12

- 4125

Gerstenbluth v. Credit Suisse
, et al.



# United States Court of Appeals 1 FOR THE SECOND CIRCUIT 2 3

————————— 4 5 August Term, 2012 6
7 (Argued: June 13, 2013 Decided: August 27, 2013 ) 8 9 Docket No. 12

- 4125

- cv 10
11

————————— 12 13
14 C HESTER G ERSTENBLUTH , 15
16 Plaintiff

- Appellant

, 17 18

– v.

– 19
20 C REDIT S UISSE S ECURITIES (USA) LLC, I NTERNAL R EVENUE S ERVICE , 21
22 Defendant s - Appellee

s

. 23
24

————————— 25 26 B e f o r e: 27
28 P OOLER , L OHIER , AND C ARNEY , C ircuit Judge

s. 29 30

————————— 31 32 Plaintiff

- Appellant Chester Gerstenbluth , proceeding pro se , sued his former 33 employer, Credit Suisse Securities (USA) LLC , and the Internal Revenue 34 Service , seeking a refund of Federal Insurance Contribution Act taxes 352

withheld by the employer and collected by the IRS on a $25 0,000 settlement 1 payment made by the employer to Gerstenbluth

. The parties do not dispute 2 that Credit Suisse paid the sum principally in consideration of Gerstenbl uth’s 3 agreement to withdraw his A ge D iscrimination in Employment Act complaint
, 4 which he filed after Credit Suisse terminated his longtime employment

. The 5 District Court ( Joanna Seybert, J udge ) dismissed Gerstenbluth’s compla int 6 against Credit Suisse pursuant to Fed. R. Civ. P. 12(b)(6), and granted 7 summary judgment to the Internal Revenue Service. O n appeal
, 8 Gerstenbluth contends principally that the D istrict C ourt erred in concluding 9 that the settlement payment constituted “wages” received “ with respect to 10 employment” under 26 U.S.C. § 3121, and was thus subject to FI CA taxes. We 11 find no error. The judgment of the District Court in favor of the Internal 12 Revenue Service and Credit Suisse is A FFIRMED

. 13
14

————————— 15 16 C HESTER G ERSTENBLUTH , pro se , Plainview, N.Y

. 17 18 S TEPHEN M. K RAMARSKY (Angela L. Harris, on the brief ), Dewey 19 Pegno & Kramarsky LLP, New York, N.Y.
, for Defendant

20 Appellee Credit Suisse Securities (USA) LLC. 21
22 K ENNETH W. R OSENBERG (Kathryn Keneally, Assistant Attorney 23 General, Michael J. Haungs, Attorney, on the brief ), 24 Atto rney, Tax Division, United States Department of 25 Justice, Washington, D.C. (Loretta E. Lynch, United States 26 Attorney for the Eastern District of New York, Brooklyn, 27 N.Y., of counsel )

, for Defendant

- Appellee Internal Revenue 28 Service. 29
30

————————— 31 32 S USAN L. C ARNEY , Circuit Judge : 33

Plaintiff

- Appellant Chester Gerstenbluth
, appearing pro se on appeal as 34

he did in the District Court
, agreed to withdraw his complaint under the Age 353

Discrimination in Employment Act ( “ ADEA ” ) against his former employer, 1
Credit Suisse Securities (USA) LLC (“Credit Suisse”) , in exchange for a lump 2

sum payment of $250,000. The principal question on appeal is whether , under 3
the Federal Insurance Contributions Act (“FICA”), th e se settlement proceeds 4

are fairly characterized as “wages” received by Gerstenbluth “w ith respect to 5

employment,” and are thus subject to FICA taxes. See 26 U.S.C. § 3101(a ); id. 6

§ 3101(b)(1) ; id. § 3121

. We conclude that the proceeds are FICA wages . We 7

therefore affirm the District Court’s rejection of Gerstenbluth’s refund claim 8

and award of summary judgment to the Internal Revenue Service (“IRS”). We 9

further affirm the D istrict C ourt’s dismissal of Gerstenbluth’s refund claim 10

