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Nature of Suit Code: 226
Nature of Suit: 
Cause of Action: 

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United States Court of Appeals 

for the Federal Circuit ______________________ 

LOUIS J. BALESTRA, JR., PHYLLIS BALESTRA,

Plaintiffs-Appellants

v.

UNITED STATES,

Defendant-Appellee

______________________ 

2014-5127

______________________ 

Appeal from the United States Court of Federal 

Claims in No. 1:09-cv-00283-VJW, Judge Victor J. Wolski.

______________________ 

Decided: October 13, 2015

______________________ 

MARY MONAHAN, Sutherland Asbill & Brennan LLP ̧ 

Washington, DC, argued for plaintiffs-appellants. Also 

represented by ADAM B. COHEN. 

JONATHAN S. COHEN, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by JENNIFER MARIE RUBIN,

CAROLINE D. CIRAOLO. 

______________________ 

Before LOURIE, PLAGER, and DYK, Circuit Judges.

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2 BALESTRA v. US

PLAGER, Circuit Judge.

INTRODUCTION

This is a tax refund case. The Balestras seek a refund 

of $3,285.26 for Federal Insurance Contribution Act 

(“FICA”) tax paid on certain deferred compensation—

retirement benefits in this case—that Mr. Balestra will 

never receive due to his employer’s bankruptcy proceedings. 

The tax was based on a calculation of the “amount deferred” under 26 U.S.C. § 3121(v)(2)(A) (2000). Congress 

did not define the phrase “amount deferred.” Instead, the 

Department of the Treasury (“Treasury”) promulgated a 

regulation defining the “amount deferred” in terms of the 

deferred compensation’s “present value.” This definition 

prohibited any consideration of an employer’s financial 

condition (e.g., bankruptcy) in calculating the amount 

deferred. See 26 C.F.R. § 31.3121(v)(2)-1(c)(2)(ii).

The Balestras challenge this regulation as inconsistent with the statute, citing the analysis required by 

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). They also contend that the 

regulation is arbitrary and capricious under Motor Vehicle 

Manufacturers Ass’n of the United States, Inc. v. State 

Farm Mutual Automobile Insurance Co., 463 U.S. 29 

(1983). 

After exhausting their administrative remedies before 

the Internal Revenue Service, they brought suit in the 

U.S. Court of Federal Claims seeking a refund of the 

taxes paid. When the trial court denied them a remedy,

they brought this appeal.

BACKGROUND

A.

FICA tax includes both the social security tax and the 

hospital insurance tax. See 26 U.S.C. §§ 3101(a)–(b). 

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BALESTRA v. US 3

This case concerns FICA tax and the hospital insurance 

tax in particular. The hospital insurance tax is imposed 

on every individual’s income. Id. § 3101(b). The tax is 

collected by a withholding mechanism. Id. § 3102(a). The 

taxpayer’s employer collects and remits the tax due by 

deducting the amount of the tax from the employee’s 

wages as and when paid. Id.

For the relevant 2004 tax year, the hospital insurance 

tax was 1.45% of an individual’s “wages” received with 

respect to employment. Id. § 3101(b)(6); 26 C.F.R. 

§ 31.3101-2(c). “Wages” are defined in 26 U.S.C. § 3121(a) 

and include the deferred compensation at issue. On 

appeal, the parties do not dispute this fact.

A critical question is when the wages are received.

Generally, wages are received when they are paid by 

the employer to the employee, and wages are paid by the 

employer when they are actually or constructively paid. 

26 C.F.R. § 31.3121(a)-2. The same rule is generally true 

for FICA tax purposes. Id. § 31.3121(v)(2)-1(a)(1).

However, some wages—including the deferred compensation at issue here—are treated differently under the 

“special timing rule” for FICA tax purposes. Id.

§ 31.3121(v)(2)-1(a)(2). This special timing rule only 

applies to wages under 26 U.S.C. § 3121(a) if those wages 

are from a “nonqualified deferred compensation plan” as 

described in 26 C.F.R. § 31.3121(v)(2)-1(b). Id. Both 

Congress and Treasury define “nonqualified deferred 

compensation plan.” See 26 U.S.C. § 3121(v)(2)(C) (Congress’s definition); 26 C.F.R. § 31.3121(v)(2)-1(b) (Treasury’s definition). The parties agree that the plan at issue 

is such a plan.

