No. 00-203 

In the Supreme Court of the United States 

UNITED STATES OF AMERICA, PETITIONER 

v. 

CLEVELAND INDIANS BASEBALL COMPANY, A LIMITED 
PARTNERSHIP 

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT 

PETITION FOR A WRIT OF CERTIORARI 

SETH P. WAXMAN 

Solicitor General 

Counsel of Record 

PAULA M. JUNGHANS 

Acting Assistant Attorney 

General 

LAWRENCE G. WALLACE 

Deputy Solicitor General 

KENT L. JONES 

Assistant to the Solicitor 

General 

KENNETH L. GREENE 
ROBERT W. METZLER 

Attorneys 

Department of Justice 
Washington, D.C. 20530-0001 
(202) 514-2217 

QUESTION PRESENTED 

Whether, for purposes of the Federal Insurance Con- 
tributions Act, 26 U.S.C. 3101-3128, and the Federal 
Unemployment Tax Act, 26 U.S.C. 3301-3311, an award 
of back wages should be attributed to the year the 
award was actually paid or, instead, to the year that the 
events occurred that gave rise to the award. 

(I) 

TABLE OF CONTENTS 

Page 

Opinions below ............................................................................... 
1 

Jurisdiction ...................................................................................... 1 

Statutory provisions and regulations involved ........................ 
2 

Statement ........................................................................................ 2 

Reasons for granting the petition ............................................... 
8 

Conclusion ....................................................................................... 24 

Appendix A ..................................................................................... 
1a 

Appendix B ..................................................................................... 
6a 

Appendix C ..................................................................................... 
12a 

Appendix D ..................................................................................... 
14a 

TABLE OF AUTHORITIES 

Cases: 

Atlantic Mutual Ins. Co. v. Commissioner, 

523 U.S. 382 (1998) ................................................................ 

14 

Bowman v. United States, 824 F.2d 528 (6th Cir. 

1987) ........................................................... 

7, 17, 18, 19, 20, 22 

Cottage Savings Ass’n v. Commissioner, 499 U.S. 

554 (1991) ................................................................................. 

14 

Flemming v. Nestor, 363 U.S. 603 (1960) .......................... 

17 

Freedomland, Inc., In re, 480 F.2d 184 (2d Cir. 1973), 

aff ’d sub nom. Otte v. United States, 419 U.S. 43 

(1974) .................................................................................... 

20, 21 

Hemelt v. United States, 122 F.3d 204 (4th Cir. 

1997) ..................................................................................... 

18, 19 

Johnston v. Harris County Flood Control District, 

869 F.2d 1565 (5th Cir. 1989), cert. denied, 493 U.S. 

1019 (1990) ............................................................................... 

18 

Mazur v. Commissioner, 986 F. Supp. 752 

(W.D.N.Y. 1997) ..................................................................... 

19 

National Muffler Dealers Ass’n v. United States, 

440 U.S. 472 (1979) ................................................................ 14 

(III) 

IV 

Cases—Continued: Page 

San Francisco Baseball Assocs. L.P. Francisco 

Giants v. United States, 88 F. Supp.2d 1087 (N.D. 
Cal. 2000), cross-appeals pending, Nos. 00-15750 & 
00-15890 (9th Cir.) ............................................................. 

18, 23 

Social Security Board v. Nierotko, 327 U.S. 358 

(1946) ............................................................................. 

15, 16, 17 

Walker v. United States, 202 F.3d 1290 (10th Cir. 

2000) ..................................................................................... 

19, 20 

Statutes and regulations: 

Employee Retirement Income Security Act of 1974, 

Pub. L. No. 93-406, § 502, 88 Stat. 829 ............................... 

18 

Employment Security Amendments of 1970, Pub. 

L. No. 91-373, § 302, 84 Stat. 713 ........................................ 

14 

Internal Revenue Code (26 U.S.C.): 

§ 104(a)(2) ................................................................................ 

