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March 15, 2007
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An Update on Payroll and Employment Tax Topics |
* * * Special Edition * * *
In This Issue
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March 15, 2007 |
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* * * Special Edition * * * In This Issue | |
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Update on CSX Case – Protective Refund Claims Still Possible by April 17 for 2003 FICA Tax Overpayments In April 2002, the U.S. Court of Federal Claims ruled in CSX Corporation v. U.S. (52 Fed. Cl. 208 (April 1, 2002)) that the Taxpayer was eligible for refunds related to FICA taxes withheld on payments made to workers that were laid off. The Taxpayer offered these furloughed employees three options: (1)
transfer to a new location, (2) remain laid-off and forfeit temporary
benefits while retaining employment rights, or (3) receive a lump-sum
payment and permanently leave the Taxpayer's employment. At issue in the
case was whether payments made to the laid-off employees electing the
third option constituted severance benefits (which are taxable The Taxpayer paid FICA taxes on those payments and sued for a refund in Federal Claims Court, asserting that FICA tax did not apply to employees that chose the third option because the payments simply converted their involuntary separation status from indefinite to permanent. The court agreed that the payments under the Taxpayer's severance plan were supplemental unemployment benefits as opposed to severance benefits, and thus, were not wages subject to FICA. In August 2006, the Court of Claims issued a supplemental ruling with respect to specific separation payments to certain furloughed employees and contract employees. Thereafter, the case was appealed to the United States Court of Appeals
for the Federal Circuit (CAFC Case Number 07-5003). A hearing date has not
yet been scheduled. Since this case has a rather protracted history (it
was filed in 1995), we do not expect a swift resolution. In addition, the
IRS has clearly stated its intention to file a petition for writ of
certiorari with the United States Supreme Court if it does not prevail in
the It seems highly improbable that the issues will be finally resolved by April 17, 2007, which is the filing deadline for refunds of FICA tax overpayments on 2003 transactions. Consequently, employers that paid significant severance in 2003 may find it worthwhile to file a protective claim for that year in order to preserve their right to a refund if the case is upheld on appeal. | |||
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A Reminder for April 17 – FICA Tax Refunds for Employees Moved Between Legal Entities in 2003 FICA tax overpayments typically arise when employees are transferred between legal entities in a successorship qualifying transaction, at any time other than calendar year end. Employers may want to review their records to determine whether there are FICA refund opportunities available with respect to employees transferred as a result of mergers, acquisitions or internal restructurings which occurred in 2003 or later. | |||
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