With respect to nonqualified deferred compensation 

plans, Congress provided that: 

Any amount deferred under a nonqualified deferred compensation plan shall be taken into acCase: 14-5127 Document: 43-2 Page: 3 Filed: 10/13/2015
4 BALESTRA v. US

count for purposes of this chapter as of the later 

of—(i) when the services are performed, or (ii) 

when there is no substantial risk of forfeiture of 

the rights to such amount.

26 U.S.C. § 3121(v)(2)(A) (emphasis added). 

Some nonqualified deferred compensation plans—

including the plan at issue—are also “nonaccount balance 

plans” as described in 26 C.F.R. § 31.3121(v)(2)-1(c)(2). 

For such plans, Treasury defined an “amount deferred” in 

terms of the “present value” of the deferred compensation 

(the future payments). 26 C.F.R. § 31.3121(v)(2)-1(c)(2)(i).

Treasury defined “present value” in this context: 

For purposes of this section, present value means 

the value as of a specified date of an amount or 

series of amounts due thereafter, where each

amount is multiplied by the probability that the 

condition or conditions on which payment of the 

amount is contingent will be satisfied, and is discounted according to an assumed rate of interest 

to reflect the time value of money. For purposes 

of this section, the present value must be determined as of the date the amount deferred is required to be taken into account as wages under 

paragraph (e) of this section using actuarial assumptions and methods that are reasonable as of 

that date. For this purpose, a discount for the 

probability that an employee will die before commencement of benefit payments is permitted, but 

only to the extent that benefits will be forfeited 

upon death. In addition, the present value 

cannot be discounted for the probability 

that payments will not be made (or will be 

reduced) because of the unfunded status of 

the plan, the risk associated with any 

deemed or actual investment of amounts deferred under the plan, the risk that the emCase: 14-5127 Document: 43-2 Page: 4 Filed: 10/13/2015
BALESTRA v. US 5

ployer, the trustee, or another party will be 

unwilling or unable to pay, the possibility of 

future plan amendments, the possibility of a 

future change in the law, or similar risks or 

contingencies. Nor is the present value affected 

by the possibility that some of the payments due 

under the plan will be eligible for one of the exclusions from wages in section 3121(a).

Id. § 31.3121(v)(2)-(1)(c)(2)(ii) (emphasis added).

B.

As a result of this statutory and regulatory background, the Balestras effectively paid FICA tax on wages 

they will never receive.

Mr. Balestra was employed as a pilot by United Airlines (“United”) from January 29, 1979 until his retirement on October 1, 2004. Upon retirement, Mr. Balestra 

was eligible to receive retirement benefits through a nonqualified deferred compensation plan that was also a 

nonaccount balance plan. He was to receive, inter alia, 

continuing payments for the rest of his life. He elected to 

start his benefits effective the day of his retirement. 

United, as his employer, therefore withheld hospital 

insurance tax from Mr. Balestra in the 2004 tax year. Mr. 

and Mrs. Balestra filed a joint return for that tax year.

The tax withheld by United was based on the thenapplicable 1.45% statutory tax rate applied to the present 

value of the deferred compensation that Mr. Balestra was 

to receive under the plan. In compliance with the statute 

and regulation at issue, United calculated the present 

value of the deferred compensation to be $289,601.18. 

United therefore withheld 1.45% of this amount 

($4,199.22) in hospital insurance tax from Mr. Balestra.

United was set to pay Mr. Balestra retirement benefits for the duration of his life. However, United had 

entered bankruptcy proceedings in 2002, and its obligaCase: 14-5127 Document: 43-2 Page: 5 Filed: 10/13/2015
6 BALESTRA v. US

tions to pay these benefits were eventually discharged in 

those proceedings. United ceased paying benefits to Mr. 

Balestra in 2010.

As a result, Mr. Balestra actually received only 

$63,032.09 in benefits, even though he effectively 

(through his employer’s withholding) paid a hospital tax 

based on $289,601.18 in benefits. Since the Balestras 

filed a joint tax return in 2004, they seek a refund of 

$3,285.26—the amount of tax paid on compensation they 

will never receive.

In May 2007, the Balestras filed an administrative 

claim before Treasury requesting a refund of the tax paid. 

That claim was denied.