19 

§ 1401 ....................................................................................... 

19 

§ 3101 ............................................................................ 

2, 12, 14a 

§ 3101(a) .................................................................... 

3, 4, 21, 14a 

§ 3101(b) .......................................................................... 

3, 4, 14a 

§ 3102 ....................................................................................... 

5 

§ 3102(a) ................................................................................... 

20 

§ 3111 .......................................................................... 

2, 12, 16a 

§ 3111(a) .................................................................... 

3, 4, 8, 16a 

§ 3111(b) ................................................................... 

3, 4, 8, 16a 

§ 3121 ................................................................................... 

2, 18a 

§ 3121(a) ....................................................... 

4, 5, 10, 12, 13, 18a 

§ 3121(a) ................................................................................... 

4 

§ 3121(a)(1) .......................................................................... 

4, 18a 

§ 3121(v)(2) .............................................................................. 

8 

§ 3301 .............................................................. 

2, 4, 5, 8, 12, 20a 

§ 3301 ....................................................................................... 

5 

§ 3301(a) ................................................................................. 

8 

§ 3306 ............................................................................. 

2, 12, 21a 

§ 3306(b) ........................................................................ 

5, 10, 21a 

§ 3402 ....................................................................................... 5 

V 

Statutes and regulations: 

Page 

§ 3402(a) ................................................................................... 

21 

Social Security Act, ch. 531, 49 Stat. 620: 

§ 210(a), 49 Stat. 625 .............................................................. 

15 

§ 210(b), 49 Stat. 625 ............................................................. 

15 

§ 801, 49 Stat. 636-637 ........................................................... 

9 

§ 804, 49 Stat. 636-637 ........................................................... 

9 

§ 811(a), 49 Stat. 639 .............................................................. 

10 

§ 901, 49 Stat. 639 .................................................................. 

10 

§ 907(b), 49 Stat. 642 ............................................................. 

10 

Social Security Act Amendments of 1939, ch. 666, 

53 Stat. 1360: 

§ 601, 53 Stat. 1382 ............................................................ 

9 

§ 604, 53 Stat. 1383 ............................................................ 

9 

§ 608, 53 Stat. 1387 ............................................................ 

9-10 

§ 614, 53 Stat. 1392-1393 .................................................. 

10 

Social Security Act Amendments of 1946, ch. 951, 

60 Stat. 978: 

§ 412(a), 60 Stat. 989 ......................................................... 

10 

§ 412(b), 60 Stat. 989 ......................................................... 

10 

§ 414(a)(3), 60 Stat. 991 .................................................... 

16 

Social Security Act Amendments of 1972, Pub. L. 

No. 92-336, § 200(b)(1), 86 Stat. 416 (§ 230, 42 U.S.C. 

430) ........................................................................................... 4 

Tax Equity and Fiscal Responsibility Act of 1982, 

Pub. L. No. 97-248, § 271(a), 96 Stat. 554 .......................... 

13 

Unemployment Compensatoin Amendments of 1976, 

Pub. L. No. 94-566, § 211(a), 90 Stat. 2676 ...................... 

13-14 

20 C.F.R. 404.1242 .................................................................... 

16 

26 C.F.R.: 

Section 31.3101-2(c) & Example ........................ 

2, 12, 22a 

Section 31.3101-3 .................................................. 

2, 12, 22a 

Section 31.3111-2 ........................................................ 

2, 22a 

Section 31.3111-2(c) .............................................. 

2, 12, 22a 

Section 31.3111-3 .................................................. 2, 12, 23a 

VI 

Regulations—Continued: Page 

Section 31.3121(a)-2 .................................................... 

2, 23a 

Section 31.3121(a)-2(a) .................................. 

12-13, 19, 23a 

Section 31.3121(a)(1)-1(a)(2) .............................. 

2, 13, 24a 

Section 31.3301-2 ................................................. 

