Petition for Writ of Certiorari — Wisconsin Central Ltd. v. United States, 138 S. Ct. 2067 (2018) (No. 17-530)
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17-530 | ccazsseur
No.
a oncaeid
IN THE
Supreme Court of the United States
WISCONSIN CENTRAL LTD.; GRAND TRUNK WESTERN
RAILROAD COMPANY; AND ILLINOIS CENTRAL
RAILROAD COMPANY,
Petitioners,
Vv.
UNITED STATES OF AMERICA,
Respondent.
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Seventh Circuit
PETITION FOR A WRIT OF CERTIORARI
RICHARD F. RILEY JR. THOMAS H. DUPREE JR.
WILLIAM J. MCKENNA Counsel of Record
JONATHAN W. GARLOUGH RAJITV MOHAN
FOLEY & LARDNER LLP GIBSON, DUNN & CRUTCHER LLP
321 North Clark Street 1050 Connecticut Avenue, NW
Suite 2800 Washington, DC 20036
Chicago, IL 60654-5313 (202) 955-8500
(312) 832-4500 tdupree@gibsondunn.com
Counsel for Petitioners
i
QUESTION PRESENTED
The Railroad Retirement Tax Act, 26 U.S.C.
§ 3231(e)(1), defines taxable “compensation” as “any
form of money remuneration paid to an individual! for
services rendered as an employee.”
Petitioners’ employees obtained stock when they
exercised stock options granted by petitioners. The
Seventh Circuit—agreeing with the Fifth Circuit but
in direct conflict with the Eighth Circuit—held that
stock is “money remuneration” and hence taxable
“compensation.”
The question presented is:
Whether stock that a railroad transfers to its
employees is taxable under the Railroad Retirement
Tax Act, 26 U.S.C. § 3231(e)(1).
il
PARTIES TO THE PROCEEDING
AND RULE 29.6 STATEMENT
The caption contains the names of all the parties
to the proceeding below.
Pursuant to this Court’s Rule 29.6, undersigned
counsel states that petitioners Wisconsin Central
Ltd., Grand Trunk Western Railroad Company, and
Illinois Central Railroad Company are all indirect
wholly-owned subsidiaries of Canadian National
Railway Company, a publicly-traded corporation.
ill
TABLE OF CONTENTS
Page
Re Be ic iicniccesccntctciinnsncnsninsteitnansinnes i
PARTIES TO THE PROCEEDING AND RULE
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pv | FP Te Wl, ty vi
PETITION FOR A WRIT OF CERTIORARI ............. ]
RIED vis csnsecsinnncouniehionidunnsichadianbasbevnmeanneivns 1
ITT inincnnsncccinintninisbdntepiisbaenapatenstacemapesingesdins 1
STATUTORY PROVISION INVOLVED.................... 1
ER ON ee 2
I gs rt oe eapeamectae: snoueees 3
IEE SS Ee IRS taps die een tose 3
a I go iivciccescnidnspascncimcosenpeniesans 7
C. The Decision Below ............... LSE RINSE OnS i)
REASONS FOR GRANTING THE PETITION ....... 11
I. The Circuits Are Split On An Important
Question Of Federal Tax Law...................... 11
A. The Seventh And Fifth Circuits Hold
That Stock Js Taxable Compensation ... 11
B. The Eighth Circuit, In Contrast, Holds
That Stock Is Not Taxable
ns sins dciscedoesnitensnenedsinneanniataie 13
Il. The Court Below Disregarded The RRTA’s
Text, Structure, Purpose And History In
Order To Reach A Result It Thought
Made “Good Practical Sense” ....................... 14
lll. The Question Presented Is Exceptionally
I. ccnnseisienesinimininiiinnsansininneniaeiiiinienes 18
lv
A. Resolving This Important And Recurring
Question Is Necessary To Ensure A
Nationally Uniform Tax Law ................ 19
B. This Case Is The Ideal Vehicle For
Deciding The Question Presented ......... 21
eI it ceeiea taiiicals dsntniinites edemeaiieatiame eases 22
Vv
TABLE OF APPENDICES
APPENDIX A:
Opinion of the United States Court of Appeals
SN I I oc cccsiseat icstsionisianienmaibiaeunt nis la
APPENDIX B:
Order of the United States Court of Appeals for
the Seventh Circuit denying rehearing or
SER EE ee DEE PB ee l4a
APPENDIX C:
Opinion of the District Court..........................sseceees l6a
APPENDIX D:
Excerpted portion of the Railroad Retirement
Tees ae, FD UF TG. & FERIA) cnccnseccwccveseccesesus A3a
vi
TABLE OF AUTHORITIES
Page(s)
Cases
Alton R.R. Co. v. R.R. Ret. Bd.,
16 F. Supp. 955 (D.D.C. 1936).................0.....sese00 6
BNSF Ry. Co. v. United States,
ry Ve wl) Le S| Se 2,12
In re Boyle’s Estate,
37 P.2d 841 (Cal. Ct. App. 1934) ............0000+.0050:. 15
Chevron U.S.A., Inc. v. NRDC,
I I a a 9
Commissioner v. Sunnen,
as Se cri sins Sncacoviaetskcsinitenetioncnniabnia 11, 19
CSX Corp. v. United States,
No. 3:15-cv-427
oo me Oe Ey eae ee 12
Michigan v. EPA,
ls ey SIE CIID a cinnckociincicninsndinncccettneiiacesniee 18
Perrin v. United States,
Re te I inion. syhsacectesiiviniecaubeanendanases st
Sandifer v. U.S. Steel Corp.,
I a 14
Union Pac. R.R. Co. v. United States,
865 F.3d 1045 (8th Cir. 2017).............. 2, 3, 11, 13,
14, 17, 19, 20
vil
United States v. Smith,
756 F.3d 1179 (10th Cir. 2014)....................ses0e0 16
Statutes
Be ei rs Ge Se II ccrticsie rpcesecccidnsnvreenivomeusineiens 5
i Ae IED sinssccséinscsnscsenncavcssgpearsesnetiveadmbannsnteecentie 6
BE ies Oe IE weitere ine epntnieniincdedcooenniingiicisesieaniintaecentnnee 4
Oe ars ee EE venir ticicicssantepesinnnepemersnenssneseih 4
es Ae IIE npc. cnrentennetestventiiclaruntetededubenaviriiaassiidntines 4
26 U.S.C. § 3231 .............. 1, 2, 4, 6, 7, 9, 11, 13, 16, 17
SN as i SII soccinvscscuspadsensquuiatovnindioesenibiinviosbunanine 1
ee ee ee ON ca ceninecstunccisasdtictbateetbriatastnsbeptiuedl 5
eta Oe eee i a aricsinceninucccscicssenvinersinicisetienhs 5
ie Se IS cages sexta reseavedscnnssseosins indeltianaa ate 4
ere Oa ee eta ste nastconigvacsesanuceinauces sidvecutuiomhints 15
Bay Se ee CIEE achive eacdocedndbaceidaidabiviiaesnmnceacseniiouinail 15
Pub. L. No. 400, 74th Cong., Ist Sess.
St es WS Cais ie cavescenscacicnesinpesvegscvees 6
Regulations
se iis Oe SIME puictciccieoncscenseaseecadsobieneseeiienseia 18
2 Fed. Reg. 2198 (Oct. 15, 1937) -...-..cccceesseeeees 15, 18
vill
Other Authorities
BOUVIER’S LAW DICTIONARY (1934) .................
WEBSTER’S NEW INT’L DICTIONARY
Ce Gy SIE pitnncincininncindicsnctsnccsscticsovsenivanses
The Atchison, Topeka and Santa Fe
Pension System, Railway Age
CRs Gh. TIE Dickcocedetadbateeanubeiiadentivavieuenssées
Kevin Whitman, An Overview of the
Railroad Retirement Program, 68
Soc. Sec. Bull. 41 (2008)....................0.0e ee
1 Murray Latimer, /ndustricl Pension
Systems in the United States and
i ee ce ahane
l
PETITION FOR A WRIT OF CERTIORARI
Wisconsin Central Ltd., Grand Trunk Western
Railroad Company, and Illinois Central Railroad
Company respectfully petition for a writ of certiorari
to review the judgment of the United States Court of
Appeals for the Seventh Circuit in this case.
OPINION BELOW
The Seventh Circuit’s opinion (App. la) is
reported at 856 F.3d 490. The Seventh Circuit’s order
denying rehearing or rehearing en banc (App. 14a) is
not reported. The order and opinion of the district
court granting summary judgment (App. 16a) is
reported at 194 F. Supp. 3d 728.
JURISDICTION
The Seventh Circuit entered its judgment on May
8, 2017, and denied petitioners’ timely petition for
rehearing or rehearing en banc on July 12, 2017. This
Court’s jurisdiction is invoked under 28 U.S.C,
§ 1254(1).
STATUTORY PROVISION INVOLVED
The Railroad Retirement Tax Act, 26 U.S.C.
§ 3231(e)(1), provides, in relevant part:
(e) Compensation—For purposes of this
chapter—
(1) The term ‘compensation’ means any
form of money remuneration paid to an
individual for services rendered as an
employee to one or more employers.
Section 3231(e)(1) is reproduced in full at the back
of this brief, App. 43a.
2
INTRODUCTION
The Seventh and Fifth Circuits have split with the
Eighth Circuit on an important question of federal
law: whether stock is taxable “compensation” under
the Railroad Retirement Tax Act (“the RRTA”). The
Seventh and Fifth Circuits hold that stock acquired
through the exercise of nonqualified stock options is
taxable compensation. See App. 4a-5a; BNSF Ry. Co.
v. United States, 775 F.3d 743 (5th Cir. 2015). The
Eighth Circuit, in contrast, holds that it is not taxable
compensation—and has expressly recognized the
circuit split. See Union Pac. R.R. Co. v. United States,
865 F.3d 1045, 1052 (8th Cir. 2017) (acknowledging
that the Seventh Circuit has reached the opposite
conclusion, but stating that “[wle_ respectfully
disagree” and “decline to follow the Seventh Circuit’s
lead”).
The circuits’ disagreement turns on the words
“money remuneration.” Enacted during the Great
Depression, the RRTA imposes a payroll tax on
railroad employers and employees, and defines
taxable “compensation” as “any form of money
remuneration paid to an individual for services
rendered as an employee to one or more employers.”
26 U.S.C. § 3231(e)(1) (emphasis added). One side of
the split holds that “money remuneration” should be
read broadly to encompass stock. In the words of
Judge Posner, writing for the Seventh Circuit,
because “there is no significant economic difference”
between receiving $1,000 in cash and $1,000 worth of
stock, the statute should be interpreted in a way that
“makes good practical sense.” App. 3a-5a.
The other side of the split gives “money
remuneration” its plain-language meaning: cash, or
some other generally recognized medium of exchange,
3
but not stock. As the Eighth Circuit put it, after
reviewing dictionaries and examples of
contemporaneous legal usage, and after examining
the statute’s structure and history, “the ordinary,
common meaning” of “money” is a_ generally
recognized medium of exchange. Union Pacific, 865
F.3d at 1049. “Like any type of property,” the court
explained, “stock does have cash value and can be
exchanged for money, but we do not think it is a
medium of exchange.” /d. at 1052. No one pays for
groceries with stock.
The acknowledged conflict over this important
question of federal tax law has created on untenable
situation in which a railroad in Illinois must pay tens
of millions of dollars in federal taxes based on the
transfer of stock to its employees, whereas a railroad
across the Mississippi River in Missouri does not.
Because most of the nation’s major railroads issue
stock options as a way to incentivize employees, this
is a significant and recurring question that affects not
just the railroads, but thousands of railroad
employees who face millions of dollars in potential tax
liability.
STATEMENT
Petitioners are railroads who filed suit seeking
refunds of taxes they paid when their employees
exercised stock options. The Seventh Circuit rejected
petitioners’ claims, holding that the stock was “money
remuneration”—and hence taxable “compensation”—
under the RRTA.
A. The RRTA
Whereas most employers pay and withhold taxes
under the Federal Insurance Contributions Act
(“FICA”), Congress exempted railroads from FICA
4
and instead made them subject to a railroad-specific
statute—the Railroad Retirement Tax Act, 26 U.S.C.
§§ 3201-3241. Enacted in 1937 during the Great
Depression, the RRTA (named the “Carriers’ Taxing
Act” at the time) imposes a payroll tax on both the
employer and employee, with the proceeds used to pay
retirement and disability benefits under the Railroad
Retirement Act, 45 U.S.C. §§ 231-231v.
The RRTA requires railroads to pay an excise tax
equal to a specified percentage of its employees’
“compensation,” and also to withhold a specified
percentage of that compensation as the employees’
share of the tax. See 26 U.S.C. § 3201(a)-(b) (tax on
railroad employees); id. § 3221(a)-(b) (tax on railroad
employers). The RRTA defines “compensation” as
“any form of money remuneration paid to an
individual for services rendered as an employee to one
or more employers.” /d. § 3231l(e)(1) (emphasis
added).
Congress enacted the RRTA to federalize the
railroads’ pension obligations, which were in jeopardy
given the nation’s severe economic turmoil. See Kevin
Whitman, An Overview of the Railroad Retirement
Program, 68 Soc. Sec. Bull. 41, 41 (2008) (noting that
“more than 80 percent of railroad workers were
employed by companies with existing pension plans,”
but “the Great Depression drove the already unstable
railroad pension system into a state of crisis”).