against Credit Suis se. 11

BACKGROUND 12

We draw the following narrative primarily from the statement of 13

material fact s submitted by the IRS in support of its motion for summary 14

judgment
, and from documents submitted as exhibits to that filing

. 15

Gerstenbluth has not dispute d any of these factual assertions or the 16

authenticity of the related exhibits. 17

After Credit Suisse terminated his employment with the company
, 18

Gerstenbluth filed a complaint with the United States Equal Employment 194

Opportunity Commission (“EEOC”), asserti ng that Credit Suisse 1

discriminated again st him on the basis of his age when it effected the 2

termination

. 1 Credit Suisse offered to settle , and in August 2009 t he parties 3

executed a related S ettlement A greement and Release (“Agreement” or 4 “Settlement Agreement”)

. The Agreement provided that, i n consideration of a 5

payment to him of $250,000, “minus applicable taxes and deductions,” 6

Agreement ¶ 1, and subject to the EEOC’s agreement to dismiss his charge, 7

Gerstenbluth agreed to withdraw his EEOC co mplaint and to release all 8

claims against Credit Suisse
, i d

. ¶ 4

. Under the Agreement, Credit Suisse 9

expressly “retain[ed] the right to deduct and withhold from any payments to 10

Gerstenbluth all sums that it may be required to withh old pursuant to 11

applicable tax withholding laws or regulations.” Id. ¶ 3. Aside from these 12

generic phrases, however, the A greement did not address the character of the 13

$250,000 payment for purposes of federal income or employment taxation , or 14

further describe the nature of the payment

. 2 15

1 According to the Settlement A greement, Gerstenbluth “dually filed” his EEOC complaint with the New York State Division of Human Rights. Agreement at 1. For simplicity, and in accordance with the parties’ treatment of the two complaints as equivalent for present purposes, we focus only on the complaint submitted to the EEOC.

2 The Settlement Agreement also contained Gerstenbluth’s representation that “in return for his execution of th[e] Settlement Agreement, he will receive compensat ion or benefits beyond those to which he was already entitled before entering into th[e] . . .5

Credit Suisse issued Gerstenbluth a n IRS F orm W

- 2 , Wage and Tax 1

Statement, for tax year 2009 . On the F orm W

- 2
, the company included the 2

settlement payment amount as part of Gerstenbluth’s “[w]ages, tips, other 3

comp [ensation] ” and reported that it had withheld FICA taxes total ing 4

$4,217.66 from the settlement sum

. 3 5

Gerstenbluth took issue with this characterization of the payment and 6

disputed the company’s withholding of FICA taxes . He unsuccessfully sought 7

to recover the withheld FICA taxes from Credit Suisse and the IRS, to which 8
(we presume) Credit Suisse had forwarded the withheld taxes

. Having failed 9

to obtain a refund through the prescribed administrative processes
, 10

Gerstenblu th filed suit in the United S tates District Court for the Eastern 11

District of New York

. 12

Credit Suisse moved to dismiss the complaint for failure to state a 13

claim
, and the IRS moved for summary judgment . The District Court ( Joanna 14

Seybert, Judge

) granted both motions. With respect to Credit Suisse, the 15

Agreement.” Agreement ¶ 5 (emphasis added)

. I t does not appear that the parties intended “compensation” to mean that the settlement payment constituted “wages” for tax purposes.

3 Because the Form W

- 2 for 2009 includes income Gerstenbluth received from Credit Suisse other than and in addition to the settlement payment, it also reflects FICA withholding in addition to the amount withheld in connection with th e settlement . The IRS has not challenged Gerstenbluth’s assertion that FICA withholding of $4,217.66 was associate d with the settlement payment.6

court dismissed the complaint on the ground that Gerstenbluth did “not have 1

a private right of action under the U.S. tax laws.” Gerstenbluth v. Credit 2
Suisse Secs. (USA) LLC , No. 11

- CV

- 2525, 2012 WL 4511632, at *2 (E.D.N .Y. 3
Sept. 28, 2012). With respect to the IRS ’s motion , the court noted that 4

