October 19, 2012
The government yesterday filed a petition for rehearing en banc in the Sixth Circuit in the Quality Stores case, asking the full court to reverse the panel and eliminate the circuit conflict on the treatment for FICA purposes of supplemental unemployment compensation benefits. As noted in our previous post, regardless of whether the petition is granted, the mere filing of the petition has the effect of postponing the deadline for seeking Supreme Court review. The 90-day period for filing a petition for certiorari begins to run anew from the date of the resolution of the rehearing petition. Thus, if this case ultimately goes to the Supreme Court, there is no longer any realistic possibility that it would be heard this Term — that is, a decision could not be expected by June 2013.
The rehearing petition emphasizes that the issue is important, stating that $120 million is at stake in pending refund suits alone, and that a total of over $1 billion is at issue when all claims are taken into account. It also recites that the IRS has suspended action on administrative refund claims totalling over $127 million from approximately 800 taxpayers located in the Sixth Circuit.
The petition argues that the Sixth Circuit panel erred in two key respects. “First, it failed to address the actual FICA question here based on its erroneous belief that Coffy [v. Republic Steel Co., 447 U.S. 191 (1980),] establishes that SUB pay is not wages for FICA purposes.” Coffy was not a tax case, but instead was a case interpreting the Veterans’ Reemployment Rights Act, holding that SUB benefits are a “perquisite of seniority” for which returning veterans must be given service time credit for the time they spent in the military. (That may sound deadly dull, but I note parenthetically that Coffy was also my first Supreme Court argument.) On this point, the petition argues that the panel’s decision is in tension with two prior Sixth Circuit decisions holding that wages for FICA purposes is not limited to compensation for work performed.
The second error asserted in the rehearing petition is that, “in construing I.R.C. § 3402(o), the panel failed to recognize that the section’s applicability is expressly limited to income-tax withholding, which was a key factor in the Federal Circuit’s CSX decision.” That issue was a focus of the original briefing in the case, but the rehearing petition asserts that the panel failed to address it in its decision.
There is no current due date for the taxpayer’s response. Rule 40(a)(3) of the Federal Rules of Appellate Procedure provides that parties are not to respond to petitions for rehearing unless ordered by the court. Given the importance and complexity of this case, there is a strong probability that the court will order a response.