Because the planned Social Security system would not
cover work performed before 1937, and was not
scheduled to begin paying benefits for years in any
event, Congress elected to create a separate and
distinct system for railroad retirement. Jd. That
approach was consistent with Congress’ historic
practice of enacting railroad-specific statutes
5
reflecting the railroads’ unique role and history in the
life of our nation. !
Congress’s decision to confine the RRTA tax to
“money remuneration” reflects its intent to maintain
the then-existing pension structure of the railroad
industry. At the time, the railroads’ pension plans
were based on an employee’s regular compensation
only—that is, money remuneration (salary and bonus)
rather than in-kind benefits. See 1 Murray Latimer,
Industrial Pension Systems in the United States and
Canada, at 20 (1933) (railroad pensions funded by
percentage of “salaries”); id. at 21 (railroad pensions
measured by “average annual pay”); see also The
Atchison, Topeka and Santa Fe Pension System,
Railway Age, at 15 (Jan. 4, 1907) (explaining that
railroad pensions are calculated with respect to
“average monthly pay”). The nation’s railroads used
this pension structure even though railroads, as far
back as the nineteenth century, had also provided
their employees with stock and other non-monetary
benefits, such as food and lodging. Thus, in enacting
the RRTA, Congress chose to take over the railroads’
obligations while preserving the industry’s familiar
pension structure in which pensions were funded
based on an employee’s salary, rather than the
employee’s receipt of stock or in-kind benefits.
That Congress made a deliberate choice in
restricting “compensation” under the RRTA to “money
remuneration” is further illustrated by the language
it used in FICA, 26 U.S.C. §§ 3101-3128. There are
high-level similarities between the RRTA and FICA.
I Examples include the Federal Employers Liability Act, 45
U.S.C. § 51 et seq., which addresses injuries suffered by railroad
workers, and the Railway Labor Act, 45 U.S.C. § 151 et seq.,
which governs labor relations in the industry.
6
Both impose payroll taxes on employers to ensure the
funding of retirement and disability benefits. But
even granting that the two statutes share a general
purpose, they use very different language in setting
the tax base. As noted above, the RRTA taxes
“compensation,” which it defines as “any form of
money remuneration paid to an individual for services
rendered.” 26 U.S.C. § 3231(e)(1) (emphasis added).
FICA, in contrast, taxes “wages,” which it defines as
“all remuneration for employment, including the cash
value of all remuneration (including benefits) paid in
any medium other than cash.” Jd. §3121(a)
(emphasis added).
The difference in language was not happenstance.
Congress adopted the “money remuneration”
standard used in the RRTA the very same month—
August 1935—that it adopted, as part of the Social
Security Act, the “all remuneration” standard used in
FICA.2 The fact that in a single month, Congress
created two retirement tax-law regimes—but used
different language to describe the tax bases—
underscores that its use of “money remuneration” was
a conscious and purposeful choice. The difference
results from the fact that the RRTA was designed as
a replacement for the existing railroad pension plans
that were based on salary rather than non-monetary
compensation, whereas in FICA Congress was writing
on a blank slate.
2 In August 1925, Congress enacted the “money remuncration”
standard in a version of the RRTA that was soon struck down.
See Pub. L. No. 400, 74th Cong., Ist Sess. § 1(d), 49 Stat. 974
(1935); Alton R.R. Co. v. R.R. Ret. Bd., 16 F. Supp. 955 (D.D.C.
1936). Congress then used the same “money remuneration”
standard in the version of the RRTA it passed in 1937—the
version that stands today.
7
In the decades since its enactment, Congress has
amended the RRTA on numerous occasions. Among
other recent changes, Congress created various
exemptions to RRTA “compensation.” See, e.g., 26
U.S.C. § 3231(e)(4)-(12). But the provision at issue in
this case, the one that establishes the RRTA’s tax
base—“money remuneration”—remains unchanged.
B. Factual Background
The three petitioners—Wisconsin Central Ltd.,
fllinois Central Railroad Company, and Grand Trunk
Western Railroad Company—are subsidiaries of
Canadian National Railway Company (“CN”) with
significant operations in the midwestern United
States and the Mississippi Valley. All are rail carriers
subject to the RRTA. App. 17a.
Petitioners have issued stock options to their
employees since the mid-1990s. SA 10.3 Each option
gave the employee the right to purchase one share of
CN stock at a fixed exercise price—the “strike” price—
equal to CN’s publicly traded stock price as of the date
the option was granted. SA 6. Thus, the value of an
option—unlike the value of a cash salary—depends on
the future performance of the company, as reflected in
its publicly-traded share price. SA 11.
Petitioners issued stock options because stock
options incentivize employees in a way that money
payments do _ not. SA 10-11. Stock options
“encourage| | employees to work harder for the
company, because the better the company does the
more valuable its stock is.” App. 3a. Petitioners
OO a —
3 “SA” citations refer to the jointly-stipulated statement of
facts the parties filed in the district court, which was then
submitted as part of petitioners’ Separate Appendix in the
Seventh Circuit (ECF No. 13).
8
designed their stock option plans to align the
economic interests of their employees with the growth
of the CN business enterprise as a whole, as part of
what it called the Canadian National Railway
Company Management Long-Term Incentive Plan.
SA 10-11.
The stock options generally had a ten-year term,
terminable early if the employee ceased employment
with a CN affiliate. SA 6,11. Most of the options
could be exercised at any time during the ten-year
term, although some could be exercised only if CN
achieved specified financial benchmarks. SA 8-10.
Employees could choose to receive their shares in
different ways. SA 6-7. They could pay cash to cover
the exercise price, tax withholdings and
administrative costs, then have the _ shares
transferred to their personal brokerage account to be
held as a stock investment. SA 7. They could have a
transfer agent sell enough shares to cover the exercise
price, tax withholdings and broker and administrative
costs, then have the remaining shares transferred to
their personal brokerage account to be held as a stock
investment. Jd. Or they could have the shares sold
and the cash proceeds wired to their bank account,
less the exercise price, tax withholdings and broker
and administrative costs. Jd. Regardless of the
method the employees chose, petitioners only
transferred stock—not money—to their employees.
Petitioners issued options to many of their
executives and managers, as well as to some of their
rank-and-file employees. SA 12. Most recipients
chose to hold their stock options for a lengthy period—
on average, more than six years—and even when they
exercised the options, they then held the stock itself
for a lengthy period. /d.
9
Finally, the stock options at issue in this case were
“nonqualified” options. In 2004, Congress amended
the RRTA by adding a provision entitled “|q]ualified
stock options.” See 26 U.S.C. § 3231(e12). The new
language provided that “|t]he term ‘compensation’
shall not include any remuneration on account of a
transfer of a share of stock to any individual pursuant
to an exercise of an incentive stock option (as defined
in section 422(b)) or under an employee stock
purchase plan (as defined in section 423(b)), or any
disposition by the individual of such stock.” /d.
(internal numbering omitted).
C. The Decision Below
In 2014, petitioners filed the instant action
seeking refunds of approximately $13 million in taxes
they had paid or withheld when nonqualified stock
options were exercised between 2006 and 2013. App.
17a-20a. Petitioners claimed both the employer tax
paid by themselves, as well as the amount they
withheld from the employees and paid to the IRS.4
The parties cross-moved for summary judgment
based on a stipulated factual record. App. 17a. The
district court sided with the government, denying the
refunds. The court held that the statute was
ambiguous and that the government’s interpretation
was entitled to deference under Chevron U.S.A., Inc.
v. NRDC, 467 U.S. 837 (1984). App. 37a-38a.
4 There is no dispute that the stock options, upon exercise,
gave rise to taxable income to the employees subject to income
tax withholding. This case presents the distinct question
whether the stock also constitutes “money remuneration” subject
to RRTA withholding. The income taxation of stock is not at
issue in this case.
10
A split panel of the Seventh Circuit affirmed.
Noting that the RRTA was enacted during the Great
Depression, the court admitted that “[mlaybe stock
then wasn’t a form of money remuneration” and thus
would not have been taxable under the original
meaning of the statute. App. 3a-4a. However, the
court reasoned, “there is no reason to think that the
framers and ratifiers of the Act meant money
remuneration to be limited to cash even if, as was
eventually to happen, stock became its practical
equivalent.” App. 4a. In short, the court explained,
“sheep may have once been a form of money; now stock
is.” Id.
The court deemed the Internal Revenue Code of
1939—which it conceded “treats ‘money’ and ‘stock’ as
different concepts”—to be “of limited help here.” App.
4a. Instead, it looked to the provision concerning
qualified stock options, which was enacted in 2004,
nearly 70 years after the RRTA was enacted, as
“signalling]” the “equivalence of stock to cash.” Id.
Finally, the court emphasized that, regardless of the
statutory text, “[t]he government’s position also
makes good practical sense.” Jd.
Judge Manion dissented. He faulted the
majoritys “speculatiion] about the intent of
Depression-era legislators,” explaining that “our job is
to interpret the Act as it would have been understood
by people at the time it was enacted.” App. 6a. “Ifthe
stock options at issue wouldn’t have been money
remuneration in 1935,” he stated, “neither should
they be in 2017.” App. 7a. Analyzing the words
“money remuneration” in light of the meaning they
carried when the statute was enacted, Judge Manion
concluded that “the plain language of the statute’s
11
definition of ‘compensation’ does not cover stock or
stock options.” App. 6a.
Petitioners timely sought rehearing, which was
denied over a dissent by Judge Manion. App. 14a-15a.
REASONS FOR GRANTING THE PETITION
The circuits have split on the question whether
stock is “money remuneration”—and hence taxable
“compensation”—under 26 U.S.C. § 3231(e)(1). The
Eighth Circuit has expressly acknowledged the split,
see Union Pac. R.R. Co. v. United States, 865 F.3d
1045, 1052 (8th Cir. 2017), as has the United States
itself. See U.S. Pet. for Reh’g at 1, 865 F.3d 1045 (No.
16-3574) (“The [Eighth Circuit’s] ruling . . . conflicts
with Wisconsin Central and BNSF, which reached the
opposite conclusion on the same issue.”) (citations
omitted).
This Court should grant review to resolve this
significant and recurring question of federal tax law.
In the balance are millions of dollars in potential tax
liability for railroads and the thousands of their
employees who own employer-issued stock options.
This Court has long underscored the importance of a
nationally uniform tax system. See, e.g.,
Commissioner v. Sunnen, 333 U.S. 591, 599 (1948).
The current state of affairs—in which stock is taxable
in some circuits but not in others—is untenable.
I. The Circuits Are Split On An Important
Question Of Federal Tax Law.
A. The Seventh And Fifth Circuits Hold
That Stock Is Taxable Compensation.
The Seventh Circuit, as discussed above, held that
stock is “money remuneration” within the meaning of
26 U.S.C. §3231(e1). The court reasoned that
12
because stock has become the “practical equivalent” of
money, stock acquired through the exercise of
nonqualified stock options is taxable “compensation”
under the RRTA. App. 4a.
The Fifth Circuit has reached the same
conclusion, although through different reasoning. In
BNSF Railway Co. v. United States, 775 F.3d 743, 757
(5th Cir. 2015), the court held that stock acquired
through the exercise of nonqualified stock options is
“properly taxed as compensation under the RRTA.”
The court deemed the phrase “money reuneration”
to be ambiguous, stating that it “does not appear to us
to have an ordinary, common-sense definition.” Jd. at
751-52. The court acknowledged that “most
dictionaries offer narrow definitions that confine
‘money’ to ‘a medium of exchange,’ and define ‘medium
of exchange’ as ‘anything generally accepted as
payment in a transaction and recognized as a
standard of value.” Jd. at 752 (footnotes omitted).
The court further acknowledged that “the modifier
‘money’ must narrow |the word ‘remuneration’) to
some degree,” and that the RRTA and FICA “use
somewhat different formulations of the word
‘compensation.” /d. at 752, 755-56. But it
nonetheless concluded that Congress had not spoken
clearly and that the government’s interpretation was
entitled to deference under Chevron. Id. at 757.5
° A district court has also adopted the position taken by the
Fifth and Seventh Circuits. In CSX Corp. v. United States, No.
3:15-cv-427 (M.D. Fla. March 14, 2017), the court held that
whereas “the term compensation as used in the RRTA is unclear
in scope,” the government’s interpretation “docs not contradict
the clear intent of Congress.” Jd. at 11-12.
13
B. The Eighth Circuit, In Contrast, Holds
That Stock Is Not Taxable
Compensation.
The Eighth Circuit has expressly rejected the
conclusion reached by the Fifth and Seventh Circuits,
and has held that stock is not “money remuneration,”
and therefore is not taxable compensation under 26
U.S.C. § 3231(e)(1).
In Union Pacific, 865 F.3d at 1053, the Eighth
Circuit held that “the RRTA unambiguously does not
require payment of RRTA taxes on remuneration in
stock.” The court focused on the critical textual
difference between FICA and the RRTA, observing
that “FICA sweeps more broadly than the RRTA: The
FICA expressly mentions the cash value of
remuneration not paid in cash, such as payments in
property, whereas the RRTA does not.” Jd. at 1048.