“ [m]oney paid to settle employment discrimination claims can be ‘wages,’ at 5

least where the money represents back pay or front pay.” Id. Emphasizing 6

Credit Suisse’s t reatment of the award as “wages ” on Form W

- 2 and t he 7

S ettlement A greement ’s provision that the award would be paid “minus 8

applicable taxes and deductions
, ” the court concluded that the payment 9

“constituted ‘wages’ and was thus subject to FICA tax withholding.” Id. 10
(internal quotation marks omitted). Gerstenbluth was therefore not entitled 11

to the claimed refund. Id. He timely appealed. 4 12

13

14

4 Although his notice of appeal named Credit Suisse as well as the IRS, Gerstenbluth does not mention the subs tance of the D istrict C ourt’s ruling for Credit Suisse in his brief on appeal except obliquely and in passing. Accordingly, notwithstanding the latitude we traditionally accord pro se litigants, we find that he has waived any challenge to this aspect of t he District Court’s judgment. See Cancel v. Home Depot , 488 F. App’x 520, 520 n.1 (2d Cir. 2012) (summary order) (“[E]ven making due allowance for his pro se status, [appellant] has waived those claims.” (citation omitted)). But even if we overlooked the waiver

— and concluded that FICA affords him a private right of action

— Gerstenbluth would have no basis for recovery against Credit Suisse in light of our conclusion that the settlement payment was subject to FICA taxes

.7 DISCUSSION 1

Because Gerstenbluth proceeded pro se both in the District Court and 2

on appeal, “we read his papers liberally and interpret them to raise the 3

strongest arguments that they suggest.” Brownell v. Krom , 44 6 F.3d 305, 310 4
(2d Cir. 2006) (internal quotation marks omitted)

. We review de novo the 5

District Court’s grant of summary judgment in favor of the IRS, drawing in 6

Gerstenbluth’s favor all factual inferences grounded in the record

. See Ste el 7

Inst. of N.Y. v. City of New York , 716 F.3d 31, 33 (2d Cir. 2013). “Summary 8

judgment is appropriate when there is no genuine dispute as to any material 9

fact and the movant is entitled to judgment as a matter of law.” Id. (internal 10
quotation marks omitted). Because no relevant facts are disputed in this case, 11
we focus on whether the settlement proceeds constitute “wages” under 26 12

U.S.C. § 3121(a), a mixed question of law and fact that we review de novo

. 13

See Roberts v. Royal Atl. Corp. , 542 F.3d 363, 367 (2d Cir. 2008). 14

1. The Tax Treatm ent of Settlement Awards 15

As is familiar to most taxpaying wage - earners , t he FICA tax consists of 16

two components: a tax to fund “[o]ld age, survivors, and disab ility insurance” 17
( co mmonly known as Social Security) and a tax to fund “hospital insurance ,” 18
(commonly known as Medicare) . 26 U.S.C. § 3101(a); id. § 3101 (b) (1); see 198

United States v. Cleveland Indians Baseball Co. , 532 U.S. 200, 205 (2001)

. 1

Both components of the tax are imposed only on “wages” received by a 2

taxpayer “with respect to employment.” 26 U.S.C. § 3101(a); id. § 3101(b)(1). 3

The Code defines “wages” for this purpose as “all remuneration for 4
employment, including the cash value of all remuneration (including benefits) 5

paid in any medium other than cash.” 5 Id. § 3121(a). The definition of wages 6

has been broad ly construed : “Remuneration for employment . . . constitutes 7

wages even though at the time paid the relationship of employer and 8

employee no longer exists between the person in whose employ the service s 9

were performed and the individual who performed them.” Treas. Reg. 10

§ 31.3121(a)

- 1(i ). FICA places an obligat ion on the employer to collect the 11

related taxes and transmit them to the government. 26 U.S.C. § 3102(a). 12

Gerstenbluth freely acknowledges that a settlement payment of back or 13

front pay would be wages subject to FICA taxes. 6 He contends, however, that 14

the settlement payment he received is n either front pay nor back pay nor any 15

5 The Code also sets out a n umber of exceptions to this definition of wages, none of which is relevant here. See 26 U.S.C. § 3121(a).