2, 13, 23a 

Section 31.3301-3(b) ....................................................... 13 

Section 31.3306(b)(1)-1 ............................................. 

2, 24a 

Section 31.3306(b)(1)-1(a)(1) ................................... 

13, 24a 

Section 31.3306(b)(1)-1(a)(2) ................................... 

14, 25a 

Treas. Reg. 106, § 402.228(a) (as amended by T.D. 

5566, 1947-2 C.B. 148) ........................................................... 

12 

Treas. Reg. 106 (1940): 

§ 402.301 .................................................................................. 

12 

§ 402.302 .................................................................................. 

12 

§ 402.303 .................................................................................. 

12 

§ 402.401 .................................................................................. 

12 

§ 402.402 .................................................................................. 

12 

§ 402.403 .................................................................................. 

12 

Treas. Reg. 107, § 403.228(a), as amended by T.D. 

5566, 1947-2 C.B. 148 ............................................................. 

12 

Miscellaneous: 

AOD 1988-006, 1988 WL 570743 (IRS) (May 6, 1988) ........ 

22 

50 Fed. Reg. 45,559 (1985) ....................................................... 
4 

51 Fed. Reg. 40,257 (1986) ....................................................... 
4 

58 Fed. Reg. 58,005 (1993) ....................................................... 
4 

K. Gideon, Lawsuits and Settlements (1995) ................... 
17-18 

http//www.eeoc.gov/stats.charges.html ............................... 22 

H.R. Rep. No. 728, 76th Cong., 1st Sess. (1939) ................ 

9, 10 

H.R. Rep. No. 2447, 79th Cong., 2d Sess. (1946) ........... 
11, 16 

Rev. Rul. 55-203, 1955-1 C.B. 114 .......................................... 
13 

Rev. Rul. 57-92, 1957-1 C.B. 306 ............................................ 
13 

Rev. Rul. 78-336, 1978-2 C.B. 255 .......................................... 
13 

Rev. Rul. 89-35, 1989-1 C.B. 280 ........................................ 
13, 22 

S. Rep. No. 734, 76th Cong., 1st Sess. (1939) ....................... 
9, 10 

S. Rep. No. 1862, 79th Cong., 2d Sess. (1946) .................. 11, 16 

VII 

Miscellaneous—Continued: Page 

Statistics Division, Administrative Office of the 

United States Courts, Judicial Business of the 
United States Courts: 1999 Annual Report of the 
Director (2000) ........................................................................ 
22 

SSA, Dep’t of Health and Human Servs., SSR 83-7, 
1981-1999 Soc. Sec. Rep. Ser. 18 (1983) ........................... 
16-17 

SSA, Reporting Back Pay and Special Wage Pay- 
ments to the Soc. Sec. Admin., Pub. No. 957 (Sept. 
1997) ....................................................................................... 16-17 

T.D. 6516, 25 Fed. Reg. 13,032 (1960) .................................... 12 

In the Supreme Court of the United States 

No. 00-203 

UNITED STATES OF AMERICA, PETITIONER 

v. 

CLEVELAND INDIANS BASEBALL COMPANY, 
A LIMITED PARTNERSHIP 

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT 

PETITION FOR A WRIT OF CERTIORARI 

The Solicitor General, on behalf of the United States 
of America, petitions for a writ of certiorari to review 
the judgment of the United States Court of Appeals for 
the Sixth Circuit in this case. 

OPINIONS BELOW 

The opinions of the court of appeals (App., infra, 1a- 
6a) and the district court (App., infra, 7a-12a) are 
unreported. 

JURISDICTION 

The judgment of the court of appeals was filed on 
May 10, 2000. The jurisdiction of this Court is invoked 
under 28 U.S.C. 1254(1). 

