CSX CORPORATION, INC., CSX Trans╜portation, Inc., for itself and as succes╜sor by merger to The Chesapeake and Ohio Railway Company and as successor by merger to The Baltimore and Ohio Railroad Company, The Baltimore and Ohio Chicago Terminal Railroad Com╜pany, and Fruit Growers Express Com╜pany, Plaintiffs, v. The UNITED STATES, Defendant., United States Court of Federal Claims., 52 Fed.Cl. 208, No. 95-858T., April 1, 2002

CSX CORPORATION, INC., CSX Trans╜portation, Inc., for itself and as succes╜sor by merger to The Chesapeake and Ohio Railway Company and as successor by merger to The Baltimore and Ohio Railroad Company, The Baltimore and Ohio Chicago Terminal Railroad Com╜pany, and Fruit Growers Express Com╜pany, Plaintiffs, v. The UNITED STATES, Defendant.

United States Court of Federal Claims.

52 Fed.Cl. 208

No. 95-858T.

April 1, 2002.

David W. Feeney, Cadwalader, Wickers╜ham & Taft, New York City, attorney of record for plaintiffs. Stephen N. Shulman, O'Connor & Hannan, Washington, D.C., ar╜gued the cause for plaintiffs.

Benjamin C. King, Jr., with whom were Assistant Attorney General Eileen J. O'Con╜nor and Mildred L. Seidman, Department of Justice, Tax Division, Court of Federal Claims Section, Washington, D.C., for defen╜dant.

OPINION

WIESE, Judge.

This is a suit for the refund of federal employment taxes collected under the Rail╜road Retirement Tax Act ("RRTA"), 26 U.S.C. ╖╖ 3201-3202 and 3231-3233 (railroad retirement taxes) and the Federal Insurance Contributions Act ("FICA"), 26 U.S.C. ╖╖ 3121-3128 (social security taxes). ¹ These taxes were imposed-on amounts paid to em╜ployees pursuant to reduction-in-force programs initiated by CSX Corporation and its constituent railroads (plaintiffs in this action) beginning in 1984 and extending through 1990. ² This action is now before the court on plaintiffs' motion for summary judgment (as to liability only) and defendant's cross-motion. On the basis of the parties' briefs and the oral argument that was heard on Febru╜ary 14, 2002, we conclude that employment taxes apply to all payments at issue except those identified in this opinion as incident to an employee layoff.

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¹ Citations to the Internal Revenue Code are to the provisions of Title 26 in effect during the years at issue in this case, 1984-1990.

² Taxes imposed by RRTA are used to finance railroad employee retirement benefits which rail╜road employees receive in lieu of social security benefits. These taxes are imposed on "compen╜sation." Taxes imposed by FICA are used to finance social security and medicare benefits and are imposed on "wages."

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FACTS

Plaintiff CSX Corporation is the common parent of a consolidated group of railroad companies that included, during the years involved in this refund suit, CSX Transporta╜tion, Ins., the Baltimore and Ohio Chicago Terminal Railroad Company, and Fruit Growers Express Company . ³

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³ Unlike the federal income-tax regime, under RRTA and FICA, when a common parent files a single return, each component company in a consolidated group pays and remits employment taxes and files its own separate employment tax returns and claims for refund.

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Between 1984 and 1990, plaintiffs imple╜mented major reductions in work-force levels that were made necessary by declining rail traffic and intense competition from other modes of transportation. Over the course of those years, plaintiffs reduced their manage╜ment-related work force by approximately 33% and their union work force by approxi╜mately 39%. Taken together, these percent╜age decreases in personnel represented an overall reduction of railroad-related employ╜ment from approximately 54,000 employees to slightly less than 34,000 employees.

This reduction in work force was accom╜plished by job layoffs, reductions in hours of work and rates of pay, and permanent sepa╜rations from employment. In each instance, the affected employee became entitled to a specific payment from the employer railroad, the amount and duration of which was estab╜lished either by governing regulatory rulings or by superseding collective bargaining pro visions. Thus, bi-weekly or monthly pay╜ments were paid to employees who were laid off as a result of the work-force reduction. Similarly, payments were made to employees whose hours of work or rates of pay were reduced as a result of the work-force reduction. And finally, lump-sum payments or, alternatively, monthly payments extending over an agreed-upon period of time, were paid to employees who ended their employ╜ment relationship with their employer as a result of the work-force reduction.

Consistent with the requirements of FICA and RRTA, ⁴ plaintiffs paid the employer's share of employment tax and withheld and remitted the employee's share on those amounts. Following those payments, howev╜er, plaintiffs filed timely claims for refund on their own behalf and on behalf of various employees. ⁵ As the basis for their refund claims, plaintiffs argued that FICA taxes are by statute to be imposed only on "wages" as that term is defined in ╖ 3121(a) of the Tax Code, and RRTA taxes are to be imposed only on "compensation" as set forth in ╖ 3231(e) of the Tax Code. Because the pay╜ments in question were "supplemental unem╜ployment compensation benefits," plaintiffs maintained, they constituted neither wages nor compensation and therefore should not have been subject to tax.

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⁴ Under both RRTA and FICA, the employment tax is composed of an "employer" tax and an "employee" tax. As the withholding agent, the employer withholds and remits the employee tax and as the employer, pays the employer tax.

⁵ Plaintiffs attempted to notify all present and former employees in writing of their right either to claim a refund of their employment taxes or to authorize plaintiffs to file refund claims on their behalf. The administrative refund claims that plaintiffs ultimately filed included claims by those employees (past and present) who had giv╜en their consent to be included in the claims, and former employees who could not be located after reasonable effort.

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In response to plaintiffs' refund claims, the IRS conducted an administrative review, but ultimately disallowed the claims. Plain╜tiffs then filed suit in this court seeking a determination that the reduction-in-force payments constitute neither wages nor com╜pensation for purposes of imposing federal employment tax. For the reasons set forth below, we must reject plaintiffs' assertions except as they relate to payments to employ╜ees made on account of a layoff.