6 Back pay consists of wages lost between the plaintiff’s wrongful termination and the entry of the court’s judgment. See Banks v. Travelers Co s. , 180 F.3d 358, 364 (2d Cir. 1999). Front pay is wages lost between judgment and th e plaintiff’s reinstatement, or, if reinstatement is not feasible, it is a reasonable award “of future lost earnings.” Id. (internal quotation marks omitted).9

form of “wages

. ” Rather, h e characterizes the sum as something different: a 1
“payment to drop the Appellant’s complaint of Age Discrimination against 2

Credit Suisse. ” App ellant’s Br. at 7. In support of his view, he asserts that he 3

had already received a “significant severance package”; at no time during 4

settlement negotiations “ was there any mention of back or forward pay”; the 5

settlement amount “was not in any way linked” to his “former salary or length 6

of tenure”; and Cre dit Suisse did not treat the payment as triggering related 7

pension plan contributions. Id. at 9

- 10. He also points to IRS Publication 8

4345, id. at 8, which in its one - page 2010 form at advised that a settlement for 9

“unlawful discrimination” “ shou ld be reported as ‘Other Incom e ’ ” on IRS Form 10

1040, the United States Individual Tax Return. 7 Supplement al App. (“S upp. 11 App.”) 13. Although his position may have some initial plausibility
, 12

G erstenbluth oversimplifies the correct inquiry, and his argument is 13

ultimately unpersuasive. 14

To determine the correct tax treatment of a settlement payment , w e 15

look first at the nature of the c laim that led to the settlement, together with 16

the remedies available under the law on which the claim giving rise to the 17

settlement is based , to ascertain what the payment fairly represents

. Stated 18

7 Publication 4345 has since changed. Compare Supplemental App. 13, with I.R.S. Publication 4345 (Revised Nov. 2011), available at http://www.irs.gov/pub/irs

- pdf/p4345.pdf

.10

differently, in seeking to classify a settlement payment or damages award for 1

tax purposes, we ask
, “In lieu of what were the damages awarded?” 2

Milenbach v. Comm’r , 318 F.3d 924, 932 (9th Cir. 2003) (emphasis added and 3

internal quotation marks omitted ) ; accord Espinoza v. Comm’r , 636 F.3d 747, 4
750 (5th Cir. 2011); Francisco v. United States , 267 F.3d 303, 319 (3d Cir. 5
2001); Delaney v. Comm’r , 99 F.3d 20, 23

- 2 4 (1st Cir. 1996). 6

This approach finds support in precedent from both the Supreme Court 7

and our Court. I n United States v. Burke , 504 U.S. 229 (1992)

, superseded by 8

statute on other grounds
, Small Business Job Protection Act of 1996, Pub. L. 9

104

- 188, § 1605, 110 Stat. 1755, 1838 (codified at 26 U.S.C. § 104(a)(2))

, for 10

example, the Supreme Court address ed whether a settlement payment to end 11

a Title VII gender discrimination claim constituted damages for “personal 12

injuries
, ” which would have been exempt from the federal income tax at the 13

time. Id. at 23 3

- 34

. Because
, under Title VII, the plaintiffs were entitled only 14

to back pay and certain equitable relief, id. at 238, the Court concluded that 15

the settlement amount was cor rectly treated as taxable gross income
, and not 16

as exempt payment for “personal injuries
, ” i d. at 242. 8 The Court’s analysis 17

8 The Court in Burke noted that the Code (at the time of its decision) also excl uded from the federal income tax damages compensating individuals for “nonphysical injuries.” 504 U.S. at 237 n.6. Congress later amended the Code to limit that exclusion to “personal physical injuries.” See Small Busi ness Job Protection Act of 1996 § 1 605 (emphasis added).11

“ focused

. . . on the nature of the claim underl ying respondents’ damages 1

award
, ” and the appropriate tax treatment of the settlement turned on the 2

type of injury that Title VII sought to redress. 9 Id. at 237. And in Noel v. 3

N.Y. State Office of Mental Health Central N.Y. Psychiatric Ctr. , 697 F.3d 209 4
(2d Cir. 2012), w e recently found

