United States v. Quality Stores, Inc. (In Re Quality Stores, Inc.)
693 F.3d 605
6th Cir.2012Background
- Quality Stores sought a refund of $1,000,125 in FICA taxes paid on severance payments following involuntary bankruptcy-related terminations.
- Severance payments were made under two plans: Pre-Petition Severance Plan (based on job grade; employee not tied to unemployment benefits) and Post-Petition Severance Plan (to encourage job search; lump-sum).
- Payments were gross income to employees for federal income tax purposes, with Quality Stores withholding FICA taxes and reporting wages on Form W-2.
- Bankruptcy court granted full refund; district court affirmed; Sixth Circuit now affirms.
- Court analyzes whether SUB payments are non-wage subsidies under I.R.C. § 3402(o)(2)(A) and whether they are wages for FICA purposes, applying Rowan and related history.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are SUB payments wages for FICA purposes? | Quality Stores argues SUB payments are not wages. | United States treats dismissal/payments as wages under FICA or via decoupled rules. | SUB payments are not wages under FICA. |
| Are SUB payments wages for federal income tax withholding under § 3402(o)? | SUB payments are outside withholding as non-wages. | SUB payments are included in gross income and subject to withholding. | SUB payments are treated as non-wages for withholding but included in gross income; withholding applies to these non-wage payments. |
| Does Rowan remain controlling for the relationship between FICA and withholding definitions of wages? | Rowan should apply identically to FICA and withholding. | Later developments may distinguish the two. | Rowan remains good law; same statutory definition applies to FICA when SUB is treated as wages for withholding. |
| Are IRS revenue rulings controlling in defining SUB pay for FICA? | IRS rulings support treatment as non-wages. | Revenue rulings should inform but not override statute. | IRS rulings not controlling; Congress's statute and history govern. |
Key Cases Cited
- Coffy v. Republic Steel Corp., 447 U.S. 191 (Supreme Court 1980) (SUBs analogized to compensation for loss of jobs; not wages for work performed)
- Rowan Cos. v. United States, 452 U.S. 247 (Supreme Court 1981) (wages defined consistently across FICA and withholding to promote simplicity)
- CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008) (addressed decoupling amendment and SUB pay under regulatory framework)
- Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704 (Supreme Court 2011) (Chevron deference and reliance on Treasury regulation discussed; relevance to Rowan)
- Environmental Defense v. Duke Energy Corp., 549 U.S. 561 (Supreme Court 2007) (context counts; administrative interpretations evaluated)
- Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644 (Supreme Court 2007) (statutory interpretation; aids to construction under congressional intent)