Oral Argument Scheduled in Quality Stores

At long last, the Sixth Circuit has scheduled oral argument in the Quality Stores case for October 6, 2011.  This will be more than a year since the briefing in the case was completed.  The identity of the three-judge panel is expected to be announced on September 19.… Read More

Supreme Court Opts for Chevron Analysis of Treasury Regulations, Discarding the Traditional National Muffler Dealers Analysis

The Supreme Court this morning issued its opinion in the Mayo Foundation case, ruling unanimously that medical residents are not “students” exempt from FICA taxation.  As previously discussed several times on this blog (see here, here, and here), the Mayo case carried the potential for broad ramifications beyond its specific context because the parties had framed the question of whether deference to Treasury regulations is governed solely by general Chevron principles that supersede the deference analysis previously developed in tax cases like National Muffler Dealers.  The Court in fact addressed that question and has now endorsed … Read More

Mayo Foundation Oral Argument Tilts Towards the Government and Raises Doubts About the Continuing Vitality of National Muffler Dealers

At oral argument on November 8, several Supreme Court Justices expressed skepticism regarding the claim that medical residents fall within the “student exemption” from FICA taxation.  Although it is always hazardous to predict the outcome of a case from the questions asked at oral argument, it is difficult to envision the taxpayer getting the five votes needed to overturn the court of appeals’ rejection of the exemption.

The Justices’ objections to the taxpayer’s position came from a variety of angles.  Justice Sotomayor focused on the essence of what a medical resident does, suggesting that a person working unsupervised for more … Read More

Briefing Completed in Quality Stores

As we previously reported, a district court in Michigan disagreed with the Federal Circuit’s decision in CSX Corp. v. United States, 518 F.3d 1328 (2008) (opinion linked here), and held that severance payments paid to employees pursuant to an involuntary reduction in force are not “wages” for FICA tax purposes.  The employer, Quality Stores, has now filed its answering brief in the Sixth Circuit defending the district court opinion and addressing the arguments made by the government in its opening brief, and the government has filed its reply brief.  (The briefs are attached below.)

The employer’s main … Read More

Mayo Foundation Oral Argument Scheduled for November 8

The Supreme Court has released the oral argument schedule for its November session.  The argument in Mayo Foundation is scheduled as the second case on Monday November 8, meaning it will begin around 11:00.  A decision is expected to issue in the spring, almost certainly no later than June 2011.  We will provide a report on the argument in November.… Read More

Taxpayers’ Brief Filed in Mayo Foundation

The taxpayers have filed their opening brief in Mayo Foundation, a copy of which is attached.  They argue primarily that the statutory language of the exemption unambiguously includes medical residents, and therefore there is no occasion to consider the reasonableness of the IRS regulation.  Secondarily, they argue that the regulation is in any event arbitrary and unreasonable. 

With respect to the question of the correct deference analysis discussed in our previous post, the brief relies heavily on the National Muffler Dealers factors.  It identifies five factors that militate against the reasonableness of the regulation:  (1) does not harmonize … Read More

Supreme Court to Address Deference Owed to Regulation Governing FICA Taxation of Medical Residents

In Mayo Foundation, et al. v. United States, No. 09-837, the Supreme Court will consider whether medical residents are exempt from FICA taxation, with the decision likely to turn on the level of deference the Court is willing to accord to a recent regulatory change.  Although the issue may seem obscure, there are 8,000 residency programs in the United States, and the government estimates that $700 million in taxes per year is at stake, with $2.1 billion in refund claims pending.  

The issue involves the meaning of the “student exemption” to FICA, which excludes from the definition of “employment” “service … Read More

U.S. Opening Brief Filed in Quality Stores

On July 13, 2010, the government filed its opening brief in the Sixth Circuit in In re Quality Stores, Inc:  United States v. Quality Stores, Inc., No. 10-1563.  In that case, the government is appealing the district court’s surprising decision holding that severance payments made to employees pursuant to an involuntary reduction in force are not “wages” for FICA tax purposes if they qualify for exclusion from income tax withholding as “supplemental unemployment compensation benefits” (“SUB pay”) under Code section 3402(o)(2).  As the district court acknowledged, its decision directly conflicts with the Federal Circuit’s ruling in CSX Corporation v. United … Read More