— based on a similar examination of statutory 5

remedies available under Title VII

— that a plaintiff’s jury award of front and 6

back pay constituted “wages” subject to FICA taxes. Id. at 213

- 14. 7

In addition, we may examine the intentions of both parties to the 8

settlement, and in particular th e purpose of the payor, as reflected in any 9

written settlement agreement or other evidence. When the parties have not 10

expressly designated the nature of the settlement amount or allocated it 11

among various taxable and tax

- exempt components, our decision in Agar v. 12

Commissioner , 290 F.2d 283 (2d Cir. 1961) (per curiam) , provides guidance. 13

At issue there was whether a settlement payment to an employee, made after 14

he resigned and threatened to sue for slander, represented compensation for 15
personal injuries (not taxable) or severance pay (taxable). The parties’ 16

The amendment casts no doubt on the validity of the Court’s approach in Burke

.

9 We recognize that the Court in Burke considered whether a settlement payment was “gross income” under 26 U.S.C. § 61 , not “wages” under 26 U.S.C. § 3101

. See Burke
, 504 U.S. at 231 n.1. But the Court’s reasoning there eas ily extends to the FICA context and undoubtedly mandates a more searching inquiry than what Gerstenbluth proposes.12

agreement “did not clearly set forth the reason for the payments,” and there 1

was no single statutory basis for the claim. I d. at 284

. Treating the 2

taxpayer’s stated belief about the purpose of the payment as “only evidence of 3

the character of the payment,” we ins tructed that “the ultimate inquiry is into 4

the ‘basic reason’ for the company’s payment.” Id. The Tax Court was 5

justified, we held, in relying principally on testimony by the company’s 6

president about the “basic reason” for the payment, and on that basis , we 7

concluded, the settlement represented taxable severance pay

. 8

Thus, the payor’s intent bears importantly on the appropriate tr eatment 9

of a settlement amount. Our sister Circuits, some relying on Agar , have 10

reached similar conclusions. See Rivera v. Baker W., Inc. , 430 F.3d 1253, 11 1257 (9th Cir. 2005) (“If the agreement lacks express language specifying the 12
purpose of the compensation, we will then examine the intent of the payor.”); 13

Pipitone v. United States , 180 F.3d 859, 864 (7th Cir. 1999) (“When a 14

settlement agreement lacks express language stating what the settlement 15

amount was paid to settle, the most important factor for courts to consider is 16 the intent of the payor.”); Knuckles v. Comm’r , 349 F.2d 610, 613 (10th Cir. 17
1965) (concluding that, whe n determining the nature of a settlement payment, 18

“ [ t ] he most important fact

. . . is the intent of the payor as to the purpose in 1913

making the payment”). 1

To be sure, without a negotiated tax classification stated in a settlement 2

agreement and reflected in the settlement amount, the defendant

— especially 3

an employer or former employer

— may have little incentive to treat a payment 4

as anythin g other than FICA

- taxable wages: an error in making a non - wage 5

classification creates unnecessary and undesirable exposur e for the employer 6

in light of FICA’s withholding requirements . And
, after all, whether to accept 7

the settlement terms or pursue formal legal process ultimately is for the 8

claimant to determine. His view of the purpose of the payment, too, deserves 9

some consideration in determining the correct characterization of the award. 10

But precedent accords substantial weight to the discernible intentions of the 11

payor. See Agar , 290 F.2d at 284. 12

2. The Nature of Gerstenbluth’s Claims 13

The text of the A greement , which highlights and specifies 14

Gerstenbluth’s obligation to withdraw the EEOC complaint, and the timing of 15

the Agreement’s negotiation and e xecution leave no doubt that the EEOC 16

complaint animated the settlement

. N ot surprisingly, the Agreement also 17

req uired Gerstenbluth to “release and waive all claims” against Credit Suisse, 18