In May 2009, the Balestras filed the present action for 

a refund in the United States Court of Federal Claims

(“trial court”). The trial court granted the Government’s 

motion for summary judgment and denied the Balestras’ 

cross-motion for summary judgment. The trial court 

determined, inter alia, that the regulation at issue, 37 

C.F.R. § 3121(v)(2)-1(c)(2)(ii), satisfies Chevron and State 

Farm. The trial court also denied as moot the Balestras’ 

motion to amend their complaint to add a defense. 

The Balestras timely appealed. Before this court, 

they argue that the regulation does not satisfy Chevron or 

State Farm. They contend that under the terms of the 

governing statute, the regulation is invalid or inapplicable 

to their situation because United was in bankruptcy 

proceedings when the deferred compensation’s present 

value was calculated. They also contend that the regulation is arbitrary and capricious because it departs from 

the plain meaning of “present value” without a sufficient 

explanation.

We have jurisdiction under 28 U.S.C. § 1295(a)(3).

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BALESTRA v. US 7

DISCUSSION

We review the trial court’s grant of summary judgment without deference. Consolidation Coal Co. v. United 

States, 615 F.3d 1378, 1380 (Fed. Cir. 2010). The trial

court was bound by the Rules of the United States Court 

of Federal Claims (“RCFC”). Under those rules, summary 

judgment is proper “if the movant shows that there is no 

genuine dispute as to any material fact and the movant is 

entitled to judgment as a matter of law.” RCFC 56(a). 

We review the court’s denial of a motion to amend a 

complaint for abuse of discretion. Shinnecock Indian 

Nation v. United States, 782 F.3d 1345, 1348 (Fed. Cir. 

2015).

We agree with the Balestras that, regarding an agency with rulemaking authority such as Treasury, we review the agency’s regulatory interpretation of a statute it 

administers under the Supreme Court’s guidance in 

Chevron. See Mayo Found. for Med. Educ. & Research v. 

United States, 562 U.S. 44, 52–58 (2011); Dominion Res., 

Inc. v. United States, 681 F.3d 1313, 1317 (Fed. Cir. 

2012).1 We evaluate the agency’s explanation for its 

1 Congress delegated authority to Treasury to prescribe the necessary rules and regulations for the statute 

at issue because it is part of Title 26 of the U.S. Code. See 

26 U.S.C. § 7805(a). Treasury determined that, with 

regard to the regulation at issue here, it need not follow 5 

U.S.C. § 553(b) and engage in formal rulemaking. Treasury acted under § 7805(a) and promulgated the final rule 

after publishing the proposed rule; soliciting and addressing public comments; and holding a public hearing. See 

FICA Taxation of Amounts Under Employee Benefit 

Plans, 61 Fed. Reg. 2194, 2195, 2199 (proposed Jan. 25, 

1996); Federal Insurance Contributions Act (FICA) Taxation of Amounts Under Employee Benefit Plans, 64 Fed. 

Reg. 4542, 4546 (Jan. 29, 1999); Federal Insurance Con-

 

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action under State Farm to determine if it is arbitrary or 

capricious.2 Mayo, 562 U.S. at 52–58; Dominion, 681 F.3d 

at 1317.

I.

Treasury’s Regulation Satisfies Chevron

Under the Chevron framework, we begin by using the 

ordinary tools of statutory construction to determine 

whether Congress’s intent is clear regarding the precise 

question at issue. Chevron, 467 U.S. at 842–43, 843 n.9; 

City of Arlington v. F.C.C., 133 S. Ct. 1863, 1868 (2013). 

These tools include the statute’s text and structure, 

canons of statutory construction, and legislative history. 

Gilead Scis., Inc. v. Lee, 778 F.3d 1341, 1348 (Fed. Cir. 

2015).3

tributions Act (FICA) Taxation of Amounts Under Employee Benefit Plans; Correction, 64 Fed. Reg. 15687 (Apr. 

1, 1999).

2 This analysis often overlaps with the second step 

of the Chevron framework. See, e.g., Nat’l Org. of Veterans’ Advocates, Inc. v. Sec’y of Veterans Affairs, 669 F.3d 

1340, 1348 (Fed. Cir. 2012). See also Richard J. Pierce, 

Jr., Administrative Law Treatise § 3.6 (5th ed. 2010).

