Gerstenbluth v. Credit Suisse Securities (USA) LLC
728 F.3d 139
| 2d Cir. | 2013Background
- Gerstenbluth sued Credit Suisse and the IRS seeking a refund of FICA taxes withheld from a $250,000 settlement paid to drop his ADEA claim.
- Settlement was for 250,000, with withholding of applicable taxes; the payment was characterized as wages on Form W-2.
- Settlement arose from Credit Suisse terminating his employment and his EEOC complaint alleging age discrimination.
- Agreement stated the payment would be made minus applicable taxes and deductions; it did not explicitly label the payment for tax purposes.
- IRS Form W-2 treated the settlement as wages and reflected FICA withholding; district court dismissed the complaint against Credit Suisse and granted summary judgment for the IRS.
- Court of Appeals affirmed the district court’s rulings, concluding the settlement is FICA wages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the settlement proceeds are wages for FICA purposes | Gerstenbluth argues the payment is not wages | IRS/CS contend the payment is wages under 26 U.S.C. §3121 | Yes; proceeds are FICA wages. |
| Role of payor’s intent and settlement terms in tax characterization | Payor’s intent should control; lack of explicit wage designation | Payor’s treatment and the W‑2 designation support wage characterization | Payor’s intent and designation prevail; presumption supports wage treatment. |
| Whether IRS Publication 4345 controls the tax classification | Publication 4345 suggests non-wage treatment for such settlements | Publications do not control tax law; case law governs | Publications do not control; case law (Noel) governs FICA treatment. |
Key Cases Cited
- United States v. Burke, 504 U.S. 229 (1992) (tax treatment depends on nature of underlying claim; damages may be taxable)
- Noel v. N.Y. State Office of Mental Health Central N.Y. Psychiatric Ctr., 697 F.3d 209 (2d Cir. 2012) (front and back pay under Title VII are FICA wages)
- Agar v. Commissioner, 290 F.2d 283 (2d Cir. 1961) (allocations and payor intent guidance for settlement payments)
- Milenbach v. Comm’r, 318 F.3d 924 (9th Cir. 2003) (method to determine what a settlement payment compensates)
- Banks v. Travelers Cos., 180 F.3d 358 (2d Cir. 1999) (back pay and front pay as recoverable wages under ADEA context)
- United States v. Cleveland Indians Baseball Co., 532 U.S. 200 (2001) (concepts of wage definitions under FICA)