Agreement ¶ 4
, but n o party argues that Gerstenbluth had asserted anything 1914

other than an age discrimination claim

. W e therefore consider the remedie s 1

potentially available to Gerstenbluth for his age discrimination claim to see 2

what objectively

- ascertainable exposure may have motivated Credit Suisse’s 3

payment

. We then examine other indicia of the purpose of the payment

. 4

A. Remedies Available Under the ADEA 5

For a prevailing plaintiff, t he ADEA provides for recovery of lost wages 6

and, in the case of willful violations, liquidated damages, in addition to 7

equitable relief. 10 See 29 U.S.C. § 6 26(b) (incorporating 29 U.S.C. § 216(b)) ; 8

Comm’r v. Schleier , 515 U.S. 323, 325

- 26 (1995). R ecoverable lost wages may 9

consist of back pay or front pay

. See Banks v. Travelers Cos. , 180 F.3d 358, 10
364 (2d Cir. 1999). Additionally, t he ADEA allows successful plaintiffs to 11

recover prejudgment interest on their award s , see Sharkey v. Lasmo (AUL 12
Ltd.) , 214 F.3d 371, 375

- 76 (2d Cir. 2000), as well as costs and attorney’s fees, 13

see 29 U.S.C. § 626(b) (incorporating 29 U.S.C. § 216(b)); Porzig v. Dresdner, 14

Kleinwort, Benson, North Am erica LLC , 497 F.3d 133, 136 n.1 (2d Cir. 2007 ). 15

The ADEA does not , however, permit recover y of damages compensating for 16

pain and suffering or emotional distress

. Schleier , 515 U.S. at 326. If it did, 17

10 The ADEA does not refer directly to liquidated damages; inste ad, it incorporates the remedy provision of the Fair Labor Standards Act, which provides for liquidated damages in an amount equal to “wages lost.” See 29 U.S.C. § 626(b) (incorporating 29 U.S.C. § 216).15

those components would likely not be “wages” for FICA purposes. See 26 1

U.S.C. 3121(a) (“[T]he term ‘wages’ means all remuneration for 2

employment

. . . .”). 3

The IRS maintains that the entirety of Gerstenbluth’s $250,000 award 4

constituted damages for front and back pay that would have been awardable 5

under the ADEA, and that , as in Noel , the settleme nt award is taxable in its 6

entirety

. 11 7

B. Discerning the I ntentions of Gerstenbluth and Credit Suisse 8

W e next consider whether the parties either specified or contemplated 9

that the payment was in the nature of front and back pay , or some other type 10

of compensation

. 11

T he IRS may successfully challeng e an implausible designation, of 12

course, 12 but parties may provide in their settlement agreement that certain 13

11 The IRS concedes that amounts awarded in lieu o f attorney’s fees and interest are not su bject to FICA
, but Gerstenbluth has not argued that any portion of the settlement payment was made in lieu of attorney’s fees or interest. Nor has Gerstenbluth asserted that any portion of the payment should be cha racterized as compensation for pain and suffering, a remedy available under New York’s antidiscrimination law

. See N.Y. Exec. Law § 297(4)(c) ; Freudenthal v. County of Nassau , 99 N.Y.2d 285, 291 (2003)

. Accordingly, w e decline to address these other possible characterizations of the payment

.

12 We note, however, that it is the stated practice of the Tax Court to respect the parties’ explicit allocation of damages as long as they entered into the settlement in good faith and at arms’ length. See, e.g

. , Bagley v. Comm’r , 105 T.C. 396, 406 (1995); see also 5 Mertens Law of Federal Income Taxation § 24A:10 (2013) (“Generally speaking, the Service or the courts will respect an allocation in a settlement agreement if the allocation is made in16

portions of the settlement payment correspond to a particular type of damages 1

claimed

. See, e.g. , Schleier
, 515 U.S. at 326

- 27 (addressing the tax 2

implications of a n ADEA settlement that allocated half of the payment to 3

“back pay” and half to “liquidated damages” and holding that neither type of 4

damages was exempt from the personal income tax ). When the settlement 5

agreem ent explicitly allocates its payment amount to various components of a 6

plaintiff’s claim , a court reviewing the IRS’s determinati on of its tax 7

consequences may face a relatively straightforward inquiry

. 8

When a settlement agreement does not explicitly characterize the 9

nature of the payment, Agar requires us to emphasize the payor’s intent ion in 10