Looking to dictionaries, as well as to 1930s-era
caselaw and regulations, the court explained that the
word “money” typically meant currency or a generally
accepted medium of exchange. Jd. at 1049.
The court rejected the government’s argument
that “various non-cash exemptions from the general
definition of ‘compensation’ show that ‘money
remuneration’ means something broader than just
mediums of exchange or else the exemptions would be
superfluous.” 865 F.3d at 1050. The court pointed out
that the exemptions post-dated the _ statutory
definition of “money remuneration” by decades. /d. at
1052. Moreover, because each of the exemptions could
include money payments, none of them would become
superfluous even if “money remuneration” was
limited to cash or medium-of-exchange payments. /d.
at 1050.
14
Finally, the Eighth Circuit acknowledged its
disagreement with the Seventh Circuit. “We
recognize that one of our sister circuits recently held
that payments in stock are a form of money
remuneration because stock has becume practically
equivalent to cash,” the court stated, but “[wle
respectfully disagree.” 865 F.3d at 1052. “Even stocks
with readily ascertainable share prices are not
‘money’ because they are not mediums of exchange.”
Id. Thus, the court concluded “we decline to follow the
Seventh Circuit’s lead.” Jd.
II. The Court Below Disregarded The
RRTA’s Text, Structure, Purpose And
History In Order To Reach A Result It
Thought Made “Good Practical Sense.”
The panel majority below did not engage in close
analysis of the statutory text and did not adhere to the
meaning of the words at the time they were written.
Instead, it adopted the outcome it thought made “good
practical sense.” App. 5a. That is not how this Court
reads statutes. To the contrary, this Court has held
that statutory text must be given its plain meaning as
of the time it was written. “It is a fundamental canon
of statutory construction that, unless otherwise
defined, words will be interpreted as taking their
ordinary, contemporary, common meaning.” Sandifer
v. U.S. Steel Corp., 134 S. Ct. 870, 876 (2014)
(quotation marks omitted); see also Perrin v. United
States, 444 U.S. 37, 42 (1979) (“[Wle look to the
ordinary meaning of the [relevant words] at the time
Congress enacted the statute.”).
The plain meaning of “money” is cash, or a
recognized medium of exchange. Investment
property, such as stock or real estate, can be bought
and sold for money, but is not itself money, even when
15
that property has a readily-ascertainable market
value. That was so in 1937—and it remains so today.
Stock is not used as currency or as a medium of
exchange.
That the word “money” in the RRTA excludes
stock is confirmed by dictionaries of the era, as well as
by contemporaneous legal usage. Dictionaries from
the 1930s define “money” as a common and recognized
medium of exchange. See, e.g., WEBSTER’S NEW INT'L
DICTIONARY 1583 (2d ed. 1934) (“money” is “anything
having a conventional use as a medium of exchange”);
BOUVIER’S LAW DICTIONARY 814 (1934) (“money”
includes “coins” and other “common medium|s] of
exchange in a civilized nation”). Likewise, caselaw
from that era establishes that “{t]here is no doubt that
the word ‘money’ when taken in its ordinary and
grammatical sense does not include corporate stocks.”
In re Boyle’s Estate, 37 P.2d 841, 842 (Cal. Ct. App.
1934).
The 1939 version of the Internal Revenue Code—
which contains the codified versions of the RRTA’s
and FICA’s tax provisions—repeatedly distinguishes
between “money” (which has a fixed value) and other
“property” (which has a fluctuating value). See, e.g.,
I.R.C. §§ 111(b), 112(c) (1939). Even the original IRS
regulation implementing the RRTA’s tax provisions
indicated that “money” refers to mediums of
exchange; it defined “compensation” to include “all
remuneration in money, or in something which may
be used in lieu of money (scrip and merchandise
orders, for example).” 2 Fed. Reg. 2198, 2202 (Oct. 15,
1937).
Moreover, the difference between the RRTA and
FICA—“money remuneration” versus “all
remuneration”—highlights the significance of the
16
word “money,” and demonstrates that its inclusion in
the statute was a deliberate choice. “[I]t is axiomatic
that such notable linguistic differences in two
otherwise similar statutes are normally presumed to
convey differences in meaning.” United States v.
Smith, 756 F.3d 1179, 1186 (10th Cir. 2014) (Gorsuch,
J.). Here, the notable linguistic difference shows that
Congress intended to establish a narrower tax base for
the RRTA, and conform the new federal pension
structure to the longstanding salary-based railroad
pension structure, by excluding all forms of
remuneration other than “money.”
The interpretation advanced by the government—
in which anything could be “money,” even a birthday
cake (App. 3a)—has no limiting principle and reads
the word “money” out of the statute. Indeed, the
government urged the court below simply to treat the
word “money” as surplusage and effectively delete it.
See U.S. CA7 Br. at 35 (“the phrase ‘money
remuneration’ is reasonably construed as meaning
merely remuneration”). Although the Seventh Circuit
rejected the government’s interpretation as “goling]
too far,” App. 3a, the court offered no limiting
principle for its own broad reading of “money
remuneration.”
The Seventh Circuit also relied on the list of
exemptions to “compensation,” including’ the
exemption that refers to “|q)]ualified stock options,” 26
U.S.C. §3231(e)(12). In the court’s view, those
exemptions show that “money remuneration” cannot
be limited to cash or medium-of-exchange
remuneration because otherwise the exemptions
would be superfluous. The court’s analysis is
erroneous. The “qualified” stock option provision was
added in 2004, 70 years after Congress enacted the
17
RRTA, so it -annot shed light on the original meaning
of “money remuneration.” As the dissent pointed out,
if the statutory text before 2004 did not make stock
taxable—and it did not—then the mere addition of the
later exceptions would not impliedly repeal the
original meaning of “money remuneration.” App. 10a-
12a; see also Union Pacific, 865 F.3d at 1052 (rejecting
the argument that “these later-adopted exemptions
would impliedly repeal our reading of the original
definition of ‘money remuneration”). Congress would
not dramatically alter tax obligations in such an
indirect, roundabout way. And looking to later
enactments as a way of shedding light on original
meaning only is permissible when the original
meaning is ambiguous, which is not the case here. See
App. 12a.
Moreover, as the Eighth Circuit has explained, all
of the exemptions address situations where cash
payments could be included. For example, with
regard to the qualified stock option exemption, “cash
payments sometimes accompany the exercise of a
stock option, as, for instance, when the number of
shares an employee can acquire at exercise is not a
whole number, or if the remunerative program under
which the option was transferred gives employees
bonuses or additional compensation, in cash or other
property, at the time of exercise.” Union Pacific, 865
F.3d at 1050. So too with the exemption for health
and disability insurance. That exemption excludes
“any payment” made to, or on behalf of, an employee
on account of sickness, accident, or hospitalization or
any related insurance. 26 U.S.C. § 3231(e)(1)()
(emphasis added). Thus, interpreting the words
“money remuneration” as meaning cash or its
equivalent does not render the exemptions
superfluous.
18
The government cannot support its reading by
relying on Treasury Department regulations. The
Department has defined “compensation” for purposes
of the RRTA as having “the same meaning as the term
wages in [FICA] ... except as specifically limited by
the [RRTA].” 26 C.F.R. § 31.3231(e)-1 (emphasis
added). As shown above, the RRTA contains a
“specific{ | limitl|ation]”—-unlike FICA, which applies
to “all” remuneration, the RRTA applies only to
“money” remuneration. Thus, stock is not
“compensation” under the regulation.
Even if the regulation could be read the way the
government claims—as making RRTA
“compensation” and FICA “wages” essentially
identical—it would not be entitled to deference. It
fails Chevron step one because it is contrary to the
unambiguous language of the statute. And it fails
Chevron step two because it is not a permissible
interpretation in any event. See Michigan v. EPA, 135
S. Ct. 2699, 2707 (2015) (even under Chevron,
“agencies must operate within the bounds of
reasonable’ interpretation”) (quotation marks
omitted). The RRTA’s text, structure, purpose and
history all establish that stock is not “money
remuneration”—a conclusion reinforced by the
original IRS regulation that interpreted the phrase for
more than 50 years after the statute was enacted. See
2 Fed. Reg. at 2202.
Ill. The Question Presented Is Exceptionally
Important.
Whether stock is “money remuneration” under the
RRTA is an exceptionally important and recurring
question of federal tax law over which there is an
acknowledged circuit split. Resolving the question
will determine whether the railroads—and the
19
thousands of railroad employees who hold stock
options—are subject to millions of dollars in tax
liability. Absent further review by this Court,
taxpayers in different states will be subject to
different IRS enforcement regimes.
Because the question is squarely presented, and
because the Seventh Circuit’s decision was based on a
jointly-stipulated factual record, this case is the ideal
vehicle for resolving what the United States has
deemed an issue of “exceptional importance.” U.S.
Pet. for Reh’g at 1, 865 F.3d 1045 (No. 16-3574).
A. Resolving This Important And
Recurring Question Is Necessary To
Ensure A Nationally Uniform Tax Law.
This Court has long emphasized the importance of
a nationally uniform tax law and avoiding arbitrary
and disparate treatment in the application of the
Internal Revenue Code. In Sunnen, 333 U.S. at 599,
the Court explained that when one taxpayer “is
accorded a tax treatment different from that given to
other taxpayers of the same class,” the result is
“inequalities in the administration of the revenue
laws, discriminatory distinctions in tax liability, and
a fertile basis for litigious confusion.”
For those reasons, the circuit split over whether
stock is taxable “compensation” under the RRTA
cannot be allowed to stand. Under the current state
of affairs, railroads in the Eighth Circuit (such as
Union Pacific, based in Nebraska) will face no tax
liability under the RRTA when their employees’ stock
options are exercised, whereas railroads in the Fifth
or Seventh Circuits (such as BNSF, based in Texas; or
petitioners, based in Illinois) face millions of dollars in
tax liability for the same transaction.
20
Compounding the confusion and unfairness is the
fact that, separate and apart from the RRTA taxes
paid by the railroad employers, their employees
residing in different circuits will have different tax
liability. Many railroads operate in multiple states
and their employees are scattered throughout the
network. In petitioners’ case, an employee who
resides in Chicago will be required to pay tax when
exercising stock options, whereas an employee who
resides in Minneapolis will not.
Resolution of the question presented will have
broad consequences for railroad employers, their
employees, and the government. Many railroads
issue significant volumes of stock options to their
employees. This case, for example, involves
approximately $13 million in potential tax liability to
petitioners and more than 600 of their employees at
all levels of the company. Indeed, the United States
has deemed this issue “one of exceptional importance”
given “the volume of railroad compensation paid in
stock” and hence the “significant tax revenue” at
issue. U.S. Pet. for Reh’g at 1, 865 F.3d 1045 (No. 16-
3574).
Finally, this case raises important questions
about the method of statutory interpretation used by
the Seventh Circuit. The panel majority
acknowledged that stock was not “money
remuneration” at the time the RRTA was enacted, but
declined to give those words their original meaning at
the time the statute was written. App. 4a. Whether
a court may jettison the original meaning of statutory
text in favor of an interpretation the court believes
“makes good practical sense,” App. 5a, is a serious
question that itself warrants this Court’s review.
21
B. This Case Is The Ideal Vehicle For
Deciding The Question Presented.
This case is a perfect vehicle for resolving the
circuit split over whether stock is “money
remuneration” under the RRTA. Petitioners have
pressed the question presented at all stages of this
case and it was fully briefed by the parties. The
Seventh Circuit squarely decided the question—
indeed, it was the sole issue on appeal and the sole
basis for decision—and the majority opinion and
dissent lay out the competing interpretations of the
statute, as does the lengthy district court opinion. See
App. la-5a, 5a-13a, 16a-42a. The Seventh Circuit
entered a final judgment and there are no further
proceedings to be had in the district court, as
petitioners’ refund request was denied in its entirety.
This case is an ideal vehicle for the additional
reason that the district court and the court of appeals
decided it on a jointly-stipulated set of relevant facts.
See App. 17a. Consequently, the record is clean and
there are no factual disputes that could cloud the legal
issues. Because the factual record is not just fully
developed but undisputed, the legal question is
squarely presented for this Court’s resolution.
22
CONCLUSION
The petition for a writ of certiorari should be
granted.
Respectfully submitted.
RICHARD F. RILEY JR. THOMAS H. DUPREE JR.
WILLIAM J. MCKENNA Counsel of Record
JONATHAN W. GARLOUGH RAJTV MOHAN
FOLEY & LARDNER LLP GIBSON, DUNN & CRUTCHER LLP
321 North Clark Street 1050 Connecticut Avenue, NW
Suite 2800 Washington, DC 20036
Chicago, IL 60654-5313 (202) 955-8500
(312) 832-4500 tdupree@gibsondunn.com
Counsel for Petitioners
October 6, 2017
APPENDIX
la
APPENDIX A
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Nos. 16-3300, -3303, -3304
WISCONSIN CENTRAL LTD.,
ILLINOIS CENTRAL R.R. CO., AND
GRAND TRUNK WESTERN R.R. CO.,
Plaintiffs Appellants,
v.
UNITED STATES OF AMERICA,
Defendant Appellee.
Appeals from the United States District Court for
the Northern District of Illinois, Eastern Division.
Nos. 14 C 10243, 10246, 10244 — Gary Feinerman,
Judge.
