B.C.D. 04-47

Employer Status Determination ^ ® 2004

Iowa Pacific Holdings, LLC 

Permian Basin Railways

This is the decision of the Railroad Retirement Board regarding the status of Iowa Pacific

Holdings, LLC, and Permian Basin Railways, as employers under the Railroad Retirement

and Railroad Unemployment Insurance Acts.

Iowa Pacific Holdings is a limited liability company based in Chicago, Illinois, which is

owned by seven individuals. According to its internet web site, Iowa Pacific “was formed to

acquire and operate small- and medium-sized North American Railroads.” Iowa Pacific

began operations February 1, 2001, and as of September 2002, it had 7 employees.

Iowa Pacific owns 100 percent of Permian Basin Railways, Incorporated. Permian Basin 

began operations May 25, 2002, when it concluded two transactions with Rail America, Inc.

At that time, Permian Basin, through its subsidiary West Texas and Lubbock Railway

Company, Inc., entered into a lease of the entire rail line of West Texas and Lubbock

Railroad Company, Inc. (emphasis supplied). See: Board Coverage Decision 02-93, and

West Texas and Lubbock Railway Co. Inc.—Acquisition and Operation Exemption—West

Texas and Lubbock Railroad Company, Inc., STB Finance Docket No. 34205, 67 Fed.

Reg. 40980 (June 14, 2002). On or about the same day, Permian Basin also purchased

the stock of the Austin Railroad Company, doing business as Austin & Northwestern

Railroad Company, Inc. See: Permian Basin Railways, Inc.—Continuance in Control

Exemption—West Texas and Lubbock Railway Company, Inc, and Austin & Northwestern

Railway Company, Inc., STB Finance Docket No. 34206, 67 Fed. Reg. 40979 (June 14,

2002). The Austin & Northwestern owns a 107 mile line of rail between Monahans, Texas

and Lovington, New Mexico which it operates as the Texas New Mexico Railroad. See:

Rail America, Inc.—Control Exemption—RailTex, Inc., STB Finance Docket No. 33813, 64

Fed. Reg. 62245 (November 16, 1999). Both the West Texas and Lubbock Railway

Company, Inc. (BA No. 2888) and the Austin Railroad Company, d/b/a Austin &

Northwestern Railroad Company, Inc., (BA No. 3865) are covered rail carrier employers

underthe Acts. See: B.C.D. 02-93, West Texas and Lubbock Railway Company, Inc.] and

Legal Opinion L-86-125, Austin Railroad Company, Inc., d/b/a Austin and Northwestern

Railroad Company.

In a letter dated September 10, 2003, the Vice President of Iowa Pacific stated that

Permian Basin has no employees, and that “The name Permian Basin Railways is used to

refer to the W[est] T[exas] Lfubbock] Cfompany] and T[exas] N[ew] M[exico] R[ailroad

division of the Austin & Northwestern Railroad Company] collectively to customers of each

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Iowa Pacific Holdings, LLC

Permian Basin Railways

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railroad.” Iowa Pacific itself does provide marketing and accounting services to its

subsidiaries, devoting about 10 percent of its time to Texas New Mexico and 5 percent to

West Texas Lubbock. Iowa Pacific also reported that 25 percent of its revenue derives

from West Texas Lubbock, and 15 percent from Texas New Mexico. However, the major

portion of Iowa Pacific’s business consists of investments and acquisitions in transportation

related companies.

Section 1(a)(1) of the Railroad Retirement Act (45 U.S.C, § 231(a)(1)), insofar as relevant

here, defines a covered employer as:

(i) any carrier by railroad subject to the jurisdiction of the Surface

Transportation Board under Part A of subtitle IV of title 49, United States

Code;

(ii) any company which is directly or indirectly owned or controlled by,

or under common control with, one or more employers as defined in

paragraph (i) of this subdivision, and which operates any equipment or facility

or performs any service (except trucking service, casual service, and the

casual operation of equipment or facilities) in connection with the

transportation of passengers or property by railroad * * *.

Sections 1 (a) and 1 (b) of the Railroad Unemployment Insurance Act (45 U.S.C, § 351 (a))

and (b)) contain substantially similar definitions, as does section 3231 of the Railroad 

Retirement Tax Act (26 U.S.C. § 3231).

