Legal Document

55 United States Supreme Court Reports Lawyer’s Edition 2d Series KF101.8 U54 82 98 Reporter 917 435 U.S. 21 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, Petitioner,v.UNITED STATES. Number 76-1058. Argued Oct. 12, 1977. Decided Feb. 28, 1978. Syllabus Sharon L. King, Chicago, Ill., for petitioner. Stuart Alan Smith, Dept. of Justice, Washington, D.C., respondent. Mr. Justice BLACKMUN delivered the opinion Court. 1 This case presents issue whether an employer, who in 1963 reimbursed lunch expenses employees were on company travel but not away overnight, must withhold federal income tax those reimbursements. Stated another way, is reimbursements qualify as "wages" under § 3401(a) Internal Revenue Code 1954, 26 KF62 3401(a). 2 * The facts are any real dispute. Petitioner Central Illinois Public Service Company (Company) a regulated public utility engaged, downstate Illinois, generation, transmission, distribution, sale electric energy, and distribution natural gas. Its principal office Springfield. It serves geographic area some size. In order adequately to serve area, Company, accord with long-established policy, reimburses its reasonable, legitimate transportation, meals, lodging they incur Company's business. Some these trips overnight; others, return before end business day. 3 1963, year issue, had approximately 1,900 employees. union operating western division (its only nonunionized division) noon lunches consumed, while authorized travel, amount exceed $1.40 per lunch.1 was specified collective-bargaining agreement union. Other salaried actual reasonable luncheon up maximum amount.2 4 An employee trip prepared his expense account form. turned supervisor approval. rate sometimes excess cost, at other times it insufficient cover that cost. took from home him entitled reimbursement. If, because locality work assignment particular day, went lunch, he Many engaged open-air labor. Even "modest."3 5 status rendered no service during lunch. He off duty own time. subject call, however, all time emergencies required. payment unrelated employee's specific job title, nature work, or pay. "[T]his arrangement beneficial convenient served interest. saved otherwise spent travelling back forth well usual expenses."4 6 During paid total $139,936.12 reimbursement consumed normal stations nonovernight trips. did respect components this sum. pay withholding taxes totaling $1,966,489.87 payments. 7 Upon audit 1971, position qualified wages withholding. A deficiency $25,188.50 assessed. promptly together $11,427.22 interest thereon, $36,615.72. then immediately filed claim refund so and, action forthcoming six months, see 6532(a)(1), instituted suit District Southern recover paid. 8 ruled favor, holding question 405 F.Supp. 748 (1975). Appeals Seventh Circuit reversed. 540 Federal Reporter, 2nd 300 (1976). Because decision appeared be conflict views Fourth Royster versus States, 479 387 (1973), we granted certiorari. 431 903, 97 1693, 52 386 (1977). II 9 Commissioner Kowalski, 434 77, 315, 54 252 (1977), decided earlier Term, held New Jersey's cash highway patrol officers meals constituted officers, within broad definition gross 61(a) 1954 Code, 61(a), further, payments excludable 119 119, relating furnished convenience employer. 10 concerned what income. pertinency present litigation necessarily confined aspects 11 us case. We confronted here, instead, reimbursements, even though now may constitute taxable reimbursed, withholding, meaning requirements §§ 3401-3403 (1970 ed. Supp. V). These statutes Subtitle Contract Code. provisions Atlantic 12 imposed 1. Generally, minus allowable deductions. 63(a). Section defines "all whatever source derived" including, 61(a)(1), "[c]ompensation services." tax, contrast, wages, 3402(a), "wages," remuneration (other than fees official) services performed by including value medium cash." two concepts—income wages—obviously same. Wages usually income,5 many items yet clearly wages. Interest, rent, dividends ready examples. And very itself goes specifically exclude certain types employer (e. g., combat pay, agricultural labor, domestic service). Our task, therefore, determine character light 3401(a), consequent obligation 3402(a). 