(1) 

2 

STATUTORY PROVISIONS AND REGULATIONS 
INVOLVED 

The relevant portions of Sections 3101, 3111, 3121, 
3301, and 3306 of the Internal Revenue Code, 26 
U.S.C. 3101, 3111, 3121, 3301, and 3306, and of Sec- 
tions 31.3101-2(c), 31.3101-3, 31.3111-2(c), 31.3111-3, 

31.3121(a)-2, 31.3121(a)(1)-1(a)(2), 31.3301-2, and 

31.3306(b)(1)-1 of the Treasury Regulations on Em- 
ployment Taxes and Collection of Income Tax at 
Source, 26 C.F.R. 31.3101-2(c), 31.3101-3, 31.3111-2(c), 

31.3111-3, 31.3121(a)-2, 31.3121(a)(1)-1(a)(2), 31.3301-2, 
and 31.3306(b)(1)-1, are set forth in the Appendix, infra, 
at 15a-26a. 

STATEMENT 

1. Respondent is one of the 26 major league baseball 
clubs that are parties to a collective bargaining agree- 
ment negotiated with the Major League Baseball 
Players Association. App., infra, 7a. The players asso- 
ciation filed grievances claiming that, in 1986, 1987 and 
1988, the clubs violated the free agency rights of the 
players under the collective bargaining agreement. Id. 
at 2a, 7a. An arbitration panel issued rulings in 1990 
concluding that the clubs had interfered with the 
players’ free agency rights and thereby depressed the 
players’ salaries. To settle these grievances, the clubs 
agreed to pay $280 million into two accounts adminis- 
tered by a custodian for distribution to the players who 
had suffered damages. Ibid. The custodian was re- 
quired to establish separate accounts for each of the 
clubs and, acting as agent for the clubs, was to deduct 
from the settlement payments any applicable federal 
income or employment taxes required to be withheld. 
C.A. App. 37, 90. 

3 

Under the agreed distribution plan, eight players 
who were employees of respondent during 1986, and 
fourteen players who were employees of respondent 
during 1987, received awards. The awards were paid in 
1994. App., infra, 3a, 8a.1 These payments aggregated 
$829,638 (including $219,638 denominated as interest) 
for violations of the collective bargaining agreement 
occurring in 1986 and $1,866,967 (including $409,119 
denominated as interest) for violations occurring in 
1987. Id. at 2a-3a, 8a; C.A. App. 11-12, 92. 

As part of the Federal Insurance Contribution Act 
(FICA), Sections 3101(a) and (b) of the Internal Reve- 
nue Code “impose[] on the income of every individual” 
taxes to fund Social Security and Medicare “equal to [a 
percentage] of the wages (as defined in section 3121(a)) 
received by him with respect to employment.” 26 
U.S.C. 3101(a),(b). Similarly, Sections 3111(a) and (b) 
“impose[] on every employer” taxes to fund Social 
Security and Medicare “equal to [a percentage] of the 
wages (as defined in section 3121(a)) paid by him with 
respect to employment.” 26 U.S.C. 3111(a), (b). For 
both employers and employees, the percentage of 
wages to be paid as the Social Security tax under 
Sections 3111(a) and 3101(a) was 5.7 percent in 1986 and 
1987 and rose to 6.2 percent by 1994. 26 U.S.C. 3101(a), 
3111(a). The percentage of wages paid by employers 
and employees as the Medicare tax under Sections 

1 One player who was not actually employed by respondent 
during 1987 also received an award in 1994 that was treated as 
attributable to 1987 under the settlement arrangement. The 
district court stated that this is because, even though “he was no 
longer in baseball in 1994, he was ‘deemed’ an employee of the last 
team to employ him—the Indians.” App., infra, 8a n.1. 

4 

3101(b) and 3111(b) has been 1.45 percent since 1986. 26 
U.S.C. 3101(b), 3111(b). 