Iowa Pacific does not operate the rail lines it owns as a carrier by rail. Further, a decision

of the United States Court of Appeals for the Federal Circuit regarding a claim for refund of

taxes under the Railroad Retirement Tax Act held that a parent corporation which owns a

rail carrier subsidiary is not under common control with the subsidiary within the meaning of

section 3231 of that Act. Union Pacific Corporation v. United States, 5 F.3d 523 (Fed Cir.

1993).

The relevant facts of the Union Pacific case are indistinguishable from those presented by

Iowa Pacific. Accordingly, the Board determines that Iowa Pacific Holdings, LLC, is not an

employer under the Acts as it is not under common control with its rail carrier subsidiaries.
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lowa Pacific Holdings, LLC

Permian Basin Railways

Iowa Pacific controls subsidiary Permian Basin as its sole owner. Through control of

Permian Basin, Iowa Pacific also controls Permian Basin's two rail carrier subsidiaries.

Therefore, Permian Basin, Texas New Mexico, and West Texas Lubbock division of the

Austin & Northwestern Railroad Company are under the common control of Iowa Pacific

within the meaning of the Railroad Retirement and Railroad Unemployment Insurance

Acts. See regulations of the Board at 20 CFR 202.4. 202.5; and Universal Carloadinq &

Distributing Company v. Railroad Retirement Board, 172 F. 2d 22, (D.C. Cir. 1948). If

Permian Basin performed any services for its affiliated rail carriers which were services in

connection with the transportation of property by rail, it would meet both conditions for

coverage under section 1(a)(1)(ii) above. Based on the information available, however,

Permian Basin is a corporate shell with no employees. Any marketing and accounting

services performed by the parent superstructure of the railroads for the rail subsidiaries is

done by Iowa Pacific. Accordingly, because it does not meet both conditions for coverage

under the Acts as a rail carrier affiliate employer, the Board finds that Permian Basin 

Railways is not a covered employer under the Acts.
Concurring Opinion of

V. M. Speakman, Jr.

Employer Status Determination

Iowa Pacific Holdings, LLC

Permian Basin Railways

I concur with the result in this case but for a different reason. My colleagues hold that

Iowa Pacific Holdings LLC, the parent company of Permian Basin Railways Inc., which

in turn owns a number ofrailroads, is not under common control with these carriers. For

support it cites Union Pacific Corporation v. United States. 5 F. 3d 523 (Fed Cir. 1993).

I have often indicated my disagreement with the holding in that case, a tax case in which

the Railroad Retirement Board was not even a party, and believe that the Board has been

remiss in not litigating the issues involved in Union Pacific in another Circuit to test the 

logic ofits holding. Holdings by other Circuits to the effect that “common control”

within the meaning ofthe Railroad Retirement and Unemployment Insurance Acts (Acts)

can exist between a parent and subsidiary could cause the Federal Circuit to reconsider its

decision in Union Pacific or set the stage for Supreme Court review. Indeed, repeated

litigation ofthe same issue is not new to this agency. See Johnson v. Railroad Retirement

Board, 969 F.2d 1082 (D.C. Cir. 1992). In addition, the Board, like the Internal Revenue

Service, has independent authority to determine what entities are covered under its

statute. Board of Trustees ofGalveston Wharves v. United States. 949 F. 2d 404(Fed.

Cir. 1991).

The illogic ofthe holding in Union Pacific is demonstrated by the fact that my colleagues

concede that ifPermian Basin Railways, Inc. performed substantial services in

connection with railroad transportation for its subsidiary carriers, it would be an

employer covered under the Acts it and its carriers are under the common control ofIowa

Pacific. However, ifthose same services were performed by Iowa Pacific, the parent

company of Permian Basin, Iowa Pacific would not be covered because, in the view of

my colleagues, it is not under common control with the carriers it owns through its
ownership of Permian Basin. Thus, whether an entity is covered or not depends solely

where it stands in the corporate chain.

However, even if one correctly assumes that Iowa Pacific is under common control with

its carriers, I would find that it is not a covered employer. Iowa Pacific is not an

operating company but is essentially involved in acquiring transportation-related

properties for investment purposes. Mere ownership of a carrier is not performing a

service in connection with railroad transportation which would cause a company to be

covered under the Acts. What services Iowa Pacific does perform for its carriers appears 

to be “casual” within the meaning ofsection 202.6 of our regulations. Of course, any

employee ofIowa Pacific who is an officer of or actively manages one ofits carriers may

be considered an employee ofthat carrier for purposes of our statutes.