DISCUSSION

The basic issue in this case is whether the payments plaintiffs made pursuant to their reduction-in-force programs fall outside the term "wages" for purposes of FICA tax╜es and outside the term "compensation" for purposes of RRTA taxes. In examining this issue, we start with what is not debated: as a matter of statutory definition, the term "wages" as set forth in the FICA statute and the term "compensation" as set forth in the RRTA statute are fundamentally the same in scope and are recognized in Treasury regula╜tions as having the same meaning. 26 C.F.R. ╖╖ 31.3121(a)-1 and 31.3231(e)-1 (1990). Both statutes adopt as the basis for the application of their respective taxes the remuneration received by an employee in return for the performance of services ren╜dered to an employer. Thus, ╖ 3121(e) of the Tax Code defines "wages" for FICA pur╜poses as "all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash," while ╖ 3231(e) defines "compensation" for RRTA purposes as "any form of money remuneration paid to an individual for services rendered as an employee to one or more employers." Further, each section ex╜cludes from its definition certain employer payments including, for example, employee medical and hospitalization expenses and em╜ployee insurance and annuity costs. ⁶

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⁶ Because of this essential identity between "wages" and "compensation," references to "wages" in this opinion shall also be understood to include "compensation" unless otherwise indi╜cated.

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I.

Recognizing that the definition of the term "wages" under the FICA statute and of the term "compensation" under the RRTA stat╜ute are essentially identical, ho6wever, does not resolve our central inquiry: whether the reduction-in-force payments at issue here fall within their scope. To answer that question, plaintiffs ask that we not limit ourselves to those definitions, but rather that we look to the term "wages" as it is defined in the income-tax withholding statute to inform how that term should be understood in the em╜ployment-tax context. Because the definition of wages in the FICA statute is so similar to the definition of wages in the income-tax withholding statute, plaintiffs argue, it is axi╜omatic that their interpretations should be the same.

The income-tax withholding provisions, set forth in ╖╖ 3401-3406 of the Tax Code, in╜deed contain a definition of the term "wages" that is substantially the same as the defini╜tion provided for FICA purposes in ╖ 3121(a): "all remuneration (other than fees paid to a public official) for services per╜formed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash." 26 U.S.C. ╖ 3401(a). The sec╜tion that follows, ╖ 3402, sets forth the basic requirement calling for an employer's withholding of an income tax from wages. Sub╜section 3402(o), titled "Extension of withhold╜ing to certain payments other than wages," reads in part as follows:

(1) General rule. -For purposes of this chapter ...

(A) any supplemental unemployment compensation benefit paid to an individ╜ual . . .

shall be treated as if it were a payment of wages by an employer to an employee for a payroll period.

26 U.S.C. ╖ 3402(o).

It is the above-quoted text that provides the statutory underpinning of plaintiffs' posi╜tion. Plaintiffs maintain that the payments in question here are supplemental unemploy╜ment compensation benefits-a term whose content we examine more closely later in this opinion-and they read the quoted text to say that such benefits do not come within the definition of wages. Plaintiffs go on to say that because supplemental unemployment compensation benefits are not wages within the meaning of the income-tax withholding provisions, then neither are they wages for FICA purposes or compensation for RRTA purposes.

In support of their position, plaintiffs refer us to the Report of the Senate Finance Com╜mittee explaining that section of the bill (╖ 803g of H.R. 13270) that was later enacted as ╖ 3402(o) of the Tax Code pursuant to the Tax Reform Act of 1969. The report ex╜plains:

Present law.-Under present law, sup╜plemental unemployment benefits are not subject to withholding because they do not constitute wages or remuneration for ser╜vices.

General reasons for change.- Supplemental unemployment compensation bene╜fits ... paid by employers are generally taxable income to the recipient. Conse╜quently, the absence of withholding on these benefits may require a significant final tax payment by the taxpayer receiv╜ing them. The committee concluded that although these benefits are not wages, since they are generally taxable payments they should be subject to withholding to avoid the final tax payment problem for employees.

S .Rep. No. 91-552, at 268 (1969), reprinted in 1969 U.S.C.C.A.N. 2027, 2305-06. The report concluded that "[t]he withholding re╜quirements ... on wages are to apply to these nonwage payments." Id.

In addition to the statute's text and its legislative history, plaintiffs also point out that during the years in issue, the IRS con╜sistently treated supplemental unemploy╜ment compensation benefits as nonwage pay╜ments and therefore as payments not subject to FICA taxation. As examples, plaintiffs cite Rev. Rul. 56-249, 1956-1 C.B. 488; Rev. Rul. 58-128, 1958-1 C.B. 89; Rev. Rul. 60-330, 1960-2 C.B. 46; Rev. Rul. 77-347, 1977-2 C.B. 362; and Rev. Rul. 80-124, 1980-1 C.B. 212.

On the basis of the foregoing consider╜ations, plaintiffs contend that the law is clear: supplemental unemployment compensation benefits are not subject to FICA taxation because such benefits do not constitute wages within the meaning of ╖ 3121(a).

Defendant disagrees with plaintiffs' posi╜tion. In defendant's view, the nonwage characterization accorded supplemental unemployment compensation benefits in ╖ 3402(o) does not extend to ╖ 3121(a), and, as a result, such benefits remain within the definition of wages for the purposes of FICA. That is the case, defendant contends, because Congress has made clear that the interpretation of wages for purposes of income-tax withhold╜ing is not determinative of the interpretation of wages under FICA because the objectives of the two statutes differ significantly. Thus, the treatment of supplemental unemploy╜ment compensation benefits under FICA, de╜fendant argues, is to be assessed without regard to their characterization as nonwages under ╖ 3402(o).

