Tuesday, October 23, 2012

Circuit Split: Are Severance Payments Subject to FICA?

BNA reported today that the government filed a petition Oct. 18 for rehearing en banc in the closely watched Quality Stores case involving the taxability of severance payments (United States v. Quality Stores Inc. (In re Quality Stores Inc.), 6th Cir., No. 10-1563, petition for rehearing filed 10/18/12).
The Sixth Circuit held Sept. 7 that payments a company made to employees as part of the company's severance program were not subject to tax under the Federal Insurance Contributions Act (FICA) .
In upholding the rulings of the bankruptcy court and the district court, the appeals court expressly rejected the Federal Circuit's holding in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008) that the payments were dismissal pay subject to tax.
The government noted in its petition for rehearing that the case “involves a question of exceptional importance” because of the conflict with the CSX case. The government also said that the total amount of FICA refund claims with IRS is more than $1 billion.
The petition for rehearing is available at http://op.bna.com/dt.nsf/r?Open=vmar-8zbt5v.

Check back for updates! 

Thursday, October 18, 2012

Don't Trust the IRS!

BNA reported yesterday that the Internal Revenue Service failed to inform more than 1 million taxpayers who qualified in 2010 for relief from tax penalties totaling about $181 million of their right to ask for relief, the Treasury Inspector General for Tax Administration said in a report issued Oct. 17.
IRS penalizes those who fail to file tax returns or fail to timely pay the full tax shown on any tax return. However, it may waive the fines for taxpayers who have demonstrated full compliance over the prior three years, but only if the taxpayers request penalty relief, TIGTA said. 

The agency watchdog found that IRS does not widely publicize the opportunity to request this waiver, and that taxpayers or preparers must have knowledge of IRS processes to ask for them. 

It said the unfairness in administering penalty waivers for those who know to ask for them could jeopardize taxpayers' confidence in the tax system. 

Text of the report, Penalty Abatement Procedures Should Be Applied Consistently to All Taxpayers and Should Encourage Voluntary Compliance (2012-40-113), is at http://www.treasury.gov/tigta/auditreports/2012reports/201240113fr.pdf.