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.

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