Union Pacific Railroad Co. v. United States
120 A.F.T.R.2d (RIA) 2017
8th Cir.2017Background
- Union Pacific Railroad (UP) paid approximately $75 million in RRTA taxes from 1991–2007 and sued for refund, arguing RRTA did not require taxation of (a) employee payments in company stock and (b) union ratification payments.
- District court granted summary judgment to the government; UP appealed. Review is de novo.
- RRTA taxes are based on "compensation" defined as "any form of money remuneration," while FICA taxes apply to "wages," defined to include "the cash value of all remuneration . . . in any medium other than cash." UP contends "money" means medium of exchange (cash/scrip), not all property.
- The IRS regulation treats RRTA "compensation" and FICA "wages" identically (26 C.F.R. § 31.3231(e)–1), asserting noncash stock payments are taxable under RRTA as they are under FICA.
- UP also paid ratification bonuses to employees upon union ratification of collective-bargaining agreements; both parties agree these are monetary but dispute whether they are "for services rendered."
- Eighth Circuit held (1) RRTA unambiguously excludes stock payments because "money" means mediums of exchange, so IRS regulation is not owed deference on that point; and (2) ratification payments are not "for services rendered" under RRTA because employer control over the union ratification process is absent, so those payments are not taxable under RRTA.
Issues
| Issue | Plaintiff's Argument (UP) | Defendant's Argument (United States) | Held |
|---|---|---|---|
| Whether RRTA taxes apply to employee remuneration paid in company stock | Stock is not "money"; "money remuneration" means mediums of exchange, so stock is excluded | RRTA should be read like FICA; IRS regulation treats stock as taxable "money remuneration" | RRTA unambiguously excludes stock payments; IRS regulation not entitled to deference on this point; reversed for UP |
| Whether ratification payments are taxable as compensation "for services rendered" | Payments are not for services because employer lacks control over union ratification (a union activity) | Payments made on payroll and customary payroll presumption mean they are for services | Ratification payments are not "for services rendered" under RRTA because UP cannot control union ratification; payroll presumption rebutted; reversed for UP |
Key Cases Cited
- United States v. Quality Stores, Inc., 134 S. Ct. 1395 (Sup. Ct.) (interpretation of FICA "wages" and employer-employee relationship)
- Hisquierdo v. Hisquierdo, 439 U.S. 572 (Sup. Ct.) (structure of Railroad Retirement Act benefits and relation to social-security–style tiers)
- BNSF Ry. Co. v. United States, 775 F.3d 743 (5th Cir.) (treating stock payments as taxable under RRTA/FICA—contrasting authority)
- Wis. Cent. Ltd. v. United States, 856 F.3d 490 (7th Cir.) (held stock payments are "money remuneration" under RRTA — court here respectfully disagreed)
- In re Hokulani Square, Inc., 776 F.3d 1083 (9th Cir.) (discussion of ordinary meaning of "moneys")
- Nestle Holdings, Inc. v. C.I.R., 94 T.C. 803 (U.S. Tax Ct.) (refusing to equate stock with practical equivalent of money)