Defendant concedes, as an initial matter, that the Supreme Court, in addressing this issue, concluded that the law required the term "wages" under FICA to be interpreted in a manner consistent with the term "wages" under ╖ 3401(a) since the two defini╜tions are essentially identical. Rowan Cos. v. United States, 452 U.S. 247, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981). Defendant goes on to point out, however, that the Rowan decision has been superseded by legislative amend╜ment. We begin, then, as does defendant, with the Supreme Court's holding in Rowan.

At issue in Rowan was the question of whether the IRS was acting in accordance with law in treating the value of employer-provided meals and lodging as wages for the purpose of imposing FICA tax, while simul╜taneously failing to treat that value as wages for the purpose of income-tax withholding. Based on an examination of the statutory language and the legislative histories of FICA, FUTA (the Federal Unemployment Tax Act), and the income-tax withholding provisions, the Court concluded that Con╜gress intended a consistent definition of the term "wages." The IRS's regulations, the Court further concluded, failed "to imple╜ment the statutory definition of 'wages' in a consistent or reasonable manner" and were therefore held to be invalid. Id. at 263, 101 S.Ct. 2288.

As indicated, defendant maintains that Rowan is no longer controlling law. In sup╜port of this point, defendant refers us to the legislative history of the Social Security Amendments of 1983, Pub.L. No. 98-21, 97 Stat. 65 (1983), and in particular to the Sen╜ate Report that accompanied S.1, the bill that was subsequently enacted into law. S.Rep. No. 98-23, at 42 (1983), reprinted in 1983 U.S.C.C.A.N. 143, 183. That report deals, inter alia, with a proposed amendment to ╖ 3121(a) of the Tax Code (since enacted into law) that added the following language:

Nothing in the regulations prescribed for purposes of chapter 24 (relating to income tax withholding) which provides an exclu╜sion from "wages" as used in such chapter shall be construed to require a similar exclusion from "wages" in the regulations prescribed for purposes of this chapter.

26 U.S.C. ╖ 3121(a) (last paragraph).

In setting forth the reasons for this "de╜coupling" amendment, the Senate Report ex╜plains that, while the objectives of the social security program differ significantly from the objectives underlying the income-tax with╜holding rules, the Rowan decision would oth╜erwise require that the term "wages" for each of these regimes be interpreted in the same manner in the absence of statutory provisions to the contrary. The amending language was thus intended to correct this result, i. e., to permit the determination of whether amounts are includable in the social security wage base to be made without re╜gard to whether such amounts are treated as wages for income-tax withholding purposes. The report explains:

[T]he committee believes that amounts ex╜empt from income tax withholding should not be exempt from FICA unless Congress provides an explicit FICA tax exclusion.

. . . .

The bill provides that . . . the determina╜tion whether or not amounts are includible in the social security wage base is to be made without regard to whether such amounts are treated as wages for income tax withholding purposes. Accordingly, an employee's "wages" for social security tax purposes may be different from the em╜ployee's "wages" for income tax withhold╜ing purposes.

S.Rep. No. 98-23, at 42 (1983), reprinted in 1983 U.S.C.C.A.N. 143, 183. On the basis of the quoted statute and its legislative history, defendant contends that the content of the term "wages" as expressed in ╖ 3402(o) can╜not be carried over to the content of the term "wages" for FICA purposes.

Plaintiffs challenge this reading of the stat╜ute. The only effect of the legislative words, plaintiffs insist, is to authorize the IRS to exclude wage payments from income-tax withholding without also excluding them from FICA taxation. But, plaintiffs go on to say, in the absence of such an exclusion, there is no basis for distinguishing between wages for income-tax withholding purposes and wages for FICA purposes because the basic definition of each remains the same. From plaintiffs' point of view then, the only way wage amounts can be treated differently is in the presence or absence of a regulatory exclusion.

We agree with plaintiffs' position. Con╜gress has indeed gone on record as saying that the income-tax withholding system and the FICA-tax withholding system each serves a different interest which may, in turn, dictate differences in the make-up of their respective wage bases. But, as plain╜tiffs correctly point out, the statute that Congress enacted to facilitate such differentiation is not self-executing-its operation depends on the promulgation of regulations that in fact establish distinctions between wages for income-tax withholding purposes and wages for FICA-tax withholding pur╜poses. Absent such regulations, this court has no basis for distinguishing between the content of the term "wages" for income-tax withholding purposes and the content of that term for FICA-tax withholding purposes. Simply put, the holding of Rowan remains in place.

This same conclusion was expressed by the Federal Circuit in Anderson v. United States, 929 F.2d 648 (Fed.Cir.1991). In that case, the question was whether payments provided to civilian teachers employed by the Department of Defense in reimbursement of their overseas lodging costs constituted wages for FICA purposes. The court deter╜mined that the payments were specifically excluded from income and, hence, were not wages.

In reaching this conclusion, the court was required to address the government's conten╜tion that the addition of the parenthetical phrase "(including benefits)" to the statutory definition of FICA wages by the Deficit Re╜duction Act of 1984, Pub.L. No. 98-369, ╖ 531, 98 Stat. 884 (1984), made the pay╜ments in question subject to FICA taxes. The argument was rejected: "We see no basis for giving the amendment '(including benefits)' greater force in FICA than it has in connection with income taxes." 929 F.2d at 653. The court then added this important footnote:

Indeed, in light of the Supreme Court's decision in Rowan Cos., and the legislative response to Rowan Cos. in the [Social Se╜curity Amendments (SSA) ] of 1983, we are constrained to interpret the "(including benefits)" language added by the [Deficit Reduction Act] in the same manner in both statutes. The SSA amendment provided for treating "wages" in both statutes dif╜ferently, but only through exclusions pro╜mulgated by regulation. See 26 U.S.C. ╖ 3121(a) (1982 & Supp. II 1984) (last paragraph). There is no regulation point╜ed to which indicates that any different effect is to be attributed to "(including benefits)" as between the FICA and in╜come tax withholding statutes. Thus, un╜der Rowan Cos. the identical change to these statutory sections having substan╜tially similar language is to be interpreted as having the same force and effect in each provision.

