Cencast Services, L.P. v. United States
729 F.3d 1352
| Fed. Cir. | 2013Background
- Cencast Services, L.P. and related entities remit payroll and employment taxes for production companies; the entities are Service Companies, not the production workers' common law employers.
- The production companies are the common law employers of the workers; Cencast pays wages and handles payroll, but is not the workers’ common law employer.
- IRS TAM 119980-97 concluded FUTA/FICA should be calculated as if each worker had a separate employment relationship with each production company, not with Cencast.
- From 1991–1996, Cencast paid over $7B in wages and remitted FUTA/FICA taxes; it taxed wages using a single wage cap under a theory that the workers were employed by Cencast.
- In 2004 the Claims Court held that production companies are the employers for wage-base purposes, applying the common law employment relationship to compute caps.
- Cencast later argued the overpayment could be recouped if some workers were independent contractors; this theory was first raised in 2008 and narrowly litigated during 2010–2012 with significant procedural limits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Should wage caps be calculated by common law employment relations? | Cencast argues the caps should reflect wages paid by Cencast as the employer. | Government argues caps must be based on common law employment with the production companies. | Caps must be calculated using common law employments. |
| May Cencast raise an independent contractor theory to seek a refund? | Cencast contends it overpaid due to misclassification of workers as employees. | Government contends theory was not raised timely and is barred by variance/waiver rules. | Independent contractor theory barred; not allowed to amend. |
| Does the variance (substantial variance) rule bar late-emerging theories in a refund suit? | Cencast claims the independent contractor theory should be allowed due to later facts. | Government argues new theory substantially varies from initial claim and is barred. | Variance rule bars late-emerging independent contractor theory. |
| Is equitable recoupment available to offset government counterclaims with respect to an independent contractor theory? | Cencast could use equitable recoupment to offset new government theories. | No new government theory was raised; recoupment not applicable. | Equitable recoupment inapplicable. |
Key Cases Cited
- Blue Lake Rancheria v. United States, 653 F.3d 1112 (9th Cir. 2011) (FUTA liability arises from common-law employment; Otte controls reporting/remitting only.)
- Otte v. United States, 419 U.S. 43 (U.S. 1974) (Statutory employers withhold FICA; employment relation defined by common law.)
- Winstead v. United States, 109 F.3d 989 (4th Cir. 1997) (Applies Otte to FUTA.)
- In re Armadillo Corp., 561 F.2d 1382 (10th Cir. 1977) (Applies Otte to employer’s portion of FICA.)
- Computervision Corp. v. United States, 445 F.3d 1355 (Fed. Cir. 2006) (Substantial variance rule; claims must track the original refund claim.)
- Goulding v. United States, 929 F.2d 332 (7th Cir. 1991) (Waiver doctrine discussion in tax refunds context.)
- Allstate Ins. Co. v. United States, 550 F.2d 629 (Ct. Cl. 1977) (Illustrates conditions under which supplemental claims relate to existing refunds.)
- Brown v. United States, 427 F.2d 57 (9th Cir. 1970) (Equitable recoupment limitations in tax context.)