3 Some place the use of these tools within the second step of Chevron. Compare Suprema, Inc. v. Int’l 

Trade Comm’n, 796 F.3d 1338 (Fed. Cir. 2015) (en banc), 

with Gilead Scis., 778 F.3d at 1346–49. Legislative 

history in particular is sometimes placed in the second 

step. See 4 Charles H. Koch, Jr. & Richard Murphy, 

Administrative Law and Practice § 11:33 (3d ed. Supp. 

2015) (footnote omitted) (“Scholars debate whether legislative history may be used in Chevron step one to determine clear legislative intent or step two to interpret 

ambiguous language. As a practical matter it makes no 

 

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BALESTRA v. US 9

If Congress’s intent is clear, then we give effect to 

Congress’s unambiguously expressed intent. Chevron, 

467 U.S. at 842–43. However, if that intent is not clear, 

then we determine whether the agency’s interpretation of 

the statute is a reasonable one. Id. at 842–44. “If Congress has explicitly left a gap for the agency to fill, there 

is an express delegation of authority to the agency to 

elucidate a specific provision of the statute by regulation.” 

Id. at 843–44. We afford such legislative regulations 

“controlling weight unless they are arbitrary, capricious, 

or manifestly contrary to the statute.” Id. at 844 (footnote 

omitted). If the legislative delegation is implicit, then a 

court “may not substitute its own construction of a statutory provision for a reasonable interpretation made by the 

administrator of an agency.” Id. (footnote omitted).

A. 

In determining whether Chevron deference is owed in 

this instance, we begin with the language of the statute 

and the ordinary tools of statutory construction to determine whether Congress directly addressed the precise 

question at issue. See, e.g., Gilead Scis., 778 F.3d at 1347.

The parties do not dispute the formulation of the

question. The question is how employers must calculate 

the “amount deferred” under nonqualified deferred compensation plans that are also nonaccount balance plans 

for the purposes of FICA (hospital insurance) tax, and, 

more pointedly, whether the “amount deferred” can be 

defined as the compensation’s “present value” without 

consideration of an employer’s financial condition. 

The relevant statute provides that:

difference whether a court tests an agency’s use of legislative history under step one or two.”).

 

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10 BALESTRA v. US

Any amount deferred under a nonqualified deferred compensation plan shall be taken into account for purposes of this chapter as of the later 

of—(i) when the services are performed, or (ii) 

when there is no substantial risk of forfeiture of 

the rights to such amount.

26 U.S.C. § 3121(v)(2)(A) (emphasis added).4

Neither the statute nor the ordinary tools of statutory 

construction reveal any clear, unambiguously expressed 

congressional intent on the precise question at issue.

The statute does not contain a definition of the 

“amount deferred” or reference any way to calculate such 

an amount—including by determining its “present value,” 

with or without considering an employer’s financial 

condition.

The statute was enacted as part of the Social Security 

Amendments of 1983, Pub. L. 98-21, 97 Stat. 65, 122 

(1983) (“Act”). As a bill, it was considered and passed in 

the House of Representatives before being considered, 

amended, and passed in the Senate. See 97 Stat. at 172. 

The House and Senate then agreed to a conference report. 

Id.

One of the Senate amendments contained the provision that became the statute at issue in this case. See 129

Cong. Rec. S6133–35 (daily ed. Mar. 18, 1983); H.R. Conf. 

Rep. No. 98-47, at 145-47 (1983) (comparing the House 

and Senate versions of the bill and describing the conference agreement). The conference agreement “generally 

follow[ed]” that amendment. H.R. Conf. Rep. No. 98-47, 

at 147. 

4 With regard to subsection (ii), the Balestras concede in their brief that it is not applicable to their case. 

See Appellants’ Br. at 13, 24. 

 

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BALESTRA v. US 11

Senator Bentsen introduced the amendment, and he 

made several statements concerning it. The Balestras 

cite these statements as legislative history indicating 

Congress’s intent to impose FICA tax on the compensation’s “present value” in its plain and ordinary sense as 

used in other parts of the tax code. According to the 

Balestras, Congress intended that the “present value” be 

calculated according to the “fair market value” of the 

compensation as understood from a “willing buyer-willing 

seller” model. 