13 Before proceed resolution one further observation about aspect order. Although Correll, 389 299, 88 445, 19 537 (1967), restricting overnight deduction meal costs 162(a)(2), dispelled confusion, fair say until Court's recent Courts have been disarray whether, 61 respective predecessor sections 1939 such recipients.6 Thus, partially clarified 1967, four full years after which being claimed case, entirely Kowalski fe weeks ago. III 14 Sixteenth, Amendment Constitution became effective February 1913. ensuing Tariff Act October 3, 1913, E, 38 Statutes-at-Large 170, contained, perhaps somewhat surprisingly, fairly expansive provision.7 This, repealed8 due course came replaced current "information source" constituting 6041 et seq. 15 system has later origin Victory Tax 1942, 172, 56 884. new 465(b) embraced basic contained Current Payment 1943, 57 126, repealed Individual Income 1944, 6(a), 58 234. structure 1943 survives 16 legislation 35 ago Congress chose inclusive language but, specifically, "in simplicity ease administration," "salaries, forms compensation personal S.Rep.No.1631, 77th Cong., Sess., 165 (1942).9 committee reports stated consistently meant "if employer" (emphasis supplied). H.R.Rep.No.2333, 126 (1942); 166 H.R.Rep.No.401, 78th 1st 22 (1943); S.Rep.No.221, 17 H.R.Rep.No.510, 29 (1943). regulations also contain "if" clause, Treas.Reg. Employment Taxes, 31.3401(a)-1(a)(2), Regulations 31.3401(a)-1(a)(2) then, 31.3401(a)-1(b)(2) recite: "Amounts specifically—either advances reimbursements—for traveling bona fide ordinarily necessary incurred reasonably expected withholding." But 31.3401(a)-1(b)(9) provides: "The employe if employee. See 1.119-1 chapter (Income Regulations)." thus would tie result IV 18 Government, straightforwardly simplistically, argues corresponds first category set "although congruent [in their] relationship," Brief 11, "equivalent scope," id., 15. allowance compensatory, performance assigned place determined. said, there direct causal connection between receipt services. allowance, part package designed attract hold Company. Government pronouncements purposes statutes. states broadly cites Old Colony Trust Revenue, 279 716, 49 499, 73 L.Ed. 918 (1929), where their employers; LoBue, 351 243, 76 800, 100 1142 (1956), transfer assets less market secure better employee; Social Security Board Nierotko, 327 358, 66 637, 90 718 (1946), issue; Otte 419 43, 49-50, 95 247, 42 212 (1974), wage claims trustee bankruptcy. For law, argues, difference benefits kind traditional salary Both services" 61(a)(1) "remuneration . explain seemingly pertinent ground relates deductible 162(a) Correll excluded benefit cost travel. urges important employment relationship arose out relationship. V do agree rather facile conclusion advanced Government. course, flow Government's favor mere fact made context employer-employee govern result. That obvious. thing purposes, quite follows therefrom There gap premise wide one. Considerations support subjectability same considerations To require carry risk liability Required rightly much narrower taxation. 20 As noted above, 3402, required upon remuneratio employer." When effectuated like, administration." (1942). 31.3401(a)-1(b)(2), applicable employers excluding concepts amounts "paid ordinary employer," issued originally—long prior 1967—as 404.14 Treasury Decision 5277, Cum.Bull. 927, 941.10 nothing provisions, incorporates concept. despite assertion "consistently" since 1940, is, I.T. 3395, 1940-2 64 (relating railroad deducting room rentals rest home), adhered rule determining liability. 