The term “wages” is defined for the purposes of the 
Social Security tax provisions (Sections 3101(a) and 
3111(a)) to mean “all remuneration for employment, 
including the cash value of all remuneration (including 
benefits) paid in any medium other than cash,” with 
certain exceptions. 26 U.S.C. 3121(a). As relevant 
here, wages do not include “that part of the remunera- 
tion which, after remuneration * * * equal to the 
contribution and benefit base (as determined under 
section 230 of the Social Security Act) with respect to 
employment has been paid to an individual by an em- 
ployer during the calendar year with respect to which 
such contribution and benefit base is effective, is paid to 
such individual by such employer during such calendar 
year.” 26 U.S.C. 3121(a)(1).2 This definition of wages 
also applied for purposes of Sections 3101(b) and 
3111(b) in 1986 and 1987. 26 U.S.C. 3121(a) (1988). By 
1994, however, when the settlement award payments 
were made in this case, “wages” had been defined so 
that the exclusion for amounts in excess of the contri- 
bution and benefit base no longer applied for purposes 
of the Medicare tax provisions (Sections 3101(b) and 
3111(b)). See 26 U.S.C. 3121(a)(1). 

In addition, as part of the Federal Unemployment 
Tax Act (FUTA), Section 3301 of the Internal Revenue 
Code “impose[s] on every employer * * * for each 

2 The contribution and benefit base is a fixed dollar amount for 
a particular year determined under the formula contained in Sec- 
tion 230 of the Social Security Act, 42 U.S.C. 430. In 1994, the base 
was $60,600. 58 Fed.Reg. 58,005 (1993). In 1986, the base was 
$42,000. 50 Fed.Reg. 45,559 (1985). In 1987, it was $43,800. 51 
Fed.Reg. 40,257 (1986). 

5 

calendar year an excise tax * * * equal to * * * [a 
percentage] of the total wages * * * paid by him 
during the calendar year with respect to employment 

* * * .” 26 U.S.C. 3301. The percentage of wages 
constituting this tax was 6.0 percent in 1986 and 1987 
(26 U.S.C. 3301 (1982)) and rose to 6.2 percent by 1994. 
26 U.S.C. 3301. The term “wages” is defined for pur- 
poses of Section 3301 in the same manner as in Section 
3121(a), except “wages” for unemployment tax pur- 
poses do not include “remuneration * * * after 
remuneration * * * equal to $7,000 with respect to 
employment has been paid to an individual by an 
employer during any calendar year * * * .” 26 U.S.C. 
3306(b). 

2. When the amounts awarded to respondent’s 
players were paid in 1994, FICA and income taxes were 
withheld from the amounts paid.3 Respondent there- 
after filed an employment tax return for the first 
quarter of 1994. That return reported employer and 
employee FICA taxes attributable to the settlement 
payments based on the entire amount of the awards 
made in 1994 and using the rates and annual ceilings on 
wages in effect for the 1994 year. App., infra, 2a-3a, 7a- 
8a; C.A. App. 13, 28, 92-93. Respondent also filed a 
return for the calendar year 1994 that reported the 
FUTA taxes attributable to the settlement payments 
based on the entire amount of the awards made in 1994 
and using the rates and annual ceilings on wages in 
effect for the 1994 year. App., infra, 2a-3a, 7a-8a. 
Having remitted the withheld taxes, respondent then 
filed a claim for refund that sought to recover both the 

3 Under 26 U.S.C. 3102, 3402, employers are generally required 
to withhold from the wages of their employees the employee’s 
share of the FICA tax and income taxes. 

6 

employer’s share of the FICA and FUTA taxes it paid 
and the FICA taxes withheld from several employees 
who consented to join in the claim. C.A. App. 93. When 
the claim for refund was not granted within six months, 
respondent filed this tax refund suit in district court to 
recover the employer’s share of the FICA taxes and the 
FUTA taxes that it paid. App., infra, 3a, 8a.4 

Respondent raised several claims. First, that a 
portion of the award paid in 1994 was “interest,” which 
is not subject to employment tax. Second, that the non- 
interest portion of the award paid in 1994 did not 
constitute “wages” within the meaning of the employ- 
ment tax statutes. And, third, that, if any portion of the 
award paid in 1994 constituted “wages,” it should be 
attributed to 1986 or 1987 (when the annual wage 
ceiling had been exceeded for the affected players) 
rather than to 1994, when the awards were paid. As a 
result, respondent claimed that no FICA or FUTA 
taxes were due from the 1994 awards. App., infra, 3a. 