However, Senator Bentsen’s statements do not support the Balestras’ conclusions. Senator Bentsen stated

that: 

In most cases, under nonqualified deferred compensation agreements it is a relatively simple 

matter to determine when amounts are deferred 

and the amount that is being deferred. Likewise, 

as in many other areas of our tax law, simple 

rules can be established to determine the present 

value of amounts deferred in other cases.

129 Cong. Rec. S6134.

When read in light of the House Conference Report, 

these statements indicate that Senator Bentsen, and 

presumably the Senate and Congress, intended to define 

the “amount deferred” in terms of the compensation’s 

“present value.” Neither party argues that Treasury’s 

defining “amount deferred” in terms of “present value” 

itself was improper. Instead, they argue over the precise 

and proper meaning of “present value.” 

However, these statements do not evince an unambiguous congressional intent that the “present value” 

calculation must consider an employer’s financial status. 

Similarly, there is nothing to indicate that “present value” 

is to be calculated specifically in terms of “fair market 

value” or the “willing buyer-willing seller” standard.

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12 BALESTRA v. US

The senator’s statements merely suggest that simple 

rules can be established. In other words, this legislative 

history actually supports Treasury’s regulation—a relatively simple rule that the Balestras simply dislike.

We find no other legislative history, canon of construction, or salient feature of statutory structure that 

points to any unambiguous congressional intent on the 

issue. The parties, for their part, do not suggest any.

B. 

Since there is no unambiguous expression of congressional intent, we proceed to the second step of the Chevron framework. We must determine whether Treasury’s 

interpretation of the statute is a reasonable one. Chevron, 467 U.S. at 842–44.

Treasury was faced with a statutory ambiguity—how 

to define the “amount deferred.” Treasury devised the 

regulation to be workable, simple, and flexible. See 61 

Fed. Reg. at 2195; 64 Fed. Reg. at 4543. Agencies must 

draw such lines and make such choices between alternatives in drafting regulations. See Mayo, 562 U.S. at 58–

59.

Treasury chose to define the “amount deferred” in 

terms of “present value.” 26 C.F.R. § 31.3121(v)(2)-

(1)(c)(2)(ii). Treasury further chose to define “present 

value” by considering, inter alia, the time value of money 

and reasonable actuarial assumptions and methods at the 

time the amount deferred was taken into account as 

wages. Id. The exact value of a future payment is inherently unknowable. Treasury’s definition allowed for the 

consideration of some contingencies but not others. 

As a matter of law, was Treasury obligated to include 

the contingency that if the employer became bankrupt, an 

adjustment in the employee’s tax would be made? It 

would seem reasonable for the rule drafters to have done 

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BALESTRA v. US 13

so. But the question under Chevron is whether it was 

unreasonable not to have done so.

The regulation as written would seem to comport with 

the scant legislative history. Nothing in the statute or 

congressional purpose, intent, or design precludes Treasury’s definition. The definition is rational, reasonable, 

and does not conflict with any law.

As noted, the regulation comports with the scant legislative history relied upon by the Balestras. Senator 

Bentsen noted that in “most cases” it was “relatively 

simple” to determine the amount deferred. 129 Cong. 

Rec. S6134. He spoke of the “simple rules [that] can be 

established.” Id. Treasury promulgated a simple and 

reasonable rule. We decline to substitute our own regulation in place of the reasonable one that Treasury devised

in this instance. 

 The Balestras’ arguments on this point are unpersuasive. They admit that the statute is silent on the question 

at issue. They admit that the regulation “may well be a 

reasonable interpretation of the statute” when applied to 

employers who are not in bankruptcy. Appellants’ Br. at 

41. However, they argue that the regulation is unreasonable as applied to employers in bankruptcy. They believe 

that the legislative history and purpose of the statute 

demonstrate Congress’s intent to tax the present value of 

deferred compensation only in terms of its fair market 

value—measured by a willing buyer-willing seller standard as in United States v. Cartwright, 411 U.S. 546 

(1973). Based on Cartwright, the Balestras argue that 

any Treasury regulation with a valuation method must 

result in “a realistic value that does not vary significantly 

from the willing buyer-willing seller standard.” Appellants’ Br. at 47. Any regulation deviating from this 

standard is—in their words—invalid.

