Court Opinion

ID: 4486030
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:08.281582+00
Date Added: 2024-06-11T15:03:47.447624
License: Public Domain

PARR, J., dissenting: I respectfully dissent from that portion of the majority’s opinion which holds that title VII benefits are includable in petitioners’ gross income. I believe that 45 U.S.C. section 797d(b) (1976) excludes these amounts from gross income, and in so doing carries out the intent of Congress in enacting NERSA. It is true that section 61(a) taxes all income except that which is specifically exempted, and that such exemptions are construed narrowly. It is clear, however, that 45 U.S.C. section 797d(b) does properly carve out an exemption from gross income for the benefits at issue herein. The plain, unambiguous language of 45 U.S.C. section 797d(b) indicates that title VII benefits are to be considered “compensation” solely for two specified purposes. The term “solely for” means “exclusively for” or “only for.” United States v. Esperdy, 277 F.2d 537, 538 (2d Cir. 1960); Stockton Harbor Industry Co. v. Commissioner, 216 F.2d 638, 645 (9th Cir. 1954), cert. denied 349 U.S. 904 (1955). The statute, as worded, exempts title VII benefits from being considered “compensation” for any other purpose, including Federal tax purposes, and not just other title 45 purposes, as the majority believes. Congress did not preface this provision with the words “For purposes of this title.” Although there are many forms of gross income other than compensation, respondent’s theory is clearly that title VII benefits constitute compensation. Respondent cites several authorities for his assertion that termination and severance payments are taxable, all of which turn on the rationale that these benefits are taxable precisely because they are forms of compensation. See sec. 1.61-2, Income Tax Regs.; sec. 31.3401(a)-1, Employment Tax Regs.; Rev. Rul. 75-44, 1975-1 C.B. 15. He also cites numerous cases which likewise find payments to terminated employees to be compensation for services and not gifts or other nontaxable forms of income. See, e.g., Commissioner v. Duberstein, 363 U.S. 278 (1960); Beggy v. Commissioner, 23 T.C. 736, affd. per curiam 226 F.2d 584 (3d Cir. 1955). The only argument presented which would characterize these benefits as a form of taxable income other than compensation was petitioner’s argument that if taxable, the benefits are properly taxable as unemployment compensation (which is, of course, another form of compensation). The majority does not suggest any theory other than compensation under which these benefits would be taxable. Indeed, I can think of none. These payments were not, for instance, capital gain, prize winnings, or dividends. Under the well-settled case law, regulations, and respondent’s own revenue ruling they would be taxable as compensation, absent the unambiguous language of 45 U.S.C. section 797d. In enacting 45 U.S.C. section 797d(b), Congress provided that title VII benefits would not be considered compensation for Federal tax purposes. Since there is no other theory under which these amounts would logically be taxed, I believe Congress intended to exempt them from the broad scope of section 61(a). See section 1.61-2, Income Tax Regs., which includes termination and severance pay as taxable compensation unless excluded by law. The legislative history of NERSA supports this conclusion. Congress had two goals in mind when it enacted title VII. The first was to save Conrail, whose operations were “hopelessly unprofitable,” and make it more salable to private industry. This would be accomplished by eliminating an estimated 4,600 Conrail employees and repealing title V, “the most expensive labor protection provision in labor history,” which had become an impossible burden. S. Rept. 97-101 at 9-10 (1981); H. Rept. 97-153 at 2-3 (1981); S. Rept. 97-139 at 332 (1981). The second goal was to set up a new employee protection system for Conrail employees to replace the repealed title V. The new labor protection provisions were to be “fair and reasonable.” S. Rept. 97-101, at 9-10 (1981). See also 127 Cong. Rec. 19,126 (July 31, 1981). These objectives were codified in 45 U.S.C. section 1101. The concern for employee protection was obviously the purpose behind the enactment of 45 U.S.C. section 797d(b), which clarified the treatment of title VII benefits and insured the recipients’ rights to receive unemployment compensation. Making these benefits nontaxable was in keeping with the purpose of providing Conrail’s employees with fair and reasonable benefits. Congress knew that thousands of railroad employees would lose their jobs and that the generous title V provisions (which had provided for job security, subsistence allowances, monthly displacement allowances and salary continuation) were simultaneously being eliminated. The intent was to provide for these displaced workers fairly, insofar as Conrail’s financial situation would permit. The amounts were limited to $20,000, and specified deductions for items such as health and welfare benefits were expressly mandated. If income taxes were to further reduce these benefits, there would be little left over to compensate these individuals whom Congress had intended to protect. The Supreme Court recently stated that “exemptions from taxation are not to be implied.” United States v. Wells Fargo Bank, 485 U.S__ _(1988).1 The exemption of title VII benefits from gross income was plainly stated by Congress. Congress is clearly aware of the consequences of the term “compensation,” which generally encompasses all payments from a taxpayer’s employer or in exchange for a taxpayer’s labor. See generally sec. 1.61-2, Income Tax Regs.; Commissioner v. Duberstein, supra. Had Congress said nothing, these payments would be taxable as compensation under section 61. Congress expressly carved out an exception for these benefits by using the phrase “solely for.” Title VII benefits are not compensation for any purposes other than the two specified in 45 U.S.C. section 797d(b), and Federal taxation is not one of those two purposes. This is in accord with the opinions of the two District Courts that have considered this issue. See Sutherland v. United States, 664 F. Supp. 211 (W.D. Pa. 1987), revg. on motion for reconsideration 664 F. Supp. 207 (W.D. Pa. 1986); Herbert v. United States, 662 F. Supp. 573 (S.D. N.Y. 1987), on appeal (2d Cir., July 30, 1987). I would hold that these benefits are not includable in petitioner’s gross income, and that we need not reach the issue of whether they should be taxed as unemployment compensation. KÓRNER, J., agrees with this dissent.   The facts in the instant cases are distinguishable from those of Wells Fargo. In that case, the Supreme Court held that certain public housing agency obligations, known as “Project Notes,” were not exempt from estate tax despite the language of sec. 5(e) of the Housing Act of 1937, 50 Stat. 890, which states that such obligations “shall be exempt from all taxation.” The Court noted the settled principle that exemptions from taxation must be unambiguous and not implied. Despite the language of the Housing Act provision, there was ambiguity: secs. 2001 and 2002 specifically included Project Notes in a decedent’s taxable estate. Further, the generally understood meaning of “all taxation” was “direct taxation,” which did not include the estate tax, an excise tax. The Court thus found that without an express exemption from estate tax, the statute the taxpayers relied on did not even support their claim for tax exemption. Nor did the court find the legislative intent to be unambiguously in favor of a tax exemption. In contrast, we are faced with a single unambiguous statute with unambiguous legislative history.