making the payment

. The most readily available evidence of the payor’s 11

intent may be the payor’s own treatment o f the payment for taxation 12

purposes. This is not to say that the payor’s post hoc account of its intention 13

in making the payment will be decisive. Although we presume the payor’s 14

characterization represents the true nature of the payment
, a plaintiff may 15

overcome this presumption by showing, for instance, that the payor’s tax 16

treatment of the payment or a component of the payment is inconsistent with 17

the legal theories of the plaintiff’s complaint, the legal remedies available to 18

good faith in an adversarial context.”).17

the plaintif

f, or other facts surrounding the parties’ settlement negotiations 1

and agreement. Absent such a showing, however, the payor’s treatment of the 2

payment will often conclusively establish its intent, and may control the tax 3

classification of the payment. 4

H ere, the Agreement contemplated that Credit Suisse would withhold 5

“ applicable ” taxes , and that the payment would be reduced by that amount. 6

Agreement ¶¶ 1, 3 . Credit Suisse issued Gerstenbluth a F orm W

- 2 that 7

classifie d the paymen t as “[w]ages, tips, other comp[ensation ] ,” S upp. App. 25, 8

in the context of a claim made under a statute that contemplat es awards of 9

back and front pay. Even acknowledging that the FICA

- friendly classification 10

may have been the path posing the least risk from a tax perspecti ve for Credit 11

Suisse, the designation nonetheless creates a strong presumption that the 12

company made the payment in lieu of lost wages and that the payment is 13

therefore taxable under FICA. 14

As noted above, Gerstenbluth proposes several arguments for 15

overcoming the presumption in favor of the accuracy of Credit Suisse’s 16

classification

. None is availing. 17

First, Gersten bluth asserts that the IRS’s position in this action is 18

inconsistent with one of its taxpayer

- oriented publications. The publicati on at 1918

issue, Publication 4345, is aimed at giving taxpayers general advice on the 1

appropriate tax treatment of settlement proceeds . In its then

- current form, 2

the publication instructed : “Lost wages, lost profits, unlawful discrimination, 3

or injury to repu tation: Amounts are taxable and should be reported as ‘Other 4

Income’ on line 21 of Form 1040.” Supp. App. 13. We understand 5

Gerstenbluth to be arguing that because the IRS did not instruct taxpayers to 6

list those amounts on the line in Form 1040 that cor responds to “[w]ages, 7

salaries, tips, etc.,” see id. at 26 (Gerstenbluth’s Form 1040), the IRS has in 8

effect conceded that such payments, while reportable income, are not “wages” 9

subject to the FICA tax. 10

This informal advice hardly amounts to a concession as to the 11

appropriate treatment for FICA pu rposes. IRS publications do not displace 12

controlling statutes, regulations, and case law. Thus, in United States v. 13

Josephberg , 56 2 F.3d 478 (2d Cir. 2009), we affirm ed the district court’s 14

refusal in a tax evasion case to give a jury instruction based on an IRS 15

publicat ion, explaining that “IRS publications, though aimed at explaining 16

existing tax law to taxpayers, do not have the force of law

. ” Id. at 498 17
(int ernal quotation marks omitted) ; s ee al so Zimmerman v. Comm’r , 71 T.C. 18
367, 371 (1978) (“[T]he authoritative sources of Federal tax law are in the 1919

statutes, regulations, and judicial decisions and not in such informal 1 publications.”), aff’d without opinion , 614 F.2d 1294 (2d Cir. 1979) ; Miller v. 2