This is not so. First, as previously discussed, the legislative history and purpose of the statute do not indicate 

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14 BALESTRA v. US

that Congress intended to define the “amount deferred” as 

the compensation’s “present value” in terms of its “fair 

market value” under a willing buyer-willing seller standard or by necessitating an evaluation of an employer’s 

financial condition and its ability to make future payments. The Balestras’ argument hinges upon the statements of Senator Bentsen. They reason that by 

referencing simple rules in place in other sections of the 

tax code, Senator Bentsen and all of Congress intended 

that Treasury abide by the willing buyer-willing seller 

standard. As we have already discussed, the record does 

not support this reading.

Second, the Balestras read the import of Cartwright 

too broadly. Cartwright was a pre-Chevron case that 

dealt with fair market value and the willing buyer-willing

seller standard in the context of the particular statute 

and regulation at issue in that case. Cartwright involved 

a Treasury regulation relating to 26 U.S.C. § 2031. This 

statute concerned the value of a decedent’s property for 

estate tax purposes. The regulation required Treasury to 

value mutual fund shares at their “fair market value”—

which Treasury defined as the public offering or asking 

price of mutual fund shares—instead of the lower redemption price (the actual price for which someone could 

have redeemed the shares). Cartwright, 411 U.S. at 549 

n.5 (quoting the relevant portion of 26 C.F.R. § 20.2031-

8(b)).

Treasury promulgated that regulation despite having 

previously stated—in the context of the same statute—

that the “fair market value” was the “‘price at which the 

property would change hands between a willing buyer 

and a willing seller, neither being under any compulsion 

to buy or to sell and both having reasonable knowledge of 

relevant facts.’” Id. at 551 (quoting 26 C.F.R. § 20.2031-

1(b)). In other words, fair market value was at issue 

because of the particular statute and regulation in the 

case. It is true that the Court stated the “willing buyerCase: 14-5127 Document: 43-2 Page: 14 Filed: 10/13/2015
BALESTRA v. US 15

willing seller test of fair market value is nearly as old as 

the federal income, estate, and gift taxes themselves, and 

is not challenged here.” Id. at 551, 551 n.7 (citing a 

separate Treasury regulation specifically relating to the 

test in the context of estate tax). However, this statement 

does not compel the result sought by the Balestras in this 

case.

The Court in Cartwright ultimately found that the 

regulation was “manifestly inconsistent with the most 

elementary provisions of the Investment Company Act of 

1940 [which regulated the mutual funds] and operate[d]

without regard for the market in mutual fund shares that 

the Act created and regulates.” Id. at 557. The Court 

stated that Congress “surely could not have intended” 

such a statutory interpretation. Id. Moreover, the Court 

determined that the regulation imposed an “unreasonable 

and unrealistic measure of value.” Id. Treasury treated 

load and no-load mutual funds differently, and in seeking 

the higher valuation, Treasury ignored its own definition 

of “fair market value.” See id. at 556–57. This case 

involves no such contravention of the statute or the Social 

Security Amendments of 1983. As previously noted, this 

case also involves no such congressional intent on the 

question of “fair market value.”

The Balestras’ other arguments are similarly unpersuasive. For instance, the Balestras cite several Treasury 

regulations relating to other sections of the tax code and 

numerous cases involving the willing buyer-willing seller 

standard and the general meaning of present value. 

However, without a clear indication of congressional 

intent on this issue (that Congress intended to keep these 

standards in this instance), their arguments are not 

persuasive. Section 3121 simply does not concern these 

other standards found in other areas of tax law. We may

not import those standards into the statute or the regulation here.

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A similar point can be made with respect to McDonald 

v. Commissioner, 764 F.2d 322 (5th Cir. 1985) and Estate 

of Gresham v. Commissioner, 752 F.2d 518 (10th Cir. 

1985). The Balestras rely on both cases, but these out-ofcircuit cases are neither binding nor persuasive. Both 

cases involve the invalidation of a Treasury regulation 

when the related statute explicitly required consideration 

of fair market value. The statute in this case never 

references “fair market value.” Moreover, in this instance, there is no unambiguous intent or purpose requiring such a valuation.

 The Balestras also heavily rely on Dominion Resources, Inc. v. United States, 681 F.3d 1313 (Fed. Cir. 

2012). In that case, this court found that a Treasury 

regulation did not satisfy Chevron or State Farm. Contrary to the regulation in this case, the regulation in Dominion made “no sense” in light of the statute and was 

“removed from reality.” Dominion, 681 F.3d at 1318. 