ARGUED MARCH 30, 2017 — DECIDED May 8, 2017
Before POSNER, MANION, and HAMILTON, Circuit
Judges.
2a
POSNER, Circuit Judge. Beginning in 1996, the
plaintiff-appellants, subsidiaries of the Canadian
National Railway Company (to simplify we'll refer to ©
the subsidiaries as “the railway”), began including
stock options in the compensation plans of a number
of employees. In this suit against the government, the
railway argues that income from the exercise of stock
options that a railroad gives its employees is not a
form of “money remuneration” to them an! is
therefore not taxable to the railway as compensation
under the Railroad Retirement Tax Act, 26 U.S.C.
§ 3231(e)(1), which defines “compensation” as “any
form of money remuneration paid to an individual for
services rendered as an employee to one or more
employers.” See also BNSF Railway Co. v. United
States, 775 F.3d 743 (5th Cir. 2015).
As explained in Standard Office Building Corp. v.
United States, 819 F.2d 1371, 1373 (7th Cir. 1987),
“the Railroad Retirement Tax Act, passed in 1937, is
to the railroad industry what the Social Security Act
is to other industries: the imposition of an
employment or payroll tax on both the employer and
the employee, with the proceeds used to pay pensions
and other benefits. ... The Act requires the railroad to
pay an excise tax equal to a specified percentage of its
employees’ wages, and also to withhold a specified
percentage of its employees’ wages as their share of
the tax. The railroad retirement tax rates are much
higher than the social security tax rates.”
The question presented by this case is whether the
excise tax should be levied not only on employees’
wages but also on the value of stock options exercised
by employees who, having received the options from
their employer, exercise them when the market price
3a
exceeds the “strike price” (the price at which the
employee has a right to buy the stock) and thus obtain
the stock at a favorable price. The Internal Revenue
Service answers yes, see 26 C.F.R. § 31.323 1(e)-1, and
the district court agreed, precipitating this appeal.
The lawyer for the IRS told us at oral argument
that anything that has a market value is a “form of
money remuneration.” That goes too far; it would
impose a tax liability on an employer who bought an
employee a birthday cake, even though the employee
could do nothing with his cake except eat it or give it
away. But if instead he exercises a stock option, he
now owns stock, and stock has so well-defined a
monetary value in our society that there is no
significant economic difference between receiving a
$1000 salary bonus and a share or shares of stock
having a market value of $1000.
By compensating an employee with stock options
rather than cash the employer encourages the
employee to work harder for the company, because the
better the company does the more valuable its stock
is. The value of a company’s stock is a function of the
company’s profitability, whereas the size of a cash
bonus, once it is given, is unaffected by the company’s
future business successes or failures. Underscoring
the point, we note that the railway’s stock-option
plans are performance-based: they can be exercised
only if the company achieves specified goals.
As the discussion in the preceding paragraphs
implies, the fact that cash and stock are not the same
things doesn’t make a stock-option plan any less a
“form of money remuneration” than cash. Indeed the
railway offers its employees a choice to have an agent
4a
exercise an employee’s stock option, sell the shares of
stock obtained by that exercise of the option, reserve
part of the money received in the sale for taxes and
administrative costs, and deposit the balance in the
employee’s bank account. An employee who uses this
method will thus experience the stock option as a cash
deposit.
Jt’s true that the Railroad Retirement Tax Act, in
which the term “money remuneration” appears, dates
back to 1935, when the nation was mired in the Great
Depression of the 1930s which had driven down the
value of corporate stock. Maybe stock then wasn’t a
form of money remuneration, but there is no reason to
think that the framers and ratifiers of the Act meant
money remuneration to be limited to cash even if, as
was eventually to happen, stock became its practical
equivalent, just as today 100 dimes is the exact
monetary equivalent of a $10 bill. A $10 bill is paper;
so is a stock certificate that can be sold for $10. The
dictionary definition of money may remain constant
while the instruments that comprise it change over
time: sheep may have once been a form of money; now
stock is. The Internal Revenue Code of 1939 is of
limited help here; it treats “money” and “stock” as
different concepts, but that’s not inconsistent with
stock options’ falling within “any form of money
remuneration.”
The equivalence of stock to cash is actually
signaled in the statutory exception for qualified stock
options, explicitly divorced from “money
remuneration” by 26 U.S.C. § 3231(e12). That
exception, by virtue of its narrowness, supports an
inference that non-qualified stock options, which are
the options at issue in this case, are covered by the
5a
term “money remuneration” and are therefore
taxable. There are moreover other statutory
exceptions for other forms of non-cash employee
benefits, and their existence reinforces the inference
that non-qualified stock options are “money
remuneration” and therefore taxable. See, e.g.,
§ 3231(e)(1) (excluding payments for health insurance
or health care and travel expenses); (e)(5) (excluding
non-cash employee achievement awards); (e)(6)
(excluding educational benefits); (e9) (excluding
value of meals and lodging provided to employees);
and (e)(10) & (11) (excluding contributions for medical
and health savings plans).
The government’s position also makes good
practical sense by avoiding the creation of a tax
incentive that might distort the ways in which
employers structure compensation packages for their
managers. And finally we are not alone in equating
non-qualified stock options to money remuneration in
the Railroad Retirement Tax Act. See BNSF Railway
Co. v. United States, supra, 775 F.3d at 757; CSX
Corp., et al. v. United States, No. 3:15-cv-427-BJD-
JRK (M.D. Fla. March 14, 2017).
AFFIRMED.
MANION, Circuit Judge, dissenting. The railroad
plaintiffs have sought a tax refund on the ground that
stock options they provided to their employees aren’t
taxable as “compensation” under the Railroad
Retirement ‘lax Act. Compensation under the Act is
defined as “any form of money remuneration paid to
an individual for services rendered as an employee tc
one or more employers.” 26 U.S.C. § 3231(e)(1). The
railroads argue that stock options aren’t “money
6a
remuneration,” so they are not taxable as
“compensation” under the Act.
The court disagrees. Although it admits that
“[mjaybe stock ... wasn’t a form of money
remuneration” when the RRTA was enacted, the court
posits that “there is no reason to think that the
framers and ratifiers of the Act meant money
remuneration to be limited to cash” in the event of
future economic changes. Maj. Op. at 4. Even if that
were true, our job is to interpret the Act as it would
have been understood by people at the time it was
enacted, not to speculate about the intent of
Depression-era legislators. Because the plain
language of the statute’s definition of “compensation”
does not cover stock or stock options, | respectfully
dissent.
“It is a ‘fundamental canon of _ statutory
construction’ that, ‘unless otherwise defined, words
will be interpreted as taking their ordinary,
contemporary, common meaning.” Sandifer v. U.S.
Steel Corp., 134 8. Ct. 870, 876 (2014) (quoting Perrin
v. United States, 444 U.S. 37, 42 (1979)). “That means
we look to the meaning of the word at the time the
statute was enacted, often by referring to
dictionaries.” Jackson v. Blitt & Gaines, P.C., 833
F.3d 860, 863 (7th Cir. 2016) (citations omitted).
There are some “common law statutes” whose
meaning may evolve over time, such as the Sherman
Antitrust Act. See Leegin Creative Leather Prods.,
Inc. v. PSKS, Inc., 551 U.S. 877, 899 (2007). But
neither party has argued that the RRTA falls into that
category, and the specific contrast Congress drew
between it and the Federal Insurance Contributions
7a
Act (FICA) belies this contention. Thus, we must
interpret the RRTA using normal principles of
statutory interpretation, giving effect to the words
Congress chose. If the stock options at issue wouldn't
have been money remuneration in 1935, neither
should they be in 2017.
As the statute is written, it is clear that “money
remuneration” does not include stock options. For
one, as I alluded to above, “it is well established that
RRTA and FICA are parallel statutes.” BNSF Ry. Co.
v. United States, 775 F.3d 743, 754 (5th Cir. 2015).
But they are not identical; they contain different
definitions of what is taxable. The RRTA subjects to
taxation “compensation,” defined as “any form of
money remuneration paid to an individual for services
rendered as an employee to one or more employers.”
26 U.S.C. § 3231(e)(1) (emphasis added). FICA, on the
other hand, taxes “wages,” which are “all
remuneration for employment, including the cash
value of all remuneration (including benefits) paid in
any medium other than cash.” Jd. § 3121(a) (emphasis
added).
We must give effect to Congress’s distinction
between “money remuneration” and “all
remuneration.” “After all, it is axiomatic that such
notable linguistic differences in two otherwise similar
statutes are normally presumed to convey differences
in meaning.” United States v. Smith, 756 F.3d 1179,
1186 (10th Cir. 2014) (Gorsuch, J.); see also N. Haven
Bd. of Educ. v. Bell, 456 U.S. 512, 530 (1982)
(“|A]lthough two statutes may be similar in language
and objective, we must not fail to give effect to the
differences between them.”). The court’s result
8a
effectively reads this contrast out of the statutes,
rendering the words “money” and “all,” as well as the
two references to “cash” in the FICA definition, mere
surplusage. That is “always a disfavored result in the
business of statutory interpretation.” Smith, 756 F.3d
at 1186. “While it is possible that [these differences
were] inadvertent, that possibility seems remote
given the stark difference that was thereby introduced
into the otherwise similar texts.” United States v.
Ressam, 553 U.S. 272, 277 (2008).
The difference in the statutes reveals that
“money,” when contrasted with “all,” is a word of
limitation. Further, its original meaning would not
have encompassed company stock or stock options.
The contemporary Webster’s Second Dictionary
defined “money” principally as “[mletal, as gold,
silver, or copper, coined, or stamped, and issued by
recognized authority as a medium of exchange.”
Webster’s New International Dictionary of the
English Language 1583 (2d ed. 1934). More generally,
money was “|a]nything customarily used as a medium
of exchange and measure of value, as sheep, wampum,
copper rings, quills of salt or of gold dust, shovel
blades, etc.” ld. Its synonyms were “cash,”
“currency, and “legal tender.” Jd. In other words,
media of exchange issued by a recognized authority.
Simply put (and as the court somewhat
9a
acknowledges), money remuneration meant
remuneration in cash or cash equivalents.!
Furthermore, the Internal Revenue Code of 1939,
which included for the first time the definitions of
“compensation” and “wages” under the RRTA and
FICA, consistently treated money and _ stocks
separately. One example is Section 115, which
governed distributions by corporations. It said that
when a distribution is payable “either (A) in its stock
» The court concedes that “money” isn’t everything with a
monetary value. Maj. Op. at 2-3. The value of this concession is
limited. There is a market for everything, even the birthday cake
that the court points to as the quintessential non-money item.
The only difference between the birthday cake (and personal
property, for that matter) and a share of stock is that the latter’s
value is more easily discoverable (because it’s listed on a public
exchange). But what about stock in a closely-held corporation,
the value of which is not so obvious to the public? The court’s
result requires drawing a distinction on this non-textual basis.
Interpreting the statute as it was originally understood avoids
this problem.
Moreover, although it’s true that the stock options are not
taxed until they are exercised (meaning that the employee
purchases the stock at the strike price), it seems strange to call
a stock option “money remuneration” when its value is so
contingent on future performance. While a share of stock in a
publicly traded company has a well-known value, a stock option’s
value isn’t quite the same thing. If an employee receives an
option to purchase one share of Canadian National stock at $50
per share, but the stock plunges to $40 per share the next day
and remains there during the length of the option, the option
would be worthless. Although it would never be taxed in that
instance, it would also not be of much value to the employee, who
would have preferred “money remuneration.”
10a
or in rights to acquire its stock ... or (B) in money or
any other property (including its stock or in rights to
acquire its stock),” then the distribution shall be
considered a taxable dividend “regardless of the
medium in which paid.” 1939 Code, § 115(f)(2).
Section 115(h)(1) said that such a distribution would
not be considered a “distribution of earnings or profits
of any corporation” if “no gain to such distributee from
the receipt of such stock or securities, property or
money, was recognized by law.” See also Helverling v.
Credit Alliance Corp., 316 U.S. 107, 112 (1942)
(Section 115(h) was inapplicable “because the
distribution here was in property and money and not
in stock or securities” (emphases added)). And Section
1857 defined a safe deposit box as “any vault, safe,
box, or other receptacle, of not more than 40 cubic feet
capacity, used for the safe-keeping or storage of
jewelry, plate, money, specie, bullion, stocks, bonds,
securities, valuable papers of any kind, or other
valuable personal property.” (emphases added).
Examples are plentiful throughout the Code. This
supports the conclusion that the original meaning of
“money did not encompass either stocks or stock
options.’
The court relies on later-enacted statutory
exceptions—principally a 2004 exception for qualified
* Furthermore, the RRTA was enacted during the Great
Depression, when corporate stock would not have been
understood to be as liquid as it is today. Employees in the 1930s
would not have taken it kindly had they been asked to accept
company stock options in lieu of money remuneration. That
lends credence to the conclusion that stock and stock options
were not money remuneration.
lla
stock options added to both the RRTA and FICA—to
draw an inference that “money remuneration” is
broader than its original meaning suggests. However,
“absent a clearly established congressional! intention,
repeals by implication are not favored.” Branch v.
Smith, 538 U.S. 254, 273 (2003) (plurality opinion)
(citations and internal quotation marks omitted).