Id . at 653 n. 10 (emphasis added).

Defendant endeavors to overcome the sig╜nificance of the quoted text by pointing out that it is not a holding of the case but merely dicta. But that observation does not under╜cut the significance of the text as a carefully thought-out expression of opinion on a mat╜ter that was of importance in that ease and that is of even greater importance here. The label of "dicta" does not overcome the analyt╜ical force of the quoted text. For the rea╜sons stated, then, we accept plaintiffs' prem╜ise that, barring differences in the exclusions to the two statutes, the fundamental defini╜tion of wages under the FICA and income tax withholding statutes are to be understood as being identical. ⁷

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⁷ During oral argument, defendant's counsel re╜ferred the court to several FICA-tax cases in which the courts drew upon legislative history to bolster their conclusion regarding the intended scope of a provision that retroactively amended the effective dates of certain FICA-tax law changes, including the "decoupling provision" quoted above (the Rowan override provision). See, e.g., Canisius College v. United States, 799 F.2d 18 (2d Cir.1986), cert. denied, 481 U.S. 1014, 107 S.Ct. 1887, 95 L.Ed.2d 495 (1987); Temple Univ. v. United States, 769 F.2d 126 (3d Cir.1985), cert. denied, 476 U.S. 1182, 106 S.Ct. 2914, 91 L.Ed.2d 544 (1986).

We do not think these cases are helpful to defendant's position. Without getting into spe╜cifics, it is enough to note that in the cited cases, the courts enlisted the aid of legislative history to reinforce their interpretation of the words of a statute. Here, by contrast, defendant would have us engage legislative history to stand in place of the words of a statute. Specifically, defendant would have the court draw upon the legislative history of the "decoupling provision" to establish a distinction between wages for FICA purposes and wages for income-tax purposes de╜spite the absence of any law, expressed either in statute or regulation, creating such a distinction. The short answer to this contention is that courts are authorized to interpret the law, not rewrite the law.

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II.

Defendant argues, however, that despite our interpretation of Rowan and the subse╜quent amending legislation, the text of the FICA and income tax withholding statutes themselves preclude a finding that a non╜wage item under ╖ 3402(o) necessarily constitutes a nonwage item under ╖ 3121(a). This is the case, defendant maintains, be╜cause only two of the three items listed as nonwages in ╖ 3402(o)-annuity payments and sick pay-are also excluded from the definition of wages under FICA. ⁸ The third non-wage item under ╖ 3402(o)-the claimed supplemental unemployment compensation benefits in question here-are provided no similar exclusion under FICA. ⁹ From that difference in statutory structure, defendant asks us to conclude that if Congress had intended supplemental unemployment com╜pensation benefits to be exempt from FICA, it would have made them the subject of a specific exclusion as it did with annuity pay╜ments and sick pay. Absent such an exclu╜sion, defendant maintains, supplemental un╜employment compensation benefits must be subject to employment tax.

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⁸ ╖ 3402(o) provides:

Extension of withholding to certain pay╜ments other than wages.-

(1) General rule.- For purposes of this chapter (and so much of subtitle F as relates to this chapter)-

(A) any supplemental unemployment com╜pensation benefit paid to an individual,

(B) any payment of an annuity to an individ╜ual, if at the time the payment is made a request that such annuity be subject to with╜holding under this chapter is in effect, and

(C) any payment to an individual of sick pay which does not constitute wages (determined without regard to this subsection), if at the time the payment is made a request that such sick pay be subject to withholding under this chapter is in effect,

shall be treated as if it were a payment of wages by an employer to an employee for a payroll period.

26 U.S.C. ╖ 3402(o).

⁹ ╖ 3121(a) reads in part:

Wages .-For purposes of this chapter, the term "wages" means all remuneration for em╜ployment, including the cash value of all remu╜neration (including benefits) paid in any medi╜um other than cash; except that such term shall not include-

═══════════════ . . . .

(2) the amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees gen╜erally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of-

(A) sickness or accident disability (but, in the case of payments made to an employee or any of his dependents, this subparagraph shall exclude from the term "wages" only payments which are received under a workmen's com╜pensation law), or

(B) medical or hospitalization expenses in connection with sickness or accident disability, or

═══════════ . . . .

(4) any payment on account of sickness or accident disability, or medical or hospitaliza╜tion expenses in connection with sickness or accident disability, made by an employer to, or on behalf of, an employee after the expiration of 6 calendar months following the last calen╜dar month in which the employee worked for such employer;

(5) any payment made to, or on behalf of, an employee or his beneficiary

═══════════════ . . . .

(B) under or to an annuity plan which, at the time of such payment, is a plan described in section 403(a),

═══════════════ . . . .

(D) under or to an annuity contract de╜scribed in section 403(b), other than a payment for the purchase of such contract which is made by reason of a salary reduction agree╜ment (whether evidenced by a written instru╜ment or otherwise) . . . .