Comm’r , 114 T.C. 184, 195 (2000) (same). Our decision in Noel made clear 3

that front and back pay awards , at least those made under Title VII, are 4

subject to FICA taxes, and Gerstenbluth’s brief recognizes as much. See 5
Appellant’s Br. at 7 (“Appellant acknowledges that back or forward pay is 6
taxed for FICA and Medicare purposes.”). To the extent the IRS publication is 7

inconsistent with our conclusion in Noel
, the publication misstates the law. 8

Next , Gerstenbluth a sserts that the settlement payment cannot fairly 9

be said to represent lost wages because the amount paid was not calculated 10
(he now asserts) based on the amount of his salary or the length of his tenure 11

at Credit Suisse. To be sure, a calculation set out in the Settl ement 12

Agreement and demonstrat ing that the payment amount was linked to the 13

employee’s salary would serve as persuasive additional evidence that the 14

parties intended the award to represent lost wages. Cf. Abrahamsen v. 15

United States , 44 Fed. Cl. 260, 272 (1999) (concluding that payments made in 16

connection with employer’s “downsizing” constituted wages, where the 17

employer “calculated the payments solely on the basis of employment tenure 18

and salary basis ”)

, aff’d
, 228 F.3d 1360 (Fed. Cir. 2000)

. But Credit Suisse 1920

was under no obligation to detail in the A greement how it computed the 1

$250,000 figure, and its silence about the basis for its calculation does not 2

negate the import of the tax t reatment it afforded the settlement payment. 3

In addition
, Gerstenbluth argues that the settlement cannot constitute 4

front or back pay, because, if it did, the A greement would violate EEOC 5

regulations governing waivers of ADEA claims. He cites to 29 C.F.R. 6

§ 1625.22(i)(2) , which provides : “No waiver agreement may include any 7
provision prohibiting any individual from: (i) Filing a charge or complaint, 8

including a challenge to the validity of the waiver agreement, with EEOC, or 9
(ii) Participating in any investigation or proceeding conducted by EEOC. ” 10

We see no merit in this contention . Even were we to assume
, arguendo
, 11

that the settlement ag reement in some way violated this regulation, that 12

violation would have no bearing on the proper characterization of the 13

settlement payment for FICA purposes . Whether Gerstenbluth waived a right 14

that the regulations treat as unwaivable is a query independent of whether 15

the settlement payment reflects front pay, back pay, or some other type of 16

damages. 17

Finally, Gerstenbluth asserts in his brief on appeal tha t upon 18

termination, he received a severance package from Credit Suisse, 1921

unassociated with his later

- filed EEOC complaint, and that his severance 1

payment was explicitly tied to the amount of his former salary. He implies 2

that, since he had already received a payment in lieu of front pay, the 3

settlement amount was neither back nor front pay. No record evidence 4

supports his assertion about a prior severance payment , however, and, 5

notwithstanding our usual liberality in construing the pleadings of pro se 6

litigants, we cannot simply transform his unsupported asserti on into a n 7

established fact for purposes of his appeal . Even were we to accept this 8

assertion
, however
, the existence of such a prior payment would not alter our 9

analysis : had Gerstenbluth pre vailed before the EEOC, he still would have 10

been entitled to receive primarily back and front pay. The severance 11

payment , without more, would not likely transform the settlement payment 12
into something other than “wages.” 13 13

13 In a sense, of course, every settlement payment is made (as Gerstenbluth argues his was) to induce a claimant to drop a claim: a defendant or possible defendant determines that paying the claimant or plaintiff to withdraw his claims outweighs the costs and risks of further proceedings, sometimes including a trial. And sometimes it may not be advantageous to the parties to identify with any precision the components of a settlement amount. But especially where the defendant is an employer or former employer, to exempt an ADEA settlement payment from FICA taxes (as Gerstenbluth urges), could create especially anomalous results. Two employees obtaining identical damage awards from their employers, one through settlement and the other after trial, could potentially suffer disparate tax consequences: the plaintiff who settles would not pay FICA taxes on the settlement amount

—

because ostensibly that award was merely a “payment to drop the claim”

— whereas the plaintiff who prevails a t trial would pay FICA taxes on the recovery. We can think of no justification for this asymmetrical treatment.22 * * * 1

Credit Suisse classified the settlement payment as “ [w] ages , tips, other 2

comp [ensation] ” on Gerstenbluth’s Form W

- 2 . Gerstenbluth has not offered 3

sufficient evidence to suggest that the settlement payment was anything else. 4

CONCLUSION 5

For the reasons set fort h above, we AFFIRM the judgment of the 6

District Court granting the IRS summary judgment and dismissing the 7

complaint against Credit Suisse. 8