Implied repeal can occur only: “(1) [w]here provisions
in the two acts are in irreconcilable conflict;” and “(2)
if the later act covers the whole of the subject of the
earlier one and is clearly intended as a substitute.”
Posadas v. National City Bank of N.Y., 296 U.S. 497,
503 (1936).
Neither exception to the presumption against
implied repeal is applicable. First, there is no conflict
between a general definition and an exception that
might cover things the general definition doesn’t
cover. In United States v. Quality Stores. 'nc., 134 S.
Ct. 1395, 1402 (2014), the Supreme Court explained
that, under the broad FICA “wages” definition, a
statutory “command that all severance payments be
treated ‘as if they were wages for income-tax
withholding is in all respects consistent with the
proposition that at least some severance payments are
wages.” After all, “the statement that ‘all men shall
be treated as if they were six feet tall does not imply
that no men are six feet tall.” Jd. (quoting CSX Corp.
v. United States, 518 F.3d 1328, 1342 (Fed. Cir. 2008)).
The converse of this is that an exception might
exclude, for whatever reason, something the general
definition already omits. There might be any number
of explanations for this. Congress might have wanted
to fill a potential gap without revisiting the general]
definition. In any event, there is no conflict between
12a
the general provisions and the exceptions, as both are
consistent with the excepted forms of remuneration
not being “money remuneration.” Moreover, there can
be no serious contention that an exception to a
definitional statute “covers the whole subject” of the
original definition, so the second exception to the
presumption against implied repeal is_ also
inapplicable.
To be sure, “the implication of a later enactment ...
will often change the meaning that would otherwise
be given to an earlier provision that is ambiguous.”
Antonin Scalia & Bryan A. Garner, Reading Law: The
Interpretation of Legal Texts 330 (2012) (emphasis
added). However, the definition of “compensation” in
the RRTA is not ambiguous with respect to the
question presented here. As I have demonstrated, the
original meaning of “money remuneration” was
limited to cash and cash equivalents and did not
include stock or stock options. Because the
definitional statute is unambiguous, the later enacted
exceptions cannot alter its meaning.
In sum, Congress has long treated railroads
differently than other industries. See, e.g., Federal
Employers Liability Act, 45 U.S.C. § 51 et seq.;
Railway Labor Act, 45 U.S.C. § 151 et seg. In the labor
relations context, the Supreme Court has cautioned
that “parallels between the [National Labor Relations
Act] and the [Railway Labor Act] ... should be drawn
with the utmost care and with full awareness of the
differences between the statutory schemes.” Chic. &
N. W. Ry. Co. v. United Transp. Union, 402 U.S. 570,
579 n.11 (1971). For whatever reason, the RRTA is
another example of this. Given the increased liquidity
of corporate stock, it may be long past time to remove
l3a
the word “money” from the definition of compensation
under the RRTA, but we lack the power to do so where
Congress has declined.* Therefore, | would hold that
the non-qualified stock options provided to employees
of these railroads are not taxable as compensation
under the RRTA.
I respectfully dissent.
* I must point out that, although I would hold the non-
qualified stock options non-taxable under the RRTA, the
proceeds from the sale of stock are of course taxable under
generally applicable laws when the employee makes a profit.
From the railroads’ perspective, of course, they would avoid
paying the tax on their end of the transaction.
l4a
APPENDIX B
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
July 12, 2017
Before
RICHARD A. POSNER, Circuit Judge
DANIEL A. MANION, Circuit Judge
DAVID F. HAMILTON, Circuit Judge
No. 16-3300, 16-3303, 16-3304
WISCONSIN Appeals from the
CENTRAL LTD., United States District
ILLINOIS CENTRAL Court for the Northern
R.R. CO., and GRAND District of Illinois,
TRUNK WESTERN Eastern Division.
R.R. CO.,
Nos. 14 C 10243, 10246,
Plaintiffs-Appellants, 10244
U. Gary Feinerman, Judge.
UNITED STATES OF
AMERICA,
Defendant-Appellee.
ORDER
On June 22, 2017, plaintiffs-appellants filed a
petition for rehearing and rehearing en banc. A
15a
majority of the judges on the original panel have voted
to deny the petition and none of the active judges has
requested a vote on whether to rehear the case en
banc.* The petition is therefore DENIED.
* Circuit Judge Daniel A. Manion voted to grant the petition for
rehearing. For the reasons stated in my dissent from the panel
opinion and in the Railroads’ petition for rehearing, I would
grant the petition. In my opinion, the panel’s majority opinion
creates an intra-circuit conflict over the proper method of
statutory interpretation. This case is thus worthy of another
look.
16a
APPENDIX C
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
WISCONSIN CENTRAL LTD.,
Plaintiff, 14.0 10243
vs.
UNITED STATES OF AMERICA, Judge
Gary
Defendant. ae
GRAND TRUNK WESTERN
RAILROAD COMPANY,
Plaintiff, 14 C 10244
Vs. Judge
UNITED STATES OF AMERICA, Gary
Feinerman
Defendant.
ILLINOIS CENTRAL RAILROAD
COMPANY,
Plaintiff, 14 C 10246
Vs. Judge
UNITED STATES OF AMERICA, Gary
Feinerman
Defendant.
17a
MEMORANDUM OPINION AND ORDER
In these consolidated and materially identical
suits, Plaintiffs Wisconsin Central Ltd., Grand Trunk
Western Railroad Company, and Illinois Central
Railroad Company seek refunds for allegedly overpaid
federal employment taxes under the Railroad
Retirement Tax Act (“RRTA”), 26 U.S.C. §§ 3201-
3241. Doc. 1. (Unless indicated otherwise, all docket
numbers refer to Wisconsin Central Lid. v. United
States of America, No. 14 C 10243). The parties filed
cross-motions for summary judgment on a set of
stipulated facts. Docs. 23, 25. Plaintiffs’ motions are
denied and the Government’s motions are granted.
Background
The parties agree that the court should rely on a
jointly submitted set of stipulated facts in deciding the
summary judgment motions. Doc. 22 at 2; see Hayden
ex rel. A.H. v. Greensburg Cmty. Sch. Corp., 743 F.3d
569, 573 (7th Cir. 2014); Hess v. Hartford Life &
Accident Ins. Co., 274 F.3d 456, 461 (7th Cir. 2001);
Mkt. Street Assocs. L.P. v. Frey, 941 F.2d 588, 590 (7th
Cir. 1991). Plaintiffs are rail carriers as defined by
the RRTA, 26 U.S.C. § 3231(g). Doc. 22 at ¥ 6.
Plaintiffs have significant railroad operations in the
Midwest and Mississippi Valley, and are indirect
wholly owned subsidiaries of Canadian National
Railway Company. Id. at {{ 8-9.
This case concerns the tax years 2006 through
2013. Id. at JJ 3, 22. During that time, pursuant to
Canadian National’s Management Long-Term
Incentive Plan and Illinois Central’s Executive
Performance Compensation Program, Plaintiffs
granted options of Canadian National stock to certain
18a
employees. Id. at {4 22, 26(a), 29(c). The options were
“nonqualified” stock options, meaning that they were
not incentive stock options as defined in 26 U.S.C.
§ 422(b) or part of an employee stock purchase plan as
defined in 26 U.S.C. § 423(b), which in turn means
that they were not “qualified stock options” as defined
in the RRTA, 26 U.S.C. § 3231(e)12). Id. at J 22.
Each option gave the employee the right to purchase
one share of Canadian National stock at a fixed price
equal to the stock’s publicly traded price on the date
of the option grant (“exercise price”). Jd. at J 23(a). If
an option was not exercised within a ten-year term, or
possibly earlier if an employee retired or died, it
expired. /d. at {J 23(a), 26(M. (The options of any
employee dismissed for cause or who voluntarily left
Plaintiffs expired immediately. /d. at ¥ 26(f).)
Twenty-seven percent of the options exercised from
2006-2013 were “performance” options, exercisable
only if Canadian National attained certain financial
performance benchmarks in a given year, while the
remaining seventy-three percent were exercisable
without regard to corporate financial performance or
other constraints. Jd. at J 25.
In lieu of the Social Security taxes paid by non-rail
employers and employees under the Federal
Insurance Contributions Act (“FICA”), 26 U.S.C.
§§ 3101 et seq., railroad employers and employees pay
taxes under the RRTA. Doc. 22 at 9 7. Unlike FICA,
the RRTA imposes two tiers of taxes, with Tier 1
providing benefits and taxes in a manner almost
identical to FICA, and Tier I functioning like a
private pension plan, tying its benefits to any
individual employee’s “earnings and career service.”
19a
26 U.S.C. § 3201. Tier 1 taxes are statutorily linked
to FICA:
In addition to other taxes, there is
hereby imposed on the income of each
{rail carrier] 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. For
purposes of the preceding sentence, the
term “applicable percentage” means the
percentage equal to the sum of the rates
of tax in effect under [FICA].
26 U.S.C. § 3201(a). The RRTA_ defines
“compensation” as “any form of money remuneration
paid to an individual for services rendered as an
employee to one or more employers.” 26 U.S.C.
§ 3231(e)1). Much as RRTA tax rates are statutorily
linked to FICA, Treasury Department regulations
define RRTA compensation by reference to FICA,
providing that under the RRTA, “(t]he term
compensation has the same meaning as the term
wages in section 312l(a) [FICA] ... except as
specifically limited by the” RRTA. 26 C.F.R.
§ 31.3231(e)-1. FICA in turn defines “wages” as “all
remuneration for employment, including the cash
value of all remuneration (including benefits) paid in
any medium other than cash,” subject to several
inapplicable exceptions. 26 U.S.C. § 3121(a).
The dispositive issue here is whether the non-
qualified stock options that Plaintiffs awarded to their
employees are a “form of money remuneration” and
thus “compensation” under the RRTA. Doc. 22 at { 2.
20a
In their initial tax payments for the years at issue,
Plaintiffs treated each exercised option as income for
federal income tax purposes and compensation for the
purposes of the RRTA, in the amount by which the
publicly traded share price of Canadian National on
the exercise date exceeded the exercise price for each
option exercised. Jd. at J 23(c). Plaintiffs now believe
that was a mistake. Wisconsin Central seeks refunds
for the 2007-2011 and 2013 tax years in the amount of
$205,327.49, Doc. 1 at J 1; Doc. 22 at J 3; Grand Trunk
Western seeks refunds for the 2006-2012 tax years in
the amount of $515,589.58, Doc. 22 at J 3; Doc. 1 (14
C 10244) at J 1; and Illinois Central seeks refunds for
the 2006-2013 tax years in the amount of
$12,.600,958.82, Doc. 22 at J 3; Doc. 1 (14 C 10246) at
q 1.
Similar suits have been filed in recent years. See
3NSF Ry. Co. v. United States, 775 F.3d 743 (5th Cir.
2015); Union Pac. R.R. Co. v. United States, No. 8:14-
cv-00237, slip op. (D. Neb. Jul. 1, 2016) (reproduced at
Doc. 35-1); CSX Corp. v. United States, No. 3:15-cv-
00427 (M.D. Fla. filed Apr. 3, 2015). In the two
judgments issued thus far, the Fifth Circuit in BNSF
Railway and the District of Nebraska in Union Pacific
both upheld the Treasury Department’s
interpretation of “any form of money remuneration” to
include non-qualified stock options. For the following
reasons, this court reaches the same result.
Discussion
The parties agree that this case is governed by the
framework set forth in Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837,
842-43 (1984). Doc. 24 at 13; Doc. 26 at 10; Doc. 27 at
2la
7; Doc. 28 at 4. Plaintiffs therefore have forfeited, if
not waived, any argument that Skidmore, Auer, or
some other deference regime applies. See G&S
Holdings LLC v. Cont’l Cas. Co., 697 F.3d 534, 538
(7th Cir. 2012) (“We have repeatedly held that a party
waives an argument by failing to make it before the
district court.”); Milligan v. Bd. of Trs. of S. Ill. Univ.,
686 F.3d 378, 386 (7th Cir. 2012) (“[T]he forfeiture
doctrine applies not only to a litigant’s failure to raise
a general argument ... but also to a litigant’s failure to
advance a specific point in support of a general
argument.”); Costello v. Grundon, 651 F.3d 614, 635
(7th Cir. 2011) (“As the moving party, the [defendant]
had the initial burden of identifying the basis for
seeking summary judgment.”); Salas v. Wis. Dep’t of
Corr., 493 F.3d 913, 924 (7th Cir. 2007) (“[A] party
forfeits any argument it fails to raise in a brief
opposing summary judgment.”).
“At Chevron’s first step, [the court] determine|s]—
using ordinary principles of statutory
interpretation—whether Congress has _ directly
spoken to the precise question at issue.” Coyomani-
Cielo v. Holder, 758 F.3d 908, 912 (7th Cir. 2014). If
“Congress has directly spoken to the precise question
at issue ... the court ... must give effect to the
unambiguously expressed intent of Congress,”
Indiana v. EPA, 796 F.3d 803, 811 (7th Cir. 2015)
(quoting Chevron, 467 U.S. at 842-43) (ellipses
original) (internal quotation marks omitted), and end
the inquiry there, see Coyomani-Cielo, 758 F.3d at
912. “If, however, ‘the statute is silent or ambiguous
with respect to the specific issue,” Chevron’s second
step, at which “a reviewing court must defer to the
agency’s interpretation if it is reasonable,” comes into
22a
play. Jndiana v. EPA, 796 F.3d at 811 (quoting
Chevron, 467 U.S. at 843-44). Significantly, “there is
a difference—which may be important in some
Chevron cases—between clear meaning and the best
of several interpretive choices.” Coyomani-Cielo, 758
F.3d at 914. If Congress has not directly spoken to the
issue, it “has left the administrative agency with
discretion to resolve a statutory ambiguity,” and so
the court must defer to an agency’s reasonable
interpretation of the statute. /bid. (internal quotation
marks omitted); see also Indiana v. EPA, 796 F.3d at
811.
