or any part of a month during which

an employee performed no active service but received

pay for time lost as an employee is counted as a month

of service,” 20 C.F.R. §210.5(d), and is considered

“creditable compensation.” 20 C.F.R. §211.3(a). Thus,

for the purpose of calculating the benefits for which a

railroad worker will become eligible, payment received

for time lost (including pay received due to a personal

injury) is included in determining both the employee’s

“years of service,” 45 U.S.C. §231(f)(1), and “compensation.” 45 U.S.C. §231(h)(1)&(2); 20 C.F.R. §211.2(b)(2).

As a result, when a FELA award for lost wages is

made, and treated as a payment for time lost under

the RRA, the employee realizes a distinct benefit

because such treatment serves to increase the employee’s years of service and compensation. See Pet. Br. at

11, 26 (Mr. Loos received credit for four months of

service as a result of the time-lost payment received as

16

part of his FELA award). The rationale for this

treatment is that but for the injury which caused the

employee to miss work, he or she would have been

working for the railroad and earning compensation.

The RRB has explained that

[t]he intent behind the pay for time lost

concept is to treat an employee as if he or she

had actually performed compensated services

during an identifiable period of time. The

effect of pay for time lost upon eligibility and

benefits under the RRA [ ] is identical to the

effect of regular earnings for which service

and compensation credit are received.

Pay for Time Lost From Regular Railroad Employment

at 1; see Jacques v. R.R. Retirement Bd., 736 F.2d 34,

39-40 (2d Cir. 1984) (where the plaintiff’s FELA

complaint alleged loss of earnings due to the injury,

the settlement award entered into was considered to

be pay for time lost, resulting in the five months

missed from work being counted as creditable compensation, thereby qualifying the plaintiff for a

disability annuity under the RRA).

Because the employee receives RRA credit for the

time lost, there is no rationale for permitting the

employee to avoid the RRTA tax payment obligation.

Had the employee-FELA claimant been working, he or

she would have been paying railroad retirement taxes,

which the railroad employer would deduct automatically from the employee’s paycheck. As the court in

Liberatore explained:

[u]nder the RRA, a railroad employee receives

an increase in benefits based upon his

‘average monthly compensation.’ That ‘compensation’ includes pay for time lost ‘on

17

account of personal injury.’ Because an

employee’s RRA benefits increase based upon

‘time lost’ pay in a personal injury award, it

follows that the same ‘time lost’ award should

be taxed under RRTA to pay those benefits.

140 A.3d at 29. (citations omitted) (emphasis in the

original). See also Williams, 2018 Ala. Civ. App. 101,

at *31 (agreeing with the rationale of Liberatore).

That is why the non-taxability of personal injury

awards for income tax or FICA tax purposes has

nothing to do with the tax treatment of those awards

under the RRTA. A FELA award for time lost

enhances a railroad worker’s future railroad retirement benefits. In contrast, the receipt of a personal

injury award neither confers an additional governmental benefit funded out of general funds nor

enhances the plaintiff’s Social Security benefits.

[T]he SSA does not explicitly include an

employee’s pay for lost time due to personal

injury when calculating benefits. Therefore, it

follows that for purposes of collecting SSA

taxes, FICA also does not tax an award for

time lost due to personal injury.

Liberatore, 140 A. 3d at 30 (citation omitted).

Unpersuaded, the court below concluded that it

“should not read the RRTA and the RRA in pari

materia and that it is inappropriate to import the

RRA’s definition of ‘compensation’ into the RRTA.” Pet

App. 23a.7 In discounting the close interconnection

7

Similarly, Mickey explained that the RRA’s definition of

compensation is irrelevant because “[t]he RRA and RRTA are

separate statutes that are administered by separate agencies and

serve different purposes,” 437 S.W.3d at 214.

18

between the RRA and RRTA the Eighth Circuit noted

that the “taxes paid by and on behalf of an employee

[under the RRTA] do not necessarily correlate with

the benefits to which the employee may be entitled

under the RRA.” Pet. App. 23a (quoting Hisquardo v.

Hisquardo, 439 U.S. 572, 575 (1979) (internal quotation marks omitted)). That statement misses the

larger point. While there is not necessarily a dollarfor-dollar correlation between the taxes paid and the

benefits received, the taxes paid and hours of service

credited directly enhance the benefits for which the

employee ultimately will become eligible. See Hance v.

Norfolk S. Ry Co., 571 F.3d 511, 523 (6th Cir. 2009)

(when the railroad pays tier I and tier II taxes on an

employee’s back pay award, the employee “will receive

retirement credit for the time periods covered by the

back pay award, putting him in the position he would

have been in had he not been discharged.”); Norton v.

R.R. Retirement Bd., 69 F.3d 282, 283 (8th Cir. 1995)

(“‘time lost’ from active service counts toward an

employee’s total years of service if the employer

compensates the employee for the time lost”).