26 U.S.C. ╖ 3121(a).

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Although defendant's argument has ap╜peal, it is not correct. The problem with the argument is that it fails to recognize that the provisions for withholding that Congress en╜acted in ╖ 3402(o) were prompted by the income-tax liabilities associated with two fun╜damentally different categories of employee benefit payments. The first category in╜volved payments that Congress recognized as constituting nonwage payments under exist╜ing law. Included here were supplemental unemployment compensation benefits ("[u]n╜der present law, supplemental unemployment compensation benefits are not subject to withholding because they do not constitute wages or remuneration for services," S.Rep. No. 91-552, at 268 (1969), reprinted in 1969 U.S.C.C.A.N. 2027, 2305-06) and wage con╜tinuation payments (sick pay) made by third╜party payors ("no tax is specifically required to be withheld upon any wage continuation payment made by a person who is not the employer," S.Rep. No. 96-1033, at 11 (1980), reprinted in 1980 U.S.C.C.A.N. 7218, 7227). The second category was limited to annuity payments, payments that Congress recog╜nized as "remuneration" that "present law specifically excludes . .. from the definition of wages." S.Rep. No. 91-552, at 268 (1969). ¹⁰

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¹⁰ The Tax Code sections to which Congress was referring-26 U. S. C. ╖╖ 3401(a)(12)(B) and 3121(a)(5)(B) (1964)-each excluded from wages a payment "under or to an annuity plan which, at the time of such payment, is a plan described in section 403(a)."

******

As to both categories of income, the legis╜lative concern was the same: the absence of income-tax withholding from the amount be╜ing paid confronted the recipients of these benefits with unanticipated year-end tax liabilities-a financial burden that can be as╜sumed to have been neither welcome nor easily discharged. It was the alleviation of these unfunded year-end tax liabilities that led to the enactment of the "pay-as-you-go" income-tax withholding provisions set forth in ╖ 3402(o). ¹¹

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¹¹ As originally enacted in 1969, ╖ 3402(0) ex╜tended withholding only to supplemental unem╜ployment compensation benefits and annuity payments. The extension of withholding to sick pay became part of ╖ 3402(o) through an amend╜ment to chat section enacted as Section 4 of Pub.L. No. 96-601, 94 Stat. 3495, 3496-98 (1980).

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Of chief importance here, however, are not the reasons that prompted Congress to enact ╖ 3402(o), but rather the nature of the in╜come that created the need for the legislation in the first instance: nonwage payments on the one hand and specific statutory wage exclusions on the other. It is this difference in the nature of the income addressed in ╖ 3402(o) that explains why defendant is wrong in claiming that the income payments addressed in ╖ 3402(o) remain subject to FICA taxation unless specifically excluded. To put it plainly, payments that are nonwage payments from the start are beyond FICA taxation as much as they are beyond income╜ tax withholding. The taxation of such pay╜ments requires their specific inclusion in the taxing scheme. The legislative treatment of third-party payments of sick pay illustrates this last point well.

As previously noted, wage continuation payments, such as sick pay paid by third╜ party payors, constituted remuneration that was not subject to income-tax withholding because such payments were made by a par╜ty who was not the employer. Congress, as we have explained, addressed the tax burden associated with this absence of withholding by extending income-tax withholding to "any payment to an individual of sick pay which does not constitute wages." 26 U.S.C. ╖ 3402(o)(1)(C). ═ However, no comparable provision was included in the FICA statute. Hence, such third-party payments remained outside the scope of wages for FICA pur╜poses. Congress subsequently addressed this issue as well. In Section 3 of the Omni╜bus Reconciliation Act of 1981, Pub.L. No. 97-123, 95 Stat. 1609, 1662 (1981), Congress added language designating a third-party payor of sick pay as "the employer" for purposes of FICA tax assessments. That language, which we quote below, now ap╜pears as the last sentence of 26 U.S.C. 3121(a). ¹²

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¹² Section 3121(a) concludes as follows:

Except as otherwise provided in regulations prescribed by the Secretary, any third party which makes a payment included in wages solely by reason of the parenthetical matter contained in subparagraph (A) of paragraph (2) shall be treated for purposes of this chapter and chapter 22 as the employer with respect to such wages.

26 U.S.C. ╖ 3121(a) (last sentence).

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To return to our starting point, we think it clear from Congress' treatment of the third ╜party payor issue that the absence of an exclusion from the definition of wages for FICA purposes is not determinative of whether a particular payment is subject to FICA taxation. The question that needs to be asked is whether the payment falls out╜side the definition of wages from the start. If answered in the affirmative, then FICA taxation depends on a specific inclusion in ╖ 3121(a) and, absent that, FICA taxes do not apply. Since supplemental unemploy╜ment compensation benefits "do not consti╜tute wages or remuneration for services," S.Rep. No. 91-522, at 268 (1969), reprinted in, 1969 U.S.C.C.A.N. 2027, 2305-06, their taxation under FICA would require their specific inclusion in ╖ 3121(a). And because there is no specific inclusion of supplemental unemployment compensation benefits in ╖ 3121(a), no FICA taxes apply to such pay╜ments.

III.

To conclude that supplemental unemploy╜ment compensation benefits are not subject to taxation under FICA, however, is not to say that the payments in issue here are in fact supplemental unemployment compensa╜tion benefits as that term is used in ╖ 3402(o). Section 3402(o)(2) defines supple╜mental unemployment compensation benefits as follows:

[A]mounts which are paid to an employee, pursuant to a plan to which the employer is a party, because of an employee's invol╜untary separation from employment (whether or not such separation is tempo╜rary), resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions, but only to the extent such benefits are includ╜ible in the employee's gross income.

26 U.S.C. ╖ 3402(o)(2). In applying the above-quoted statute to the facts of this case, we take heed of the instruction given by the Supreme Court in Crane v. Commissioner, 331 U.S. 1, 6, 67 S.Ct. 1047, 91 L.Ed. 1301 (1947), that "the words of statutes-including revenue acts-should be interpreted where possible in their ordinary, everyday senses." We proceed accordingly.

As noted earlier in this opinion, there are essentially three types of payments at issue: payments to laid-off employees, payments to employees on "standby" ( i. e., reduced hours), and payments to employees who received separation allowances in exchange for their relinquishment of employment with plaintiffs. All payments share a common characteristic: they were made in furtherance of plaintiffs' decision to reduce the size of their railroad╜ing operations and, correspondingly, the size of their employee payrolls. Accordingly, that part of ╖ 3402(o)(2)'s definition that restricts supplemental unemployment compensation benefits to "amounts which are paid to an employee . . . resulting directly from a reduc╜tion in force, the discontinuance of a plant or operation, or other similar conditions" is not at issue here. What is at issue, however, is whether the payments satisfy the require╜ment of "amounts which are paid to an em╜ployee . . . because of an employee's involun╜tary separation from employment."