I. Chevron Step One
“The cardinal canon of statutory interpretation is
that” a court “look[s] first to the text of the statute.”
United States v. All Funds on Deposit with R.J.
O’Brien & Assocs., 783 F.3d 607, 622 (7th Cir. 2015)
(quoting Conn. Natl Bank v. German, 503 U.S. 249,
253 (1992)). “Statutory construction must begin with
the language employed by Congress and the
assumption that the ordinary meaning of that
language accurately expresses. the legislative
purpose.” Turley v. Gaetz, 625 F.3d 1005, 1008 (7th
Cir. 2010) (quoting Park ‘N Fly, Inc. v. Dollar Park &
Fly, Inc., 469 U.S. 189, 194 (1985)) (internal quotation
marks omitted); see also United States v. Titan Int'l,
Inc., 811 F.3d 950, 952 (7th Cir. 2016). “In the absence
of statutory definitions,” the court “accord[s] words
and phrases their ordinary and natural meaning and
avoid(s] rendering them meaningless, redundant, or
superfluous.” CFTC v. Worth Bullion Grp., Inc., 717
F.3d 545, 550 (7th Cir. 2013) (internal quotation
marks omitted). “Statutory interpretation is guided
not just by a single sentence or sentence fragment, but
23a
by the language of the whole law, and its object and
policy.” Jbid. (internal quotation marks omitted).
“Indeed, statutory interpretation is a_ holistic
endeavor and, at a minimum, must account for the
statute’s full text, language as well as punctuation,
structure, and subject matter.” Trs. of Chi. Truck
Drivers, Helpers & Warehouse Workers Union (Indep.)
Pension Fund v. Leaseway Transp. Corp., 76 F.3d 824,
828 (7th Cir. 1996); see also Estate of Moreland uv.
Dieter, 576 F.3d 691, 699 (7th Cir 2009).
The RRTA does not define the term “any form of
money remuneration.” The question here is whether
that term is limited to money itself—meaning fiat
currency like dollars or pounds, or even virtual
currency like Bitcoin—or whether it also includes
other items of value and, if so, whether those items
include non-qualified stock options.
The Seventh Circuit has held that dictionary
definitions are of only limited use in statutory
interpretation. See Suesz v. Med-I Sols., LLC, 757
F.3d 636, 643 (7th Cir. 2014) (en banc) (“Dictionaries
can be useful in interpreting statutes, but judges and
lawyers must take care not to ‘overread’ what
dictionaries tell us.”) (citing Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756
(2014)) (citation omitted); United States v. Costello,
666 F.3d 1040, 1043-44 (7th Cir. 2012) (“[D]ictionaries
must be used as sources of statutory meaning only
with great caution. ... Dictionary definitions are
acontextual, whereas the meaning of sentences
depends critically on context.”). Still, both parties cite
dictionary definitions to support their competing
readings of the statute. Plaintiffs cite definitions of
“money” as “something generally accepted as a
24a
medium of exchange, a measure of value, or a means
of payment,” or “a current medium of exchange in the
form of coins and banknotes; coins and banknotes
collectively,” and argue that those definitions clearly
exclude property, such as the Canadian National
stock options, “without a fixed pecuniary value, whose
monetary value fluctuates over time ... and which is
not accepted as a medium of exchange or payment.”
Doc. 24 at 17; see “Money,” Merriam-Webster (2016),
https://perma.cc/452T-2GPS; “Money,” Oxford
Dictionaries (2016), https://perma.cc/EZX3-2PJG.
The Government responds by citing the Oxford
English Dictionary, which defines “money” as a
“means of payment considered as representing value
or purchasing power; ... |hJence: property, possessions,
resources, etc., viewed as having exchangeable value
or a value expressible in terms of monetary units,”
and therefore that money does not “always or only
mean ‘cash money.” Doc. 26 at 11 (quoting “Money,”
Oxford English Dictionary (2016),
https://perma.cce/Z5TG-2KKF). Black’s Law
Dictionary provides various definitions, narrow and
broad, including a “medium of exchange authorized or
adopted by a government as part of its currency”;
“{alssets that can be easily converted to cash”; and
“(clapital that is invested or traded as a commodity.”
Black’s Law Dictionary 1096 (9th ed. 2009).
At common law, “money” was defined largely in the
negative, as goods and instruments that were by legal
fiction not subject to the principle of nemo dat qui non
habet, Latin for “he who has not cannot give.” James
Steven Rogers, “Policy Perspectives on Revised U.C.C.
Article 8,” 43 UCLA L. Rev. 1431, 1461-62 (1996).
Because applying that principle strictly would
25a
interfere with the smooth functioning of the economy,
Lord Mansfield held that once a financial instrument
is “treated as money, as cash, in the ordinary course
and transactions of business, by the general consent
of mankind, which gives them the credit and currency
of money to all intents and purposes,” it effectively is
money and is therefore not subject to principles that
applied to non-money property, such as repossession
by a former owner. Miller v. Race (1758) 97 Eng. Rep.
398, 401 (KB); see also Murray v. Lardner, 69 U.S. (2
Wall.) 110, 118-19 (1864) (discussing Miller v. Race);
James Steven Rogers, “The New Old Law of Electronic
Money,” 58 SMU L. Rev. 1253, 1256 (2015) (“Miller
held that Bank of England notes, which were not at
the time formally legal tender, were governed by the
same rules as money itself.”).
As the Fifth Circuit noted in BNSF Railway, these
disparate “definitions of ‘money’ are less than helpful”
in determining the meaning of the statutory term
“any form of money remuneration.” 775 F.3d at 752.
Because Chevron’s first step directs attention to the
“unambiguously expressed intent of Congress,” the
fact that the word “money” has several reasonable
definitions—and that the statute itself provides that
“money remuneration” has multiple “form[s]”—
strongly suggests that the term “any form of money
remuneration” is subject to multiple reasonable
interpretations as well. At the very least, dictionary
and common law definitions do not on their own
provide an unambiguous statutory meaning.
The same holds for the RRTA’s structure; indeed,
if anything, the statutory structure favors the
Government’s reading over Plaintiffs’. The
“commonsense canon of noscitur a sociis ... counsels
26a
that a word is given more precise content by the
neighboring words with which it is associated.”
Worth, 717 F.3d at 550 (quoting United States v.
Williams, 553 U.S. 285, 294 (2008)). Under that
canon, “the fact that several items in a list share an
attribute counsels in favor of interpreting the other
items as possessing that attribute as well.” Jd. at 550-
51 (internal quotation marks omitted). Statutory
language is thus given meaning “with an eye toward
‘the company it keeps.” Jd. at 551 (quoting Gustafson
v. Alloyd Co., Inc., 513 U.S. 561, 575 (1995)). “While
not an inescapable rule, this canon is often wisely
applied where a word is capable of many meanings in
order to avoid the giving of unintended breadth to the
Acts of Congress.” McDonnell v. United States, 136 S.
Ct.__, 2016 WL 3461561, at *13 (U.S. June 27, 2016)
(internal quotation marks omitted).
After defining “compensation” as “any “orm of
money remuneration paid to an individual for services
rendered as an employee to one or more employers,”
§ 3231(e)(1) specifically excludes four forms of
payment from the meaning of “compensation”:
Such term does not include (i) the arnount
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
27a
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, (ii) tips (except as is provided
under paragraph (3)), (iii) an amount paid
specifically—either as an advance, as
reimbursement or allowance—for
traveling or other bona fide and necessary
expenses incurred or reasonably expected
to be incurred in the business of the
employer provided any such payment is
identified by the employer either by a
separate payment or by specifically
indicating the separate amounts where
both wages and expense reimbursement
or allowance are combined in a single
payment, or (iv) any remuneration which
would not (if [FICA] applied to such
remuneration) be treated as wages (as
defined in section 3121(a)) by reason of
section 3121(a)(5).
26 U.S.C. § 3231(e)(1). These exceptions do not apply
here, but the fact that Congress felt it necessary to
include the first exception—which covers employer-
provided health and disability insurance—suggests a
relatively broad scope of the term “money
remuneration.” Congress would have had no need to
carve that exception if it did not consider such
insurance to otherwise be a “form of money
28a
remuneration.” See United States v. Quality Stores,
Inc., 134 S. Ct. 1395, 1400 (2014) (holding that an
express “exemption” for severance payments in FICA
“would be unnecessary were severance payments in
general not within FICA’s definition of ‘wages.”). Yet
employer-provided insurance is not a medium of
exchange or a means of payment, and thus falls
outside the narrow’ definition of “money
remuneration” urged by Plaintiffs. “The specificity of
th{is] exemption||” thus “reinforces the broad nature
of” the RRTA’s definition of “money remuneration.”
Ibid.; see also Univ. of Chi. v. United States, 547 F.3d
773, 775 (7th Cir. 2008) (noting that that the FICA
term “wages’ ... is broadly defined but followed by
specific exceptions”).
Section 3231(e)(12) contains an _ additional
exclusion for qualified stock options from the
definition of “compensation.” See 26 U.S.C.
§ 3231(e)(12). Like health and accident disability
insurance, a qualified stock option is neither a
medium of exchange nor commonly understood as
synonymous with “cash money.” It follows that
interpreting “any form of money remuneration” to be
limited to fiat or virtual currency, as Plaintiffs urge,
would improperly render the exclusion of qualified
stock options ‘meaningless, redundant, or
superfluous.” Werth 717 F.3d at 550 (internal
quotation marks umitted); see also In re Sw. Airlines
Voucher Litig., 799 F.3d 701, 710 (7th Cir. 2015) (“The
canon against surplusage is strongest when an
interpretation would render superfluous another part
of the same statutory scheme.”) (quoting Marx v. Gen.
Revenue Corp., 133 S. Ct. 1166, 1178 (2013)) (internal
quotation marks omitted); River Rd. Hotel Partners,
29a
LLC v. Amalgamated Bank, 651 F.3d 642, 651 (7th
Cir. 2011) (“In general, canons of statutory
construction urge courts to interpret statutes in ways
that make every part of the statute meaningful.
Interpretations that result in provisions being
superfluous are highly disfavored.”) (citing TRW Inc.
v. Andrews, 534 U.S. 19, 31 (2001)) (citation omitted).
Moreover, “where Congress explicitly enumerates
certain exceptions to a general prohibition, additional
exceptions are not to be implied in the absence of
evidence of a contrary legislative intent.” United
States v. France, 782 F.3d 820, 825 (7th Cir. 2015)
(quoting Andrus v. Glover Constr. Co., 446 U.S. 608,
616-17 (1980)), vacated on other grounds, 136 S. Ct.
582 (2015). Thus, the explicit exclusion of qualified
stock options strongly suggests not only that the term
“any form of money remuneration” includes stock
options in general, but also that only qualified stock
options and not non-qualified stock options are to be
excluded.
Plaintiffs contend that construing “any form of
money remuneration” to refer to anything other than
cash money would render the term “money”
superfluous. Doc. 24 at 15. The Government responds
that understanding the term to refer only to cash
money would improperly read “any form of” out of the
statute, and that the words “any form of” would
themselves be unnecessary if “money remuneration”
referred only to actual cash. Doc. 26 at 11. Plaintiffs
retort that “any form of” refers to different forms by
which Plaintiffs may convey money to their
employees, including hourly wages, overtime pay, per-
mile or piecework pay, weekly or monthly salaries,
bonuses, or commissions. Doc. 27 at 11. The court
30a
need not resolve this dispute, because both positions
are plausible—providing further support for the
notion that the statutory meaning is not clear. See
Coyomani-Cielo, 758 F.3d at 912-13 (holding that a
statute is ambiguous for Chevron purposes when
“neither [party’s] interpretation is obviously required
by the statute and both interpretations arguably read
words out of the statute”).
Considering the RRTA’s subject matter likewise
does not point decisively in favor of Plaintiffs’
interpretation. “|Dlifferent acts which address the
same subject matter, which is to say are in pari
materia, should be read together such that the
ambiguities in one may be resolved by reference to the
other.” Firstar Bank, N.A. v. Faul, 253 F.3d 982, 990
(7th Cir. 2001); see also United States v. Sanders, 708
F.3d 976, 993 (7th Cir. 2013) (noting that “another
‘longstanding’ canon of statutory interpretation is
‘construing statutes in pari materia”) (quoting
Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S.
437, 445 (1987)). Often, the “tricky issue when
applying this canon is determining when different
statutes should be regarded as addressing the same
topic,” Firstar Bank, 253 F.3d at 990, but the Seventh
Circuit has expressly noted that the “Railroad
Retirement Tax Act ... is to the railroad industry what
the Social Security Act is to other industries: the
imposition of an employment or payroll tax on both
the employer and the employee, with the proceeds
used to pay pensions and other benefits.” Std. Office
Bldg. Corp. v. United States, 819 F.2d 1371, 1373 (7th
Cir. 1987); see also Herzog Transit Servs., Inc. v. U.S.
