- Employment Taxes: The U.S. Supreme Court Grants Cert in the Quality Stores Case
- November 8, 2013 | Authors: Marianna G. Dyson; Michael M. Lloyd
- Law Firm: Miller & Chevalier Chartered - Washington Office
The Supreme Court, not surprisingly, granted cert on October 1, 2013 in the Quality Stores case. The Court is now poised to resolve a conflict between the Sixth Circuit and the Federal Circuit regarding whether severance payments paid to employees pursuant to an involuntary reduction in force are "wages" subject to FICA taxation. Notably, Justice Kagan did not participate in the order granting the petition, perhaps because she had some involvement in the case during her tenure as Solicitor General. Her recusal creates the theoretical possibility that the Court could ultimately divide 4-4 on the case and thus be unable to resolve the conflict. The government's opening brief is due November 15, 2013. Oral argument has been scheduled for January 14, 2014 and a decision will be issued in late Spring.
In the interim, what should an employer do?
(1) Regardless of the circuit in which the employer resides, we are advising our clients to continue withholding FICA taxes on severance payments otherwise satisfying the requirements of section 3402(o) until the Supreme Court rules.
(2) The employer may also want to consider filing refund claims with the IRS before the three-year period of limitations expires. For employment taxes withheld and paid in calendar year 2010, the three-year period will expire on April 15, 2014, for employers who timely filed their Forms 941. A decision to file a protective refund claim for later years may be deferred for the time being.
(3) If the IRS has denied an employer's refund claim for an earlier calendar year, the law provides that an employer has two years in which to file a refund action either in the U.S. District Court or the U.S. Court of Federal Claims. For those employers bumping up against this 2-year deadline, we are recommending that they consider filing a Form 907, "Agreement to Extend the Time to Bring Suit," with the IRS, following the very specific instructions for preparation, submission and execution. Of course, if the IRS has not yet denied the employer's refund claim, the two-year period has not begun to run and a Form 907 would not be necessary.