Argument analysis: : Justices grapple with what counts as “money”

Posted Mon, April 16th, 2018 11:13 pm by Daniel Hemel

If any one in the courtroom experienced overlooked that tomorrow is the deadline for submitting federal revenue tax returns, Thomas Dupree, counsel for the petitioners in Wisconsin Central Ltd. v. United States, was there to notify spectators to their tax obligations. “Tax Day is practically upon us,” Dupree noted in his concluding remarks. And in circumstance you ended up inclined to test, Dupree reminded listeners that the IRS “requires that we taxpayers pay our taxes in revenue. It will not enable taxpayers pay their taxes in inventory.”

That, of training course, does not solve the problem introduced in Wisconsin Central, which is no matter whether the Railroad Retirement Tax Act needs railroads and their workers to pay taxes on inventory-based compensation. And if the justices experienced achieved a consensus on that problem by the stop of oral argument, they certainly did not exhibit it. But they did direct the advocates as a result of a sequence of vibrant hypotheticals involving bottles of wine at Christmas, barrels of wheat on a Chicago commodities exchange and tickets to a Main League Baseball video game.

Rachel P. Kovner, assistant to the U.S. solicitor common (Art Lien)

Batting leadoff was Dupree, who signifies three subsidiaries of the Canadian National Railway Company that are suing the United States for a $13 million tax refund. Dupree’s clear strategy was to body this as a circumstance about a solitary term: “money.” The RRTA, enacted in 1937, imposes a tax on “compensation,” which is defined as “any kind of revenue remuneration paid to an unique for expert services rendered as an employee.” Dupree argued that the RRTA’s definition of “compensation” does not apply to inventory solutions granted to railroad workers since “[s]tock is not revenue.”

But in the early innings, Dupree faced pushback from members of the bench who argued that the circumstance isn’t so simply solved on the foundation of plain language. “It’s not just that we have to give which means to the term ‘money,’” noted Justice Elena Kagan. “[T]he term we have to glimpse at is ‘money remuneration.’” Kagan then supplied the example of two employees—one who tends to make $200,000 in dollars moreover $5 million in inventory-based compensation, and just one receives $250,000 in dollars with no inventory. Kagan requested Dupree: “Now who tends to make extra revenue?”

Dupree appeared to concede that “in the context of that problem,” it would be “fair” to say that the employee who receives $5 million in inventory is the just one who tends to make extra revenue. But he included that “in the context of this tax statute,” the which means of “money” is narrower. If “money remuneration” signifies any remuneration, Dupree requested, why would Congress have included the adjective “money” at all? “That would not make perception,” he claimed.

Thomas H. Dupree Jr. for petitioners (Art Lien)

The justices then invested significantly of the relaxation of the argument hoping to make perception of what is “money” and what is not. “I agree with you,” Justice Sonia Sotomayor advised Dupree, that “a bottle of wine at Christmas is not.” What about baseball tickets? Sotomayor and Dupree both of those seemed to agree that individuals would not be taxable less than the RRTA both. Dupree then went on to note that “[i]f I have two tickets to the Nationals and Rockies video game, I can offer individuals and adjust individuals into dollars a whole lot more rapidly than I could uncover a broker and offer my shares of inventory on a market place.” (And without a doubt he possibly could, since Justice Neil Gorsuch—whose hometown allegiance is to the Colorado Rockies—sat techniques away.)

When Rachel Kovner, an assistant to the solicitor common, stepped up to the plate for the federal government, she faced her very own set of hypotheticals. Main Justice John Roberts requested: “What about … bushels of wheat?” That may well not rely, claimed Kovner, since “the employee who receives a bushel of wheat in their compensation, if that ended up to manifest, simply cannot easily change it into dollars in the same way that they can change an choice.” Urgent further on the wheat line of questioning, Roberts requested about a voucher entitling the employee “to obtain 20 bushels of wheat on the commodity exchange.” Kovner agreed that wheat vouchers would be nearer to the line, noting that a 1938 regulation interpreted “money remuneration” to include things like goods orders that could be exchanged for items at the corporation retail store.

Kagan then requested no matter whether the wheat-voucher hypothetical may well be a lot easier “if a corporation claimed you can just take a bushel of wheat or its equivalent in dollars worth.” “Yes,” claimed Kovner, introducing that Kagan’s example is “more analogous” to the circumstance at hand, “where primarily the employee can check out a box on a form” and consummate an “essentially instantaneous conversion” of the inventory solutions into dollars. Kovner also reminded the justices that inventory and inventory solutions are “a predominant medium of exchange now in quite a few corporate contexts and employee compensation issues.” To exclude inventory-based compensation from taxation less than RRTA would, she proposed, open up very a huge loophole in the railroad tax plan.

Kovner went on to emphasize some of the bizarre effects that would crop up if inventory-based compensation is not taxed less than RRTA. Non-railroad companies and workers pay Social Security and Medicare taxes on inventory solutions like the types at difficulty below. Railroads and their workers really do not pay Social Security and Medicare taxes less than the same statutes but are taxed less than the RRTA as an alternative. “[I]t’s not unusual,” Kovner noted, “for a CEO to get $1 in dollars and the relaxation of their payment in inventory.” Why would Congress want the railroad CEO to be exempt from taxes that other executives confront? Then there would be “nothing to stop” a railroad from converting all compensation for significant-amount executives to inventory or inventory-choice kind, according to Kovner.

To be positive, that strategy won’t make it possible for railroad executives to escape tax entirely. On the federal revenue tax (as opposed to railroad retirement tax) returns thanks tomorrow, persons generally have to report gains from the exercising of inventory solutions as income—regardless of no matter whether they get the job done for a railroad or any other employer. And remember: You simply cannot pay your tax with inventory. Or, for that make a difference, with bottles of wine, bushels of wheat or tickets to the Nats-Rockies video game.

Posted in Wisconsin Central Ltd. v. U.S., Highlighted, Merits Scenarios

Suggested Citation:
Daniel Hemel,
Argument evaluation: : Justices grapple with what counts as “money”,
SCOTUSblog (Apr. 16, 2018, 11:13 PM),
http://www.scotusblog.com/2018/04/argument-evaluation-justices-grapple-with-what-counts-as-revenue/

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