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

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

If somebody within the court docket had forgotten that the next day to come is the closing date for submitting federal source of revenue tax returns, Thomas Dupree, recommend for the petitioners in Wisconsin Central Ltd. v. United States, was once there to alert spectators to their tax tasks. “Tax Day is almost upon us,” Dupree famous in his concluding remarks. And for those who have been vulnerable to take a look at, Dupree reminded listeners that the IRS “requires that we taxpayers pay our taxes in money. It will not let taxpayers pay their taxes in stock.”

That, after all, does no longer get to the bottom of the query introduced in Wisconsin Central, which is whether or not the Railroad Retirement Tax Act calls for railroads and their workers to pay taxes on stock-based reimbursement. And if the justices had reached a consensus on that query by way of the top of oral argument, they unquestionably didn’t display it. But they did lead the advocates via a sequence of colourful hypotheticals involving bottles of wine at Christmas, barrels of wheat on a Chicago commodities alternate and tickets to a Major League Baseball recreation.

Batting leadoff was once Dupree, who represents 3 subsidiaries of the Canadian National Railway Company which can be suing the United States for a $13 million tax refund. Dupree’s obvious technique was once to border this as a case a few unmarried phrase: “money.” The RRTA, enacted in 1937, imposes a tax on “compensation,” which is outlined as “any form of money remuneration paid to an individual for services rendered as an employee.” Dupree argued that the RRTA’s definition of “compensation” does no longer follow to inventory choices granted to railroad workers as a result of “[s]tock is not money.”

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

But within the early innings, Dupree confronted pushback from contributors of the bench who argued that the case isn’t so simply resolved at the foundation of undeniable language. “It’s not just that we have to give meaning to the term ‘money,’” famous Justice Elena Kagan. “[T]he term we have to look at is ‘money remuneration.’” Kagan then introduced the instance of 2 workers—person who makes $200,000 in money plus $five million in stock-based reimbursement, and one receives $250,000 in money with no inventory. Kagan requested Dupree: “Now who makes more money?”

Dupree perceived to concede that “in the context of that question,” it will be “fair” to mention that the worker who receives $five million in inventory is the one that makes more cash. But he added that “in the context of this tax statute,” the that means of “money” is narrower. If “money remuneration” method any remuneration, Dupree requested, why would Congress have added the adjective “money” in any respect? “That wouldn’t make sense,” he mentioned.

The justices then spent a lot of the remainder of the argument seeking to make sense of what is “money” and what isn’t. “I agree with you,” Justice Sonia Sotomayor informed Dupree, that “a bottle of wine at Christmas is not.” What about baseball tickets? Sotomayor and Dupree each gave the impression to agree that the ones wouldn’t be taxable beneath the RRTA both. Dupree then went on to notice that “[i]f I have two tickets to the Nationals and Rockies game, I can sell those and change those into cash a lot faster than I could find a broker and sell my shares of stock on a market.” (And certainly he most certainly may just, as a result of Justice Neil Gorsuch—whose homeland allegiance is to the Colorado Rockies—sat steps away.)

When Rachel Kovner, an assistant to the solicitor normal, stepped as much as the plate for the federal government, she confronted her personal set of hypotheticals. Chief Justice John Roberts requested: “What about … bushels of wheat?” That would possibly no longer rely, mentioned Kovner, as a result of “the employee who receives a bushel of wheat in their compensation, if that were to occur, can’t readily convert it into cash in the same way that they can convert an option.” Pressing additional at the wheat line of wondering, Roberts requested a few voucher entitling the worker “to buy 20 bushels of wheat on the commodity exchange.” Kovner agreed that wheat vouchers could be nearer to the road, noting 1938 law interpreted “money remuneration” to incorporate products orders which may be exchanged for items on the corporate retailer.

Kagan then requested whether or not the wheat-voucher hypothetical may well be more straightforward “if a company said you can take a bushel of wheat or its equivalent in cash value.” “Yes,” mentioned Kovner, including that Kagan’s instance is “more analogous” to the case to hand, “where essentially the employee can check a box on a form” and consummate an “essentially instantaneous conversion” of the inventory choices into money. Kovner additionally reminded the justices that inventory and inventory choices are “a predominant medium of exchange now in many corporate contexts and employee compensation matters.” To exclude stock-based reimbursement from taxation beneath RRTA would, she advised, open relatively a big loophole within the railroad tax scheme.

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

Kovner went on to emphasise probably the most unusual penalties that may get up if stock-based reimbursement isn’t taxed beneath RRTA. Non-railroad employers and workers pay Social Security and Medicare taxes on inventory choices like those at factor right here. Railroads and their workers don’t pay Social Security and Medicare taxes beneath the similar statutes however are taxed beneath the RRTA as a substitute. “[I]t’s not uncommon,” Kovner famous, “for a CEO to get $1 in cash and the rest of their payment in stock.” Why would Congress need the railroad CEO to be exempt from taxes that different executives face? Then there could be “nothing to stop” a railroad from changing all reimbursement for high-level executives to inventory or stock-option shape, in step with Kovner.

To make sure that, that technique received’t permit railroad executives to flee tax completely. On the federal source of revenue tax (as antagonistic to railroad retirement tax) returns due the next day to come, people usually should record features from the workout of inventory choices as source of revenue—irrespective of whether or not they paintings for a railroad or another employer. And be mindful: You can’t pay your tax with inventory. Or, for that topic, with bottles of wine, bushels of wheat or tickets to the Nats-Rockies recreation.

Posted in Wisconsin Central Ltd. v. U.S., Featured, Merits Cases

Recommended Citation:
Daniel Hemel,
Argument research: : Justices grapple with what counts as “money”,
SCOTUSblog (Apr. 16, 2018, 11:13 PM),

Updated: April 17, 2018 — 3:23 am
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