In defendant's view, none of these pay╜ments qualify as supplemental unemploy╜ment compensation benefits because none satisfies the criteria governing the recogni╜tion of such payments set forth in Rev. Rul. 56-249, 1956-1 C.B. 488. Additionally, de╜fendant argues that the majority of the pay╜ments fail to comply with the provisions of ╖ 3402(o) because the payments were made to employees who had not separated from their employment and to employees whose separation was voluntary rather than invol╜untary.

In assessing the merits of these argu╜ments, we begin with the contention that Rev. Rul. 56-249 prescribes the criteria nec╜essary to the qualification of payments as supplemental unemployment compensation benefits under ╖ 3402(o). The question ad╜dressed in the revenue ruling was whether benefits from an employer-funded trust cre╜ated to supplement state unemployment ben╜efits paid to employees laid off as the result of a reduction in force represented wages for purposes of the taxes imposed by FICA and FUTA, as well as for purposes of income-tax withholding. In answering this question - apparently then a question of first impres╜sion - the IRS looked to the conditions for employee eligibility established under the trust's management plan and, on the basis of these conditions, concluded that the pay╜ments, although income, were not wages. Accordingly, the IRS ruled that neither FICA nor FUTA taxes applied and that the payments were not subject to income-tax withholding. Defendant now argues that the conditions governing the trust plan consid╜ered in the revenue ruling ¹³ establish the baseline for the qualification of supplemental unemployment compensation benefits under ╖ 3402(o). We cannot accept this argument.

*******

¹³ The conditions for payment eligibility under the plan considered in Rev. Rul. 56-249 were the following:

(1) [T]he benefits are paid only to unemployed former employees of M Company who are on layoff from the Company; (2) eligibility for benefits depends on the meeting of prescribed conditions subsequent to the termination of the employment relationship with M Company; (3) benefits are paid by the trustees of independent trust funds; (4) the amount of a weekly benefit payable under the plan is based upon (a) the amount of the weekly benefit payable under the appropriate State unemployment compen╜sation laws, (b) the amount of other remunera╜tion allowable under such State unemployment compensation laws, and (c) the amount of straight-time weekly pay after withholding of all taxes and contributions; (5) the duration of weekly benefits payable under the plan de╜pends upon a combination of (a) the number of accumulated credited units, and (b) the fund position; (6) a right, if any, to benefits does not accrue until a prescribed period after the ter╜mination of the employment relationship with Al Company has elapsed; (7) the benefits ulti╜mately paid are not attributable to the render╜ing of particular services by the recipient dur╜ing the period of his employment; and (8) no employee has any right, title, or interest in or to any of the assets of the fund or in or to any Company contributions thereto until such time as he is qualified and eligible to receive a benefit therefrom.

Rev. Rul. 56-249, 1956-1 C.B. 488, 492.

*******

As an initial matter, the revenue ruling offers no analysis to explain why the plan conditions it recites are sufficient to take the payments in question outside the definition of "wages." Clearly, such an explanation was called for, given, in particular, the expansive definition of the term "employment" that was announced by the Supreme Court's decision, some ten years earlier, in Social Security Bd. v. Nierotko, 327 U.S. 358, 360-66, 66 S.Ct. 637, 90 L.Ed. 718 (1946) (holding that the term "service" as used in the Social Security Act's definition of "employment" means not only work actually done, but also "the entire employer-employee relationship for which compensation is paid to the employee by the employer"). Absent an explanation of its result, Rev. Rul. 56-249 can have no persua╜sive force. It is, therefore, too ambitious an argument for defendant now to say that we should look to Rev. Rul. 56-249 as our guide in deciding whether the payments in issue here come within the terms of ╖ 3402(o). We decline to do so. We are reinforced in this conclusion by the fact that the criteria stated in Rev. Rul. 56-249 were not incorpo╜rated into ╖ 3402(o) even though Congress, it may justifiably be assumed, was cognizant of contemporaneous administrative rulings when, in the enactment of ╖ 3402(o), it iden╜tified supplemental unemployment compen╜sation benefits as not being subject to with╜holding "[u]nder present law." S.Rep. No. 91-502, at 228 (1969), reprinted in 1969 U.S.C.C.A.N. 2021, 2305.

A.

Turning then to defendant's more specific objections, we consider first those payments that were made to laid-off employees. As a result of the down-sizing of the railroad oper╜ations, a significant portion of plaintiffs' em╜ployees were placed into layoff status and in that status became eligible for layoff benefits. However, employees who failed to exer╜cise their seniority to obtain another position or who declined to transfer to an available position elsewhere in the carrier's system became ineligible for the continued receipt of benefits.

Entitlement to these benefits flowed from various employee job-protection measures imposed on rail carriers by the Interstate Commerce Commission and by collectively bargained shopcraft and clerical employee agreements. Although the benefits provided under these measures varied, in general the amount of the payment represented a fixed percentage of the employee's average month╜ly compensation, while the duration of the payment was governed by the worker's length of service with the railroad. In a typical situation, a laid-off employee with fif╜teen years of service could expect to receive a monthly benefit equal to 60% of his average monthly compensation for a period of up to 60 months.

