BNSF Railway Co. v. Loos

DOES THE RAILROAD RETIREMENT TAX ACT’S DEFINITION OF COMPENSATION INCLUDE PAYMENTS FOR TIME LOST?

Petitioner BNSF argues that the RRTA’s definition of taxable “compensation” includes an employer’s payment to an employee for lost wages. BNSF cites the RRTA definition of “compensation” as “any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.” BNSF asserts that because FELA damages awarded for lost wages fall within the employer and employee relationship, these damages are “remuneration . . . for services rendered” and thus are taxable under the RRTA. In support of this assertion, BNSF contends that the Court should read the RRTA’s definition of compensation broadly to include any form of employer payment to an employee. BNSF believes the Eighth Circuit’s narrow reading of “services rendered” as limited to only services actually performed by an employee restricts the RRTA’s definition of compensation in a way that Congress did not intend. In fact, BNSF notes that Congress explicitly removed “active service” from its definition of compensation in 1937. Furthermore, BNSF argues, the express exceptions to compensation under the RRTA include payments made by an employer under an employee’s sickness or disability plan, exceptions that would be useless if compensation only included payment for active employee service.

Additionally, BNSF contends that because Congress enacted the RRA and the RRTA simultaneously and both acts deal with the same subject matter—railroad employee compensation—the RRA can be used to interpret the meaning of compensation in the RRTA. BNSF asserts that because the two statutes define compensation identically, except for the additional language in the RRA specifying that compensation includes payment for time lost. Therefore, BNSF contends, the Court should view this additional language as a mere illustrative example of compensation, rather than a delineation between the definition of compensation under the RRA and the definition of compensation under the RRTA. In fact, BNSF contends that this language in the RRA illustrates that payments for lost wages are payments for “services rendered,” and are thus included in the definition of compensation under both the RRA and the RRTA.

Conversely, Respondent Michael Loos argues that the RRTA’s definition of compensation does not include FELA damage awards. Loos contends that damage awards for lost wages are not payments for “services rendered,” because that phrase refers to an employee performing services for an employer in exchange for payment. Instead, Loos asserts that payments for time lost are damages paid to an employee for wages that the employee lost because the employee was unable to perform services for the employer. Additionally, Loos emphasizes that a FELA damage award is a payment for an employer’s negligence, not for work performed by an employee. In response to BNSF’s argument that the RRTA’s explicit exceptions to taxable compensation confirm that compensation can include payments for non-active employee service, Loos emphasizes that sickness and disability benefits “are part of an employee’s package of compensation for rendering services,” while payment for employer negligence is not. . As an alternative, Loos also argues that even if the Court determines that the RRTA’s definition of compensation includes payment for time lost, a FELA damage award does not qualify as a payment for time lost because no evidence suggests that Congress ever intended for the definition of “pay for time lost” to encompass FELA damage awards.

Furthermore, Loos emphasizes that the plain text of the RRTA does not include any reference to payment for time lost. Loos contends that Congress used the phrase “including remuneration paid for time lost as an employee” in the RRA’s definition of compensation not as an example of payment for “services rendered,” but as an additional type of compensation under the RRA. Loos also notes that Congress explicitly removed the words “pay for time lost” from the RRTA’s definition of compensation. Therefore, Loos argues that reading time lost payments back into the RRTA’s definition of compensation would contradict congressional intent. Finally, Loos asserts that the Court should not use the RRA to interpret the RRTA’s definition of compensation because the statutes contain different language, they are located in different U.S. Code titles, and they deal with different subject matters, as the RRA deals with benefits and the RRTA deals with taxation.

DOES I.R.C. § 104 EXEMPT FEDERAL EMPLOYERS’ LIABILITY ACT DAMAGE AWARDS FOR PERSONAL PHYSICAL INJURIES FROM RAILROAD RETIREMENT TAX ACT TAXATION?

In response to Loos’s argument in the lower court that I.R.C. § 104(a)(2)—the Internal Revenue Code’s exclusion of damages for physical injury from gross income—extends to the RRTA’s tax on employee income, BNSF asserts that I.R.C. § 104(a)(2) only provides taxpayers with an exclusion from “gross income,” which is a different term than “compensation.” BNSF notes that I.R.C. § 104 does not reference the RRTA and vice versa. The RRTA, BNSF emphasizes, explicitly excludes from its definition of compensation many exclusions from gross income that are contained in the Internal Revenue Code, but does not list an exclusion for personal injury awards. Thus, BNSF contends, the language of the RRTA unambiguously demonstrates that Congress did not intend to exclude personal injury awards from taxable compensation under the RRTA, especially considering that the RRTA previously contained language that expressly included personal injury payments as taxable compensation. Furthermore, BNSF asserts that even if the RRTA’s language was ambiguous, for the past fifty years the Internal Revenue Service (“IRS”) has consistently held railroad employees liable under the RRTA for taxes on personal injury awards. BNSF maintains that this determination by the IRS deserves deference from the Court. In support of this assertion, BNSF argues that the IRS’s revenue rulings already established that I.R.C. § 104(a)(2)’s personal injury exclusion does not apply to taxable compensation under the RRTA by stating that FELA settlements can be taxed under the RRTA.

Loos, on the other hand, contends that I.R.C. § 104(a)(2)’s exclusion of personal injury awards from gross income applies to the RRTA’s tax on employee income because Congress designed the RRTA to tax railroad employees’ income. In fact, Loos notes that the text of the RRTA explicitly states that its tax is “imposed on the income of each employee.” Additionally, Loos counters that the explicit exclusions listed in the RRTA all apply to both employers and employees. Therefore, Loos argues that the fact that Congress did not explicitly list personal injury awards described in I.R.C. § 104(a)(2) as an exclusion in the RRTA merely indicates that Congress chose not to exclude personal injury damages from employer taxes—not employee taxes. Additionally, Loos points out that all of the RRTA’s exclusions are benefits provided by employers to employees for “services rendered,” and because Loos argues that FELA damages fall outside payment for “services rendered,” Loos maintains that Congress did not need to explicitly exclude these damages from the RRTA’s definition of compensation. In response to BNSF’s argument that the IRS deserves deference in this matter, Loos argues that the Court should not defer to the IRS because the RRTA is unambiguous in meaning. Even if the RRTA’s language was ambiguous, Loos contends, no IRS regulation specifically addresses the question before the Court. Moreover, Loos asserts that revenue rulings are not binding, and even if they are persuasive, the rulings cited by BNSF refer to FELA settlements, not FELA judgments. Finally, Loos argues that in the past eighty years the IRS has not taxed FELA damage awards under the RRTA.