Dominion demonstrates that we follow the Supreme 

Court’s directive in Mayo to apply Chevron deference to 

Treasury regulations, and that we evaluate Treasury 

regulations under State Farm. Dominion also demonstrates that those regulations do not always pass muster. 

However, in this instance, that is where the case’s instructiveness ends.

Finally, by means of a supplemental letter, the Balestras cite Altera Corp. v. Comm’r, 145 T.C. No. 3 (2015) 

to support their position—both under State Farm and 

Chevron. The court in Altera invalidated a Treasury 

regulation because the agency failed to provide an adequate explanation for the final rule and failed to address 

comments and other evidence indicating the regulation 

was inconsistent with the statute at issue. As the Government notes, the regulation in this case does not conflict with the statute. Altera does not help the Balestras’

position. 

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II

Treasury’s Regulation Satisfies State Farm

Having established that the regulation satisfies Chevron, we turn to the Balestras’ arguments regarding State 

Farm. 

Under State Farm, we determine whether Treasury 

“articulate[d] a satisfactory explanation for its action, 

including a ‘rational connection between the facts found 

and the choice made.’” State Farm, 463 U.S. at 43 (citation omitted). Treasury’s rule is arbitrary and capricious 

if it “entirely failed to consider an important aspect of the 

problem, offered an explanation for its decision that runs 

counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or 

the product of agency expertise.” Id. We cannot supply a 

basis for agency action that the agency has not itself 

provided. Id. However, we will “‘uphold a[n agency] 

decision of less than ideal clarity if the agency’s path may 

reasonably be discerned.’” Id. (quoting Bowman Transp. 

Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 286

(1974)); F.C.C. v. Fox Television Stations, Inc., 556 U.S. 

502, 513–14 (2009) (same). 

In this instance, Treasury’s regulation satisfies State 

Farm. Treasury recognized that the compensation is not 

subject to FICA tax when paid, but at an earlier point 

(when the compensation is deferred). See 61 Fed. Reg. at 

2195. Treasury recognized that “[a]pplying these statutory rules often requires difficult valuations of future benefits.” Id. Treasury therefore focused on providing 

workable, simple, flexible rules for taxpayers. Id. As 

Treasury stated in its notice of proposed rulemaking:

Recognizing practical administrative problems 

that can be encountered by taxpayers in this area, 

the proposed regulations are designed to be workCase: 14-5127 Document: 43-2 Page: 17 Filed: 10/13/2015
18 BALESTRA v. US

able, to minimize complexity, and to provide appropriate flexibility for taxpayers.

Id.

Similarly, in its notice of final rulemaking after a 

public hearing, Treasury incorporated and addressed 

public comments, but emphasized its overarching goals:

The final regulations retain the distinction between the method of calculating the amount deferred (and the income on that amount) for 

account balance plans and the method for nonaccount balance plans, but provide additional guidance simplifying those calculations.

64 Fed. Reg. at 4543.

Treasury’s path to calculating the “amount deferred” 

in terms of the compensation’s “present value” without 

consideration of an employer’s financial condition is 

reasonably discernable. Treasury explained that it 

sought simple, workable, and flexible rules when valuing 

future benefits. It devised a regulation that satisfied 

these goals while comporting with the governing statute. 

This is neither arbitrary nor capricious. It may seem 

unfair in a specific instance such as this, but in balancing 

the desire for simplicity against the ideal of ultimate

comprehensiveness, the agency must be allowed a reasonable degree of discretion. We cannot say that this one 

example of consequent unfairness by the agency results in 

invalidating the rule-making.

The parties raise other arguments, including that the 

Balestras’ claims are barred by the substantial variance 

rule as described in Computervision Corp. v. United 

States, 445 F.3d 1355 (Fed. Cir. 2006). However, these 

arguments are unpersuasive.

With regard to the trial court’s denial of the Balestras’ 

motion to amend their complaint, we agree with the trial 

Case: 14-5127 Document: 43-2 Page: 18 Filed: 10/13/2015
BALESTRA v. US 19

court that, in light of the disposition of their case, the 

motion is moot.

CONCLUSION

For the foregoing reasons, the judgment of the United 

States Court of Federal Claims is affirmed.

AFFIRMED

Case: 14-5127 Document: 43-2 Page: 19 Filed: 10/13/2015