In our view, these payments qualify as supplemental unemployment compensation benefits under ╖ 3402(o): "amounts . . . paid to an employee, pursuant to a plan to which the employee is a party, because of an em╜ployee's involuntary separation from employ╜ment . . . resulting directly from a reduction in force." Defendant argues to the contrary. The term "separation," defendant points out, is generally understood to signify "[t]he ac╜tion of separating or parting." XIV The Oxford English Dictionary 999 (2d ed.1989). Illustrative of this usage, defendant further notes, is the meaning associated with the phrase "separation from employment" in con╜ventional speech: the "termination of a con╜tractual relationship." Webster's Third New International Dictionary 2070 (1993). Here, however, there was no termination of the employment relationship - the laid-off em╜ployee remained on the carrier's payroll - and, thus, in defendant's view, no separation from employment occurred.

We do not agree with this argument. For purposes of income-tax withholding and FICA-tax withholding, the term "employ╜ment" is defined as the performance of "any service" by an employee for an employer. 26 U.S.C. ╖╖ 3401(d) and 3121(b). Thus, "separation from employment" within the meaning of ╖ 3402(o) refers to a discontinuance in the performance of service by the employee for the employer rather than, as defendant would have it, a discontinuance of the em╜ployer-employee relationship in its entirety. Since a laid-off employee is not performing any service for the employer, such employee has undergone a "separation from employ╜ment" within the meaning of ╖ 3402(o).

In reaching this conclusion, we re╜main mindful of the Supreme Court's reading of the words "any service" in the Social Security Act's definition of employment: " 'service' . . . means not only work actually done but the entire employer-employee rela╜tionship for which compensation is paid to the employee by the employer." Nierotko, 327 U.S. at 366, 66 S.Ct. 637. While these words are certainly expansive enough to sweep into the employment relationship any payment made by an employer on account of an employee-hence making any such pay╜ment a wage-nevertheless, ╖ 3402(o) pay╜ments must be regarded as an exception to this broad pronouncement. In that later-enacted section, Congress specifically identi╜fied employer payments made "because of an employee's involuntary separation from em╜ployment" as nonwages, i.e. , as payments occurring outside the employment relation╜ship. 26 U.S.C. ╖ 3402(o)(2). Therefore, if ╖ 3402(o) is to be accorded the meaning that Congress intended-as surely it must-then the "separation from employment" to which it refers must be understood to refer to an employee's separation from active engage╜ment in the employer s business. Accordingly, in this case, the payments made to a laid-off employee qualify as supplemental unem╜ployment compensation benefits.

B.

The second category of benefit pay╜ments at issue here involves payments made to employees identified as "guaranteed extra-boards" and "reserve pools"-employees whose full-time positions were eliminated through agreements negotiated between the railroads and their operating unions. Under the terms of these agreements, the affected employees remained subject to recall on an as-needed basis, essentially creating an emergency work force. Further, the em╜ployees in these standby categories remained on the railroad's active service payroll and were guaranteed a certain minimum compen╜sation per pay period adjusted by amounts paid for work actually performed. (Guaran╜teed extraboards, the group of employees with the greater level of seniority, were com╜pensated at a higher rate than reserve pools.)

The dispute in this category centers on the amounts paid to the extraboards and reserve pools while on standby, i. e., the amounts paid as the guaranteed minimum. Plaintiffs con╜tend that these minimum payments repre╜sented compensation intended to redress a partial loss of employment arising from a work-force reduction. Such payments, plain╜tiffs therefore argue, are made in conse╜quence of an involuntary separation and are thus properly regarded as supplemental un╜employment compensation benefits. In sup╜port of this position, plaintiffs refer us to several administrative source materials, in╜cluding a revenue ruling, Rev. Rul. 70-189, 1970-1 C.B. 134; a general counsel memo╜randum, G.C.M. 34190 (Aug. 29, 1969); and private letter rulings, P.L.R. 8736030 (June 8, 1987) and P.L.R. 8506018 (Nov. 8, 1984), all of which are said to affirm the proposition that a reduction in hours is equivalent to a partial separation that in turn satisfies the involuntary separation requirement of ╖ 3402(o).

We have considered the cited materials but do not find them helpful. While these sources do indeed equate a forced reduction in hours with an involuntary separation un╜der ╖ 3402(o), they offer no explanation for this result and we can think of none. As noted above (in the discussion of layoff bene╜fits), we construe - the reference in ╖ 3402(o)(2) to a "separation from employment" as contemplating an employee's re╜lease from an active role in the discharge of the employer's business. That is not what we encounter here. Employees identified as guaranteed extraboards and reserve pools were carried on the company's active payroll, received a guaranteed minimum compensa╜tion for which, in turn, they were obliged to remain subject to recall on an as-needed basis, and were compensated at the full daily rate for all days actually worked. In short, these employees may have been underem╜ployed but they were not unemployed. Hence, there was no "separation from em╜ployment" within the meaning of ╖ 3402(o)(2).

C.

The last category of payments in dis╜pute here are separation payments. In or╜der to accelerate the necessary reductions in work force, the railroads negotiated with the various operating unions for the right to offer employees the option of terminating their employment relationship with the com╜pany (and simultaneously relinquishing all rights and benefits) in exchange for a separa╜tion payment. With the approval of the rank and file of union membership, such offers were eventually extended to all groups of employees-those on layoff status, those on standby, and those holding full-time positions with the railroad. In every instance, the employee who elected to terminate his or her employment was required to acknowledge, in -writing, that his or her resignation was a voluntary action taken in response to the carrier's offer of a severance payment.

It is this last-noted fact that brings us immediately to the core of the dispute con╜cerning separation payments. Plaintiffs con╜tend that despite the seemingly voluntary nature of the employee's action, a decision to terminate was, in reality, an involuntary one prompted by the on-going threat of job loss that the workers faced because of the carri╜ers' unrelenting efforts to downsize opera╜tions. In other words, it was a matter of making the best of a bad situation: separa╜tion payments represented a better deal than the loss of a full-time job. Based on these circumstances, plaintiffs say that the accep╜tance of separation payments represented a forced choice-an involuntary separation in disguise-that now justifies treating those payments as supplemental unemployment compensation benefits under ╖ 3402(o).