Recognizing the connection between the benefits

and tax sides of the railroad retirement system, for

more than a half-century the IRS has consistently

maintained the position that the income tax treatment

of personal injury awards under section 104 has no

bearing on the RRTA tax treatment of pay for time

lost. See IRS Rev. Rul. 61-1, 1961-1-C.B. 14, 1961 WL

12630 (1961) (ruling that payment received by a

railroad employee under a settlement agreement for

personal injuries was excluded from gross income for

income tax purposes even though that same amount

was taxable as pay for time lost under RRTA,

explaining that tax treatment of a payment under the

RRTA “is not controlling” for purposes of determining

19

the tax treatment for income tax purposes); IRS

Rev. Rul. 85-97, 1985-2.C.B. 50, 1985 WL 287177

(1985) (reaffirming after the 1975 and 1983 RRTA

amendments that a personal injury settlement was

excludable from gross income, notwithstanding its

treatment as taxable pay for time lost under the

RRTA); See also IRS, Technical Advice Memorandum

8115012, 1980 WL 137627 (1980) (“payments are

excludable from gross income under section 104(a)(2)

of the Code, but constitute compensation for purposes

of RRTA”); IRS, Technical Advice Memorandum

9322001, 1993 WL 187036 (1993) (explaining why

removal of the specific reference to time lost from the

RRTA’s definition of compensation does not mean that

time lost payments are excluded from taxable compensation under the RRTA); See also Pet Br. at 28-33

(explaining the purpose of the deletions of the references to time lost in the definition of compensation

under the RRTA, and why those deletions did not

change the meaning of compensation).

Some courts have reasoned that because wages

(compensation) paid to an employee are a subset of

gross income, if personal injury payments are excluded

from gross income they necessarily cannot be considered compensation. E.g., Cowden, 2014 U.S. Dist.

LEXIS 91454, at *26-27; Mickey, 437 S.W. 3d at 212.

But the statute does not subscribe to that logic.

Personal injury damages is one of a number of items

the Internal Revenue Code expressly excludes from

gross income. The RRTA expressly incorporates some,

but not all, of those exclusions from gross income into

its definition of “compensation,” meaning they are also

20

not considered RRTA compensation.8 If all of the

exclusions from gross income were necessarily excluded

from compensation under the RRTA because compensation is a subset of gross income, there would be no

reason to specifically reference those exclusions in the

RRTA. That Congress did so confirms that it did not

intend to automatically import all of the income tax

code’s exclusions from gross income wholesale into the

RRTA. Indeed, while specifically incorporating many

of the exclusions from gross income, the RRTA does not

incorporate the exclusion of personal injury awards

under §104(a)(2).

* * *

The purpose of the unified railroad retirement

statutory scheme—to provide for and fund retirement

and other benefits for railroad retirees—is undermined if the definitions of compensation under the

RRA and RRTA are decoupled, or if the personal injury

exclusion of 26 U.S.C. §104 is applied to RRTA taxes.

Allowing railroad employees to receive credit for timelost payments that can serve to enhance the benefits

they will receive, or hasten their eligibility for those

8

See, e.g., 26 U.S.C. §3231(e)(5), incorporating exclusions

under 26 U.S.C. §74(c) (employee achievement awards), 26 U.S.C.

§108(f)(4) (amounts received under federal or state student loan

forgiveness programs), 26 U.S.C. 117 (qualified scholarships),

and 26 U.S.C. §132 (fringe benefits); 26 U.S.C. §3231(e)(6),

incorporating exclusion under 26 U.S.C. §127 (employer-provided

educational assistance); 26 U.S.C. §3231(e)(9), incorporating exclusion under 26 U.S.C. §119 (value of meals and lodging furnished

by employer); 26 U.S.C. §3231(e)(10), incorporating exclusion

under 26 U.S.C. §106(b) (medical savings account contributions);

26 U.S.C. §3231(e)(11), incorporating exclusion under 26 U.S.C.

§106(d) (employer contributions to health savings accounts);

26 U.S.C. §3231(e)(12), incorporating exclusions under 26 U.S.C.

§422(b) and §423(b) (qualified stock options).

21

benefits, while exempting those payments from the

very taxes which fund those benefits, is bad policy as

it undermines Congress’ carefully calibrated balance

between benefits and funding. Ultimately, such a

result would mean additional funding will be required

to keep the systems in financial balance. Absent some

clear indication from Congress that it intended that

there be a lack of balance between the calculation of

benefits on the one hand and the funding of those

benefits on the other, the statutes should not be read

to create such an imbalance.

CONCLUSION

For the foregoing reasons the ruling below should be

reversed.

Respectfully submitted,

KATHRYN D. KIRMAYER

DANIEL SAPHIRE

Counsel of Record

ASSOCIATION OF

AMERICAN RAILROADS

425 3rd Street, S.W.

Washington, D.C. 20024

(202) 639-2505

dsaphire@aar.org

Counsel for Amicus Curiae

Association of

American Railroads

July 27, 2018