32. Such consistent adherence liability—together absence reference regulations—strongly indicates intended apply obligations. cases distinction refused equate similar controversies. Peoples Life insurance 373 924, 932, 179 Ct.Cl. 318, 332 (1967); Humble Pipe Line 442 1353, 1356, 194 944, 950 (1971); Oil & Refining 1362, 920 Stubbs, Overbeck Associates 445 (C.A.5 1971); F.2d, 390;11 Acacia Mutual 272 188 (D.C.Md.1967). distinguish them involved deductible, others particularized allowances. perceive distinctions persuaded blunt courts emphasized. sweeping indulged Appeals, 302, urged existing system. simplicity, administration, confinement standard 1942. intentionally narrow precise. changed although, often administrative pressures seek soften stretch definition. secondary employee, matter obvious concern that, absent congressional action, employer's precise speculative. 1369-1370, Ct.Cl., 933. H.R.Rep.No.94-1515, Page 489 (1976); U.S.Code Cong. Admin.News 1976, 2897.12 23 regulation ruling intimation way. 31-3401(a)-1(b)(2). No viewing could suspect existed. 1940 erect 64, predated 1943. Apart ruling, significant reflect adopted shortly thereafter. With omission hardly fill account. Further, thereafter judicial decisions deductibility issue. Only nondeductibility. Appeals' court ever purposes. published pronouncement 1969 Rev.Rul. 69-592, 1969-2 193, down. Ruling's suggestion possible requirement (when exceeded deductions) whatsoever avoided mention statutory 24 say, wisdom chooses expanding done yet. cannot justify attempt determination. 25 judgment ordered. 27 BRENNAN, whom THE CHIEF JUSTICE POWELL join, concurring. 28 N Dec. Immigration Nationality Decisions join opinion, emphasizing does decide "whether treatment statute valid." Ante, 32 n. 12. share petitioner met obligations most interpreted 1963. write separately state more fully my why subjected retroactively theory correct not—espoused here ante, 28-29. Those administer unquestionably authority make rulings retroactiv 7805(b),1 construed Dixon Commissioner, 381 68, 85 1301, 223 (1965); Automobile Club Michigan 353 180, 77 707, 746 (1957).2 unfettered, conditions retroactive application petitioner's abuse discretion. 30 legislative history reveal evidence intent guarantors liabilities employees, likelihood can assessed retroactively.3 Far it. enlarge scope base increase rate, uniform practice give grace period bring practices line law.4 instance case,5 clear changes inadvertent moved error: 31 Reform enacted 4, several increased beginn ng 1976. 33 "In (such 1969) passed late increases beginning year, Congress, equity custom, relieved taxpayers additions interest, penalties estimated resulting Relying Congressional assurances failure provide relief 1976 oversight remedied, [has delayed assessments 1976] 34 believes appropriate grant affected penalties, traditionally application. 36 37 "[Therefore, t]he amendment relieves type Act." S.Rep.No.95-66, Pages 85-86 (1977) added); 1977, 262-263. Reduction Simplification 404, 91 155-156. 39 drawn Congress' avoiding imposition "equity custom" liability, submit, additional should not, least without good reason, against know reason withheld. 40 notice, holds, 25-26, 29-30, given 1967 appears, possibly our remaining depart customary practice. suggest one, arguing instead ample notice obligations—a rejecting. Moreover, unlike situation Michigan, function ensuring similarly situated equally. Instead, likely effect individual reported will paid, bear directly simply acting collection conduit certainly Congress. 41 POWELL, joins, addition joining BRENNAN's concurring addressing tax. seems particularly inappropriate express authority, impose date put areas "notice," legally meaningful, sufficiently explicit inform prudent person legal consequences comply law regulation. view complexities taxation, fundamental fairness prompt refrain assessment authorization. 43 observes, 32, 1963—the question—no reimbursement, intima ions contrary. safely said recently (perhaps Term (1977)), neither nor generally asserted short, makes clear, abused discretion attempting 44 STEWART, judgment. 