Defendant sees the facts quite differently. Defendant points out that most of plaintiffs' employees could not have been terminated without plaintiffs' incurring substantial liabilities to those employees for protective pay╜ments. Against that background of assured wage support, defendant argues, it could not have been the economic threat of job loss that prompted an employee's decision to elect a separation payment, but rather the sub╜stantial attractiveness of the payment in its own right. In some cases, as for example with engine service personnel, the separation payments were as much as $75,000. In short, defendant sees an employee's accep╜tance of a separation payment and the result╜ing termination of employment as a purely voluntary action. By this reasoning then, separation payments are ineligible for treat╜ment as supplemental unemployment com╜pensation benefits.

We think both views have their place in this lawsuit. Certainly, the employee who elects a separation payment in lieu of layoff benefits cannot be said to have voluntarily separated from employment. In that partic╜ular situation, the employee is not electing to separate from employment-that change in status has already taken place-but is, in╜stead, electing to resolve the uncertainty as╜sociated with a separation from employment of indefinite duration ( i.e. , the layoff) in favor of a permanent separation. The employee's election to permanently relinquish his or her status as an employee after having been in╜voluntarily separated from employment in the first instance does not alter the character of the initial separation: it remains involun╜tary. As a result, the decision to accept such separation payments does not make the pay╜ments ineligible for treatment as supplemen╜tal unemployment compensation benefits un╜der ╖ 3402(o).

As to the other separation payments in issue here, however, a different outcome is required. Specifically, employees who elect separation in lieu of remaining in their exist╜ing positions (including those employees who elect separation in lieu of standby), cannot be described as having been involuntarily sepa╜rated. For these employees, the decision to terminate the employment relationship is their own, not their employer's. And this remains true even if it was not the attractive╜ness of the separation payment that persuad╜ed the employee to act but rather the possibility of a layoff or the dislocation of a forced transfer that prompted the termination decision. Though avoidance of economic uncer╜tainty may indeed force such a decision, where the decision itself originates with the employee, the separation must be regarded as voluntary. In these situations, then, the separation payments do not qualify as sup╜plemental unemployment compensation bene╜fits.

Plaintiffs insist, however, that even if the court holds that the separation payments do not qualify as supplemental unemployment compensation benefits, these payments nev╜ertheless remain beyond the reach of em╜ployment taxes because they do not, in plaintiffs' view, represent compensation for services and, hence, do not constitute wages. In support of this position, plaintiffs point to a number of factors which, they say, demon╜strate the noncompensatory nature of the separation payments. Separation payments were not calculated, for example, with reference to factors traditionally used to deter╜mine employee compensation-such as length of service or rate of pay-but instead were negotiated craft by craft without re╜gard to individual employment differences. All active trainmen, for instance, could elect to separate for a payment of $50,000 regard╜less of position (brakeman or conductor). Moreover, unlike standard compensation ar╜rangements, the separation agreements were not negotiated at the outset of the employ╜ment relationship to establish the terms of service and payment but were instead nego╜tiated in the course of a work-force reduc╜tion in order to eliminate positions. Thus, the separation payments had their origin in the cessation of employment rather than in its continuance. Finally, plaintiffs make the point that the separation payments were es╜sentially "buy-out" payments, i.e., amounts paid to separating employees in exchange for their release of contract employment rights. According to plaintiffs, then, the no╜tion of payment for service which underlies the concept of wages is simply not present in the case of the separation payments at issue here.

We think plaintiffs are applying the defini╜tion of wages too narrowly. As has been repeated several times in this opinion, the term "wages" is defined as "all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash." 26 U.S.C. ╖ 3121(a). Pursuant to this definition then, the value of the benefits and protections that each employee held in his or her position ╜rights to vacation pay, sick pay, layoff pay, and seniority-constituted part of the em╜ployee's total compensation package and, hence, constituted wages. Therefore, when these job-related benefits are relinquished in favor of a lump-sum payment, the transaction simply amounts to a redemption, paid in cash, of wage amounts previously paid in kind. Because a separation payment is sim╜ply an exchange of equivalent values, what were wages at the start remain wages at the end.

Plaintiffs insist, however, that payments received in exchange for the release of em╜ployment lights are not wages subject to employment taxes. In support of this posi╜tion, plaintiffs rely on North Dakota State Univ. v. United States, 255 F.3d 599 (8th Cir.2001), a case holding that severance pay╜ments made to tenured faculty members in exchange for their early retirement did not constitute remuneration for services and, hence, did not constitute wages. The basis for this holding was the court's conclusion that the relinquishment of tenure represent╜ed the relinquishment of rights to "continued employment absent fiscal constraints or ade╜quate cause for termination." Id. at 607. Plaintiffs now draw on this same reasoning, saying that the job protection and seniority rights relinquished here are, like tenure, rights to continued employment. Hence, they argue, the separation payments received in exchange for the relinquishment of these rights are not wages.

Although this court is not bound by a decision of the Eighth Circuit, it recognizes that, as a trial court, it should endeavor to follow the teaching of higher authority when╜ever it can reasonably do so. In this in╜stance, however, such adherence is not possi╜ble-at least not without reversing course on what we have thus far decided. This court can see no basis upon which to distinguish between the tenure rights considered in North Dakota and the contract rights at issue here. In each case, the surrender of these rights in return for a cash payment represents the surrender of enforceable rights to future earnings in return for a present sum. Because the rights being sur╜rendered are integral to the employment re╜lationship-they are part and parcel of the job protections and job benefits to which the employee may lay claim in return for his or her labor-they must be considered wages. And whether accrued over the term of the employment relationship or redeemed at present value, these rights represent remu╜neration for services and, hence, are wages.

CONCLUSION

For the reasons stated above, we grant in part and deny in part both plaintiffs' motion for partial summary judgment and defen╜dant's cross-motion for summary judgment.

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