The parties stipulated (i) that the “interest” portion 
of the awards paid in 1994 did not constitute “wages” 
and (ii) that the remainder of the awards constituted 
back wages for the years 1986 and 1987. App., infra, 
3a-4a. The parties then filed cross-motions for sum- 
mary judgment that presented a single issue—whether, 
for FICA and FUTA tax purposes, the back wages paid 
by respondent are attributable to 1994, the year in 
which they were paid, or to 1986 and 1987, the years in 
which they would have been earned but for 
respondent’s breach of the collective bargaining agree- 
ment. Id. at 4a. 

4 In this suit, respondent does not seek to recover the employee 
share of the FICA taxes. C.A. App. 1-18. 

7 

The government acknowledged in its brief to the 
district court that the prior decision of the Sixth Circuit 
in Bowman v. United States, 824 F.2d 528, 530 (1987), 
was controlling precedent on this issue in that court. In 
Bowman, the Sixth Circuit held that, for FICA tax 
purposes, “[a] settlement for back wages should not be 
allocated to the period when the employer finally pays 
but should be allocated to the periods when the regular 
wages were not paid as usual.” Id. at 530 (internal 
quotation marks and citation omitted). Because other 
circuits have disagreed with the reasoning and holding 
of Bowman, however, the government’s brief explained 
to the district court that the government desired to 
preserve that issue for appeal. App., infra, 10a. Ac- 
knowledging that “at least one court has disagreed with 
Bowman,” the district court concluded that judgment in 
favor of respondent was “dictated” by the Sixth Circuit 
precedent that was controlling in that court. Id. at 10a- 
11a. 

3. The government appealed and filed a petition for 
hearing en banc in view of the circuit conflict. The 
court of appeals denied the petition for en banc review 
and referred the case to a panel of the court. App., 
infra, 4a. 

The panel affirmed. App., infra, 1a-5a. The panel 
noted that the government argued that the plain lan- 
guage of the FICA and FUTA statutes, the legislative 
history of those provisions, and the Treasury Regu- 
lations all demonstrate that Bowman was incorrectly 
decided and that “the government cites cases from our 
sister circuits that are at odds with our Bowman 
holding.” Id. at 5a. The panel stated, however, that it 
was not required to address the merits of the 
government’s contentions because, “[e]ven if we were 

8 

persuaded by the government’s argument, we are 
bound by the Bowman decision.” Ibid. 

REASONS FOR GRANTING THE PETITION 

This case presents a frequently recurring question 
regarding the proper treatment of back wages under 
the FICA and FUTA taxes. Due to the large volume of 
employment claims that can yield back wage awards 
under both federal and state laws, the resolution of the 
question presented in this case affects numerous em- 
ployers and employees each year. Moreover, as the 
court of appeals acknowledged, cases in other circuits 
“are at odds with” the decision in this case (App., infra, 
5a). Review by this Court is needed to resolve the 
disparate treatment thus afforded throughout the 
Nation to employers and employees under these con- 
flicting decisions. 

1. a. The court of appeals erred in holding that 
disbursements of back wages should be allocated for 
FICA and FUTA tax purposes to the years in which 
the wages were earned or should have been paid rather 
than to the year in which they actually were paid. 
Sections 3111(a) and (b) of the Internal Revenue Code 
impose the FICA taxes that fund Social Security and 
Medicare on “wages * * * paid” during the calendar 
year and Section 3301(a) imposes the FUTA tax on 
“wages * * * paid * * * during the calendar year.” 
No exception to this express statutory rule is created 
for back wages.5 Under the plain language of these 

5 Cf. 26 U.S.C. 3121(v)(2) (creating a special timing rule for 
compensation attributable to certain nonqualified deferred com- 
pensation plans). 