R.R. Ret. Bd., 624 F.3d 467, 471 (7th Cir. 2010)
(“Employers and employees subject to the [the
3la
railroad] Acts must pay a payroll tax akin to the social
security tax requirement of other employers and
employees. These taxes [are] established by the
Railroad Retirement Tax Act.”). Other circuits have
reached the same conclusion. See BNSF Ry., 775 F.3d
at 749-50, 754 & n.81 (citing Standard Office
Building, 819 F.2d at 1373, collecting cases, and
noting that “it is well-established that the RRTA and
FICA are parallel statutes, and courts often look to
FICA when interpreting the RRTA”); N.D. State Univ.
v. United States, 255 F.3d 599, 604 (8th Cir. 2001)
(calling the RRTA “the equivalent of FICA for railroad
employees”); Mont. Rail Link, Inc. v. United States, 76
F.3d 991, 993 (9th Cir. 1996) (“The RRTA serves as
the functional equivalent of the Social Security Act for
railroad employers.”); Chi. Milwaukee Corp. v. United
States, 40 F.3d 373, 374 (Fed. Cir. 1994) (““RRTA tax
is similar to the tax imposed by the Federal Insurance
Contributions Act.”).
Plaintiffs respond that the “conceptual similarity
between the Social Security and Railroad Retirement
systems, important as it is in many contexts, does not
assist in the resolution of the instant case that turns
on enforcement of specific statutory language in the
RRTA.” Doc. 27 at 8-9. But that is precisely the point
of the in pari materia canon: “statutes addressing the
same subject matter generally should be read as if
they were one law,” with the traditional tools of
statutory interpretation applied accordingly.
Wachovia Bank v. Schmidt, 546 U.S. 303, 316 (2006)
(emphasis added). Thus, although FICA does not by
completely define the RRTA’s various contours,
examining the former to elucidate related provisions
of the latter is an acceptable mode of statutory
32a
interpretation given the close linkages between the
statutes.
As noted, FICA defines “wages” as “all
remuneration for employment, including the cash
value of all remuneration (including benefits) paid in
any medium other than cash,” subject to several
exceptions. 26 U.S.C. § 3121(a). That is broad
language, and the Supreme Court recently reiterated
“the term ‘wages’ in the Social Security statutory
context to have substantial breadth.” Quality Stores,
134 S. Ct. at 1400; see also Mayo Found. for Med.
Educ. & Research v. United States, 562 U.S. 44, 48
(2011) (noting that “Congress has defined ‘wages’
broadly” under FICA). Applying the in pari materia
canon supports the proposition that just as courts
construe FICA “wages” broadly, so, too, should they
broadly construe RRTA “compensation.”
Plaintiffs contend that because, “taking Tier 1 and
Tier 2 taxes together,” RRTA tax rates significantly
exceed FICA tax rates, “it is completely
understandable that Congress would be more
comfortable with a more restricted [RRTA] tax base ...
to help moderate the higher overall tax.” Doc. 27 at 9
n.l. This argument fails for two reasons. First,
Congress itself sets the tax rates. If Congress wanted
to ensure a roughly equal tax burden for employers
and employees in railroad and non-railroad jobs,
“there was a much simpler, clearer, and more direct
way for Congress to convey” that: by imposing equal
tax rates, not by employing ambiguous statutory
language that leaves open to reasonable debate the
RRTA tax base. Coyomani-Cielo, 758 F.3d at 913.
Second, given that only RRTA Tier 1 “provides
benefits and taxes in a manner almost identical to
33a
FICA,” BNSF Ry., 775 F.3d at 750, Plaintiffs’
inclusion of the RRTA Tier 2 taxes in their calculation
results in a comparison of apples to oranges.
To be clear, the in pari materia canon does not
establish that the term ‘any form of money
remuneration” unambiguously encompasses the non-
qualified stock options at issue here. As _ the
Government acknowledges, Doc. 26 at 16, the RRTA
and FICA, in pari materia or not, are not identical.
They do use distinct terms to refer to the funds that
provide the basis for their employer and employee
taxes, and “the choice of substantially different words
to address analogous issues signifies a different
approach.” Taracorp, Inc. v. NL Indus., Inc., 73 F.3d
738, 744 (7th Cir. 1996). It therefore may be, as
Plaintiffs argue, that the different phrasing “is one of
the key differences” between the RRTA and FICA and
their respective retirement tax systems. Doc. 27 at 7
(emphasis omitted). Yet this also does not provide for
Chevron purposes an unambiguous meaning of the
term. Rather, as with the contrasting dictionary
definitions, the very fact that applying different
canons, or even the same canon, can support different
outcomes refutes the notion that Congress’s
“unambiguously expressed intent” aligns with
Plaintiffs’ interpretation of the term. See Nat'l Ass’n
of Home Builders v. Defenders of Wildlife, 551 U.S.
644, 666 (2007) (holding that a statute did “not itself
provide clear guidance” under Chevron because
reading the statute’s words in context dictated a
different result than reading them “in light of the
canon against implied repeals”); Coyomani-Cielo, 758
F.3d at 913 (“In light of the foregoing analysis—which
suggests some confusion, potential contradictions,
34a
and a much clearer way to make the point that
Congress may have been trying to make—we cannot
say that [the statute] is ‘clear’ at Chevron’s first
step.”); Arobelidze v. Holder, 653 F.3d 513, 518-19 (7th
Cir. 2011) (“When, as here, there are two plausible but
different interpretations of statutory language, there
is ambiguity.”) (internal quotation marks omitted).
Plaintiffs contend that the absence of a statutory
definition for “money” in the RRTA and the Internal
Revenue Code (“IRC”) implies that the word must
have “a commonly understood meaning outside the
context of the Internal Revenue Code, and that its
common definition and usage should _ apply
throughout the Code, in the absence of any specific
modification for a particular provision.” Doc. 24 at 15-
16. That argument elides the crucial issue. True
enough, “[i]n evaluating statutory language, a court ...
‘sivies] the words used their ordinary meaning.”
Lewis v. Epic Sys. Corp., __ F.3d __, 2016 WL
3029464, at *2 (7th Cir. May 26, 2016) (quoting
Lawson v. FMR LLC, 134 S. Ct. 1158, 1165 (2014))
(alteration in original); see also Sebelius v. Cloer, 133
S. Ct. 1886, 1893 (2013) (“[U]nless otherwise defined,
statutory terms are _ generally interpreted in
accordance with their ordinary meaning.”) (internal
quotation marks omitted). But as demonstrated
above, the “ordinary understanding” of “any form of
money remuneration” in the context of the RRTA is
elusive. Moreover, although Plaintiffs cite several
unrelated IRC provisions that appear to refer to
“money” as a type of property, Doc. 24 at 16, 22; Doc.
27 at 12-13, the IRC definitional section, 26 U.S.C.
§ 7701, does not define the term, and nor does the IRC
elsewhere refer to “money remuneration.” Doc. 28 at
35a
7. More important, none of the IRC provisions cited
by Plaintiffs define the boundaries of the money
subtype of property, and so regardless of whether
those provisions could be useful in interpreting the
RRTA, they do not provide a clear definition for “any
form of money remuneration.” See 26 U.S.C. §§ 118(c)
(“money or other property”), 317(a) (“property”
includes “money, securities, and any other property”),
461(f) (“money or other property”), 465(b)(1)(A) (“the
amount of money and the adjusted basis of other
property contributed by the taxpayer to the activity”),
1038(b) (“money and the fair market value of other
property”).
Plaintiffs also argue that the “common
understanding” of money is that it “has a constant
amount or denomination representing a_ specific
stored value that can be applied to a future
transaction.” Doc. 24 at 16. They contrast this with
non-money property, which “has no fixed value but is
susceptible to varying valuations over time and
subjectively in the hands of different holders.” J/did.
That distinction lacks a statutory basis, as shown
above, and it also fails as a matter of internal logic.
Money, even assuming it is limited to fiat currency, is
itself subject to varying valuations over time, through
cycles of inflation or deflation or its fluctuation
relative to foreign currencies. Monetary transactions
are by their nature bilateral. For example, when a
table—or a stock option—experiences a change in
value, money does as well: if a formerly $100 table
now costs $200, then $200, which was formerly valued
at two tables, is now valued at one.
Or consider that, at the close of business on June
23, 2016, one British pound was worth $1.49, while
36a
the following day, after the Brexit vote, one pound was
worth $1.37. See “Historical Rates for the GBP/USD
Currency Conversion on 23 June 2016,”
PoundSterling Live (2016), https://perma.cc/ED2R-
LAER; “Historical Rates for the GBP/USD Currency
Conversion on 24 June 2016,” PoundSterling Live
(2016), https://perma.cc/K478-3PKU. In other words,
on June 23, one dollar was valued at £0.67; the
following day, it was valued at £0.73. The dollar’s
“specific stored value” had changed in all ways other
than the number printed the banknote or coin—which
is to say, it had changed in all ways meaningful to the
bearer, or to the employee receiving it as
compensation. This is at the very least similar to the
value of a stock option: it may fluctuate in value prior
to exercise, but at the time of exercise it has a fixed
monetary value, which provides the base on which
Plaintiffs allegedly overpaid RRTA taxes.
To that point, it bears noting that railroads around
the country, including Plaintiffs, until recently held
the view that the non-qualified stock options were
“money remuneration” under the RRTA and
accordingly paid RRTA tax on them. Doc. 22 at 4
23(c); BNSF Railway, 775 F.3d at 746-47; Complaint
at [J 2, 24, CSX Corp., No. 3:15-cv-00427 (M.D. Fla.);
Complaint at [J 2, 17, Union Pac. R.R. Co., No. 8:14-
cv-00237 (D. Neb.). The fact that highly interested
parties with undoubtedly sophisticated tax counsel
held this view against their own interests confirms,
though no further confirmation is necessary, that, at
a minimum, the statute is ambiguous.
Finally, Plaintiffs contend that the history of the
Economic Growth Act of 1992, S. 2217 102d Cong.
(1992), an ultimately unadopted amendment to the
37a
RRTA, provides support for their position that “any
form of money remuneration” refers unambiguously
to cash money. Doc. 27 at 10. In the Seventh Circuit,
however, legislative history is not considered until the
second step of the Chevron analysis. See Coyomani-
Cielo, 758 F.3d at 914 (“[W]e realize that some of our
sister circuits consider legislative history at [Chevron
step one], but we prefer to save that inquiry for
Chevron’s second step.”) (citation omitted); Emergency
Servs. Billing Corp., Inc. v. Allstate Ins. Co., 668 F.3d
459, 465 (7th Cir. 2012) (“In this Circuit, we seem to
lean toward reserving consideration of legislative
history and other appropriate factors until the second
Chevron step.”) (internal quotation marks omitted).
To summarize, the meaning of “any form of money
remuneration” in 26 U.S.C. § 3231(e)(1) is not clear
and unambiguous under Chevron.
Il. Chevron Step Two
“At the second stage of the Chevron analysis, [the
court] determine|s}] whether the agency’s
interpretation is reasonable.” Coyomani-Cielo, 758
F.3d at 914. The court’s “review at this stage is
deferential; [the court] will uphold the agency’s
interpretation so long as it is ‘a permissible
construction of the statute.” Jbid. (quoting Chevron,
467 U.S. at 843). “If that [agency] interpretation is
reasonable, it must be followed, regardless of whether
or not the reviewing court would have come to the
same conclusion.” Emergency Servs. Billing, 668 F.3d
at 466 (citing Chevron, 467 U.S. at 843 n.11).
The Treasury Department has the “general
authority under 26 U.S.C. § 7805(a) to ‘prescribe all
needful rules and regulations for the enforcement’ of
38a
the Internal Revenue Code.” Mayo Found., 562 U.S.
at 56. Treasury Regulation § 31.3231(e)-(1) provides
that under the RRTA, “|t]he term compensation has
the same meaning as the term wages in section
3121(a) [FICA] ... except as specifically limited by the”
RRTA. 26 C.F.R. § 31.38231(e)-1. As noted, § 3121
defines “wages” as “all remuneration for employment,
including the cash value of all remuneration
(including benefits) paid in any medium other than
cash.” 26 U.S.C. § 3121(a). The Treasury’s
interpretation of the statute is reasonable. As
discussed at length above, the term “any form of
money remuneration” in the RRTA is susceptible to a
broad reading analogous to that of “wages” in FICA.
The structure of the RRTA, particularly the specific
exclusions in 26 U.S.C. § 3231(e)(1) & (12), supports
(but does not necessarily compel) a_ broad
interpretation, as does the close relationship of the
RRTA with FICA. And recent Supreme Court
decisions emphasize and reaffirm the broad reading of
FICA’s definition of “wages.” See Quality Stores, 134
S. Ct. at 1399-1400; Mayo Found., 562 U.S. at 48.
Common sense also supports the reasonableness of
Treasury's interpretation. Stock options are financial
instruments. Unlike a car or home, they have very
little, if any, intrinsic value to their holders beyond
their monetary value. They are readily and regularly
convertible into cash, distinguishing them from most
non-money property. Although Plaintiffs accurately
note that “[ajny property, cash or non-cash, has a
monetary value that can be estimated at any given
point,” Doc. 27 at 14 n.5, stock options, unlike many
forms of non-money property, exist almost exclusively
to be converted into cash. Further, the fact that
39a
reading “any form of money remuneration” to include
non-qualified stock options eliminates the possibility
that railroads could structure their compensation
packages in such a way as to substantially reduce
their RRTA tax burden provides further justification
for finding that Treasury’s interpretation is
reasonable and permissible.