45 agreeing 46 so-called 537, either "income" "wages." exclusively deductions take when prepare returns. 47 depends various eventually report which, care. importation into nothing, confuse issues actually us. 48 concur think made, 31.3401(a)-1(b)(2). 1960 $1.30. 1961 negotiated $1.40. Tr. 93. controller testified accounts expended carefully reviewed, regarded questionable ($2.50, trial date, considered questionable), disallowed deemed reasonable. Id., 64-66. findings, describing "modest," observed: "As practical matter, money making proposition employee." 748, 749 (S.D.Ill.1975). Ibid. exceptions. E. 911(a). Wilson 412 694 (C.A.1 1969); Bagley, 374 204 1967), cert. denied, 1046, 761, 838 (1968); Saunders 215 768 (C.A.3 1954); Koerner 550 1362 (C.A.4), 984, 608, 477 (1977); Smith 543 1155 1976), vacated remanded, 978, 600, 473 Barrett, 321 911 1963); Magness 247 740 1957), 355 931, 78 412, 414 (1958); 369 87 (C.A.6 1966), rev'd, Morelan, 356 199 (C.A.8 1966); Hanson 298 391 1962); Keeton, 383 429 (C.A.10 1967). "All persons [or] corporations having control salaries person, exceeding $3,000 hereby deduct sum sufficient thereon section ." 1917, 1204(2), 300. House included bond 125 Similarly, 31.3401(a)-1(b)(10), promulgated originally 404.15 facilities privileges entertainment, medical services, courtesy discounts) offered Yet those, obviously, S.Rep.No.830, 88th 208 (1964); H.R.Rep.No.1149, 1964, 1313; S.Rep.No.91-552, 110 (1969); H.R.Rep.No.91-413, (1969). 55-520, 1955-2 393; 56-249, 1956-1 488; 58-301, 1958-1 23; 58-145, 360; 59-227, 1959-2 13, modified superseded prospectively 75-44, 1975-1 15, instances includability abandoned pari materia provisions. 388. responsibility far strikes almost punitive Needless today valid. "(b) Retroactivity rulings.—The Secretary delegate prescribe extent, any, regulation, internal revenue laws, shall applied effect." each characterized "mistakes law." U.S., 72, S.Ct., 1304; 183, 184, 709, 710. simple sense merely undoing mistake law. Commissioner's withdrawal fringe-benefit witnesses, Fed.Reg. 56334 (1976), bifurcation fringe hence taxable—and moneys business—and doing income—is means easy. field something taxed yesterday corrected evolving understanding circumstances, equity, purpose require. And, although feel compulsion insist always newly announced interpretation constant intent, cf. supra, 73-75, 1304-1306. power define unfettered. enough consider valid comes sue chance method recovery remote, however. One policy found 1942 itself. There, raised nonresident aliens foreign corporations, 1939, 143-144, 53 60-62, nonetheless "until tenth day enactment act afford agents informed higher corporations." 69 Revenu 108(c), 808. Similarly commence December 31, 172(a), 884, 2(c) 139, three weeks. review amendments reveals prospective modifications employees' 3401 213 Title expanded moving correspondingly. Tit. II, 213(a), 213(c), 50-52, adding respectively, 217 3401(a)(15). apparently recognizing might required, 213(d): subsection (c) seventh following 52. By Act, added 79 79, giving group term life contributions employers, created corresponding (§ 3401(a)(14))—actually contracted change retroactive. 204(d) 37. 1965, tip both amending July January 1, 1966. Amendments III, 313(f), 385. 1966, amended 3401(a)(6) 3401(a)(7), specifying governed Regulations. Foreign Investors I, 103(k), 80 1554. this, 1967. 103(n)(4), 1555. 1972, 3401(a)(1) Again, provided: [to 3401(a)(1)] calendar month begins days Pub.L.No.92-279, 3(b), 86 125. Employee Retirement 1974, 2002(g)(7), 2002(i)(2), 970-971. Adjustment wholesale modification tables 3402 3402. over month—before effect. 101(g), 62. Further complex 1969, last, expressly prospective. VIII, 805(h), 83 709; 208(i), 517. explained text, infra, corrected. frequently amended, scaled down supra.

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