The legislative history cited by Plaintiffs does not
render Treasury’s reading unreasonable. The
Economic Growth Act of 1992 was a bill that proposed
to “conform the definition of compensation under the
Railroad Retirement Act to that under the Federal
Insurance Contributions Act.” S. 2217 102d Cong. tit.
XLI (1992). The bill did not progress beyond the
Finance Committee and was not subject to a vote. See
“S.2217 — Economic Growth Act of 1992,”
Congress.gov (2016), https://perma.cc/ZG2K-ZFVK.
Plaintiffs contend that the bill’s failure indicates that
Congress “did not intend for the RRTA to be
interpreted coextensively with FICA” and that if the
Government's “interpretation of the RRTA were
correct, this proposed amendment would have been
unnecessary.” Doc. 27 at 10.
As the Government correctly observes, however,
“congressional inaction lacks persuasive significance
because several equally tenable inferences may be
drawn from such inaction, including the inference
that the existing legislation already incorporated the
offered change.” !/nited States v. Craft, 535 U.S. 274,
287 (2002) (internal quotation marks omitted); see
also Lawson, 134 S. Ct. at 1173 n.16 (“Failed
legislative proposals are a particularly dangerous
ground on which to rest an interpretation of a prior
statute.”) (internal quotation marks omitted).
40a
Further, “(t]he views of a subsequent Congress form a
hazardous basis for inferring the intent of an earlier
one.” Paramount Health Sys., Inc. v. Wright, 138 F.3d
706, 710 (7th Cir. 1998) (quoting United States v.
Phila. Nat'l Bank, 374 U.S. 321, 348-49 (1963)). The
Economic Growth Act of 1992 was proposed fifty-
seven years after the term “any form of money
remuneration” was first incorporated into RRTA. See
49 Stat. 974 § 1(d) (1935); BNSF Ry., 775 F.3d at 755
& nn. 88-91 (reviewing the RRTA’s legislative
history). Its mere existence as an unenacted
legislative proposal is certainly not enough to
overcome the deference owed to Treasury’s
interpretation of the RRTA.
Plaintiffs retort that even if Treasury’s
interpretation of the RRTA is reasonable, the
particular non-qualified stock options at issue here
are not compensation under the RRTA because the
phrase “money remuneration” is a “specific
limit[ation]” in the RRTA that distinguishes RRTA
compensation from FICA wages, 26 C.F.R. §
31.3231(e)-1. Doc. 24 at 18-20; Doc. 27 at 14-17. But
Treasury does oot interpret that phrase as a specific
limitation, and its interpretation is reasonable. As
discussed above, 26 U.S.C. § 3231 contains several
enumerated exclusions, including one for qualified
stock options, § 3231(e)(12). Plaintiffs protest that
this “rifle shot’ option exclusion[{]” was “designed to
resolve specific treatment of those types of options, not
others.” Doc. 27 at 16 & n.6. That may be right as a
historical matter, but it does not follow that
Treasurys interpretation is unreasonable, and
Plaintiffs err in seeking comfort from the Supreme
Court’s observation that “the statement that all men
4la
shall be treated as if they were six feet tall does not
imply that no men are six feet tall.” Jd. at 16 (quoting
Quality Stores, 134 S. Ct. at 1402). A more
appropriate analogy would be a statute that explicitly
excludes men who were six feet tall; an agency
interpretation that the statute did not exclude men
who were 6’1” would be reasonable.
Plaintiffs make two additional arguments. First,
they contend that the Government’s position that non-
qualified stock options are “money remuneration” is
an impermissible “post hoc rationalization” that the
IRS had never offered until this case and others like
it were filed. Doc. 24 at 19. But that interpretation
certainly cannot be a post-hoc rationalization when
the need to apply it had not presented itself before, in
large part because Plaintiffs and other railroads
themselves believed that the stock options fell within
the RRTA’s compensation provision and paid taxes in
accordance with that belief.
Second, Plaintiffs and the Government dispute the
relevance of IRS Revenue Ruling 69-391, 1969-2 C.B.
191, which held that railroad-furnished housing for
certain foremen that had a fixed value was taxable
compensation under the RRTA. While Plaintiffs’
reliance on this ruling has several weaknesses,
including that it does not deal with stock options and
was issued by the IRS rather than the Treasury
Department, the biggest problem is that, under
Seventh Circuit precedent, IRS revenue rulings are
“entitled to respectful consideration, but not to the
deference that the Chevron doctrine requires in its
domain.” First Chi. NBD Corp. v. Comm’r, 135 F.3d
457, 459 (7th Cir. 1998) (citations omitted); see also
Wetzler v. Ili. CPA Soc’y & Found. Ret. Inc. Plan, 586
42a
F.3d 1053, 1058 (7th Cir. 2009) (“Revenue rulings are
not binding on this Court and we give them the lowest
degree of deference[,] which equates to some deference
or respectful consideration.”) (internal quotation
marks omitted). By contrast, Treasury’s
interpretation “is given ‘controlling weight unless it is
plainly erroneous or inconsistent with the regulation”
or statute. United States ex rel. Garbe v. Kmart Corp..,
__ F.3d __., 2016 WL 3031099, at *9 (7th Cir. May
27, 2016) (quoting Thomas Jefferson Univ. v. Shalala,
512 U.S. 504, 512 (1994)). Treasury’s interpretation
is not plainly erroneous or inconsistent with the
regulation, and so it controls here.
Conclusion
Plaintiffs’ summary judgment motions are denied,
and the Government’s motions are granted.
Judgment in these consolidated cases will be entered
in favor of the Government and against Plaintiffs.
July 8, 2016 /s/ Gary Feinerman
United States District Judge
43a
APPENDIX D
26 U.S.C. § 3231 (e)
(e) Compensation
For purposes of this chapter—
(1) The term “compensation” means any form of
money remuneration paid to an individual for services
rendered as an employee to one or more employers.
Such term does not include (i) the 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, (ii) tips
(except as is provided under paragraph (3)), (iii) an
amount paid specifically—either as an advance, as
reimbursement or allowance—for traveling or other
bona fide and necessary expenses incurred or
reasonably expected to be incurred in the business of
the employer provided any such payment is identified
by the employer either by a separate payment or by
44a
specifically indicating the separate amounts where
both wages and expense reimbursement or allowance
are combined in a single payment, or (iv) 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).
Such term does not include remuneration for service
which is performed by a nonresident alien individual
for the period he is temporarily present in the United
States as a nonimmigrant under subparagraph (PF),
(J), (M), or (Q) of section 101(a)(15) of the Immigration
and Nationality Act, as amended, and which is
performed to carry out the purpose specified in
subparagraph (F), (J), (M), or (Q), as the case may be.
For the purpose of determining the amount of taxes
under sections 3201 and 3221, compensation earned
in the service of a local lodge or division of a railway-
labor-organization employer shall be disregarded with
respect to any calendar month if the amount thereof
is less than $25. Compensation for service as a
delegate to a national or international convention of a
railway labor organization defined as an “employer”
in subsection (a) of this section shall be disregarded
for purposes of determining the amount of taxes due
pursuant to this chapter if the individual rendering
such service has not previously rendered service,
other than as such a delegate, which may be included
in his “years of service” for purposes of the Railroad
Retirement Act. Nothing in the _ regulations
prescribed for purposes of chapter 24 (relating to wage
withholding) which provides an exclusion from
“wages” as used in such chapter shall be construed to
require a similar exclusion from “compensation” in
regulations prescribed for purposes of this chapter.
45a
(2) Application of contribution bases
(A) Compensation in excess of applicable
base excluded
(i) In general
The term “compensation” does not include that
part of remuneration paid during any calendar year to
an individual by an employer after remuneration
equal to the applicable base has been paid during such
calendar year to such individual by such employer for
services rendered as an employee to such employer.
(ii) Remuneration not treated = as
compensation excluded
There shall not be taken into account under clause
(i) remuneration which (without regard to clause (i))
is not treated as compensation under this subsection.
(iii) Hospital insurance taxes
Clause (i) shall not apply to—
(I) so much of the rate applicable under
section 3201(a) or 3221(a) as does not exceed
the rate of tax in effect under section 3101(b),
and
(II) so much of the rate applicable under
section 3211(a) as does not exceed the rate of
tax in effect under section 1401(b).
(B) Applicable base
(i) Tier 1 taxes
Except as provided in clause (ii), the term
“applicable base” means for any calendar year the
contribution and benefit base determined under
46a
section 230 of the Social Security Act for such calendar
year.
(ii) Tier 2 taxes, etc.
For purposes of—
(I) the taxes imposed by sections 3201(b),
3211(b), and 3221(b), and
(11) computing average monthly
compensation under section 3(j) of the
Railroad Retirement “.ct of 1974 (except with
respect to annuity ar,.,,u.nts determined under
subsection (a) or (f)(3) uf section 3 of such Act),
clause (2) of the first sentence, and the second
sentence, of subsection (c) of section 230 of the
Social Security Act shall be disregarded.
(C) Successor employers
For purposes of this paragraph, the second
sentence of section 3121(a)(1) (relating to successor
employers) shall apply, except that—
(i) the term “services” shall be substituted for
“employment” each place it appears,
(ii) the term “compensation” shall be
substituted for “remuneration (other than
remuneration referred to in the succeeding
paragraphs of this subsection)” each place it
appears, and
(iii) the terms “employer”, “services”, and
“compensation” shall have the meanings given
such terms by this section.
(3) Solely for purposes of the taxes imposed by section
3201 and other provisions of this chapter insofar as
Ava
they relate to such taxes, the term “compensation”
also includes cash tips received by an employee in any
calendar month in the course of his employment by an
employer unless the amount of such cash tips is less
than $20.
(4)
(A) For purposes of applying sections 3201(a),
3211(a), and 3221(a), in the case of payments made to
an employee or any of his dependents on account of
sickness or accident disability, clause (i) of the second
sentence of paragraph (1) shall exclude from the term
“compensation” only—
(i) payments which are received under a
workmen’s compensation law, and
(ii) benefits received under the Railroad
Retirement Act of 1974.
(B) Notwithstanding any other provision of law,
for purposes of the sections specified in subparagraph
(A), the term “compensation” shall include benefits
paid under section 2(a) of the Railroad Unemployment
Insurance Act for days of sickness, except to the extent
that such sickness (as determined in accordance with
standards prescribed by the Railroad Retirement
Board) is the result of on-the-job injury.
(C) Under regulations prescribed by the
Secretary, subparagraphs (A) and (B) shall not apply
to payments made after the expiration of a 6-month
period comparable to the 6-month period described in
section 3121(a)(4).
(D) Except as otherwise provided in regulations
prescribed by the Secretary, any third party which
makes a payment included in compensation solely by
48a
reason of subparagraph (A) or (B) shall be treated for
purposes of this chapter as the employer with respect
to such compensation.
(5) The term “compensation” shall 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 section 74(c), 108(f)(4), 117,
or 132.
(6) The term “compensation” shall not include any
payment made, or benefit furnished, to or for the
benefit of an employee if at the time of such payment
or such furnishing it is reasonable to believe that the
employee will be able to exclude such payment or
benefit from income under section 127.
((7) Repealed. Pub. L. 113-295, div. A, title IL,
§ 221(a)(19XB)\(v), Dec. 19, 2014, 128 Stat. 4040.)
(8) Treatment of certain deferred compensation
and salary reduction arrangements
(A) Certain employer contributions treated
as compensation
Nothing in any paragraph of this subsection
(other than paragraph (2)) shall exclude from the term
“compensation” any amount’ described in
subparagraph (A) or (B) of section 3121(v)(1).
(B) Treatment of certain nonqualified
deferred compensation
The rules of section 3121(v)(2) which apply for
purposes of chapter 21 shall also apply for purposes of
this chapter.
49a
(9) Meals and lodging
The term “compensation” shall not include the
value of meals or lodging furnished by or on behalf of
the employer if at the time of such furnishing it is
reasonable to believe that the employee will be able to
exclude such items from income under section 119.
(10) Archer MSA contributions
The term “compensation” shall not include any
payment made to or for the benefit of an emplovee if
at the time of such payment it is reasonable to believe
that the employee will be able to exclude such
payment from income under section 106(b).
(11) Health savings account contributions
The term “compensation” shall not include any
payment made to or for the benefit of an employee if
at the time of such payment it is reasonable to believe
that the employee will be able to exclude such
payment from income under section 106(d).
(12) Qualified stock options
The term “compensation” shall not include any
remuneration on account of—
(A) a transfer of a share of stock to any
individual pursuant to an exercise of an incentive
stock option (as defined in section 422(b)) or under
an employee stock purchase plan (as defined in
section 423(b)), or
(B) any disposition by the individual of such
stock.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.