9 

statutes, the back wages are taxed in the year in which 
they are paid and not in the year in which the services 
were performed or would have been performed but for 
the wrongful conduct of the employer. 

The legislative history of the pertinent statutory pro- 
visions shows that Congress specifically intended 
wages to be taken into account in the year that they are 
paid, regardless of when earned or when owed by the 
employer. As originally enacted in 1935, the Social 
Security Act provided that FICA tax rates, which 
gradually increased over the period from 1937 through 
1948, applied “[w]ith respect to employment during the 
calendar year[].” Social Security Act, ch. 531, §§ 801, 
804, 49 Stat. 636-637. In 1939, however, Congress 
amended FICA to provide that the rate of tax would no 
longer be applied on the basis of when the services 
were performed but would instead be applied “[w]ith 
respect to wages received during the calendar year[]” in 
the case of the employee (Social Security Act 
Amendments of 1939, ch. 666, § 601, 53 Stat. 1382 
(emphasis added)) and “[w]ith respect to wages paid 
during the calendar year[]” in the case of the employer 
(Social Security Act Amendments of 1939, ch. 666, 
§ 604, 53 Stat. 1383 (emphasis added)). The Report of 
the Committee on Ways and Means explains that, prior 
to the amendment, the statute “provide[d] that the rate 
of tax applicable to wages is the rate in effect at the 
time of the performance of the services for which the 
wages are paid” but that “[u]nder the amendment the 
rate applicable would be the rate in effect at the time 
that the wages are paid and received without reference 
to the rate which was in effect at the time the services 
were performed.” H.R. Rep. No. 728, 76th Cong., 1st 
Sess. 57-58 (1939) (emphasis added). See also S. Rep. 
No. 734, 76th Cong., 1st Sess. 70-71 (1939). A corre- 

10 

sponding change was also made to the provision of the 
FUTA that specified how its tax rate was applied. 
Social Security Act Amendments of 1939, ch. 666, § 608, 
53 Stat. 1387. In adopting the new rule, Congress 
emphasized that, “[w]ith both the old-age-insurance tax 
[FICA] and the unemployment compensation tax 
[FUTA] on the wages paid basis, the keeping of records 
by employers will be simplified.” S. Rep. No. 734, 
supra, at 75-76; H.R. Rep. No. 728, supra, at 62-63. 

The legislative history of similar changes in the pro- 
visions that place an annual ceiling on wages subject to 
FICA and FUTA tax (currently in 26 U.S.C. 3121(a) 
and 3306(b)) also reflects the clear intent of Congress 
that the FICA and FUTA taxes are to be determined 
on a wages-paid basis. Prior to the Social Security Act 
Amendments of 1946, ch. 951, 60 Stat. 978, the Social 
Security Act had allocated wages to the year in which 
services were performed in applying the maximum 
wage base for FICA and FUTA tax purposes.6 In 1946, 
Congress amended the annual ceiling provisions to 
change the basis upon which the ceiling was measured 
from one that looked to services performed during the 
year to one that looked to wages paid during the year. 
Social Security Act Amendments of 1946, ch. 951, §§ 
412(a), (b), 60 Stat. 989. The reports of the Senate 
Finance Committee and the House Committee on Ways 

6 As originally enacted in 1935, the Social Security Act included 
an annual wage ceiling for the FICA tax, but did not include one 
for the FUTA tax. Social Security Act, ch. 531, §§ 811(a), 901, 
907(b), 49 Stat. 639, 642. In 1939, Congress amended the definition 
of wages for FUTA tax purposes to include an annual wage ceiling 
that tracked the annual wage ceiling applicable to FICA, which at 
that time allocated wages to the year in which services were per- 
formed in applying the maximum wage base. Social Security Act 
Amendments of 1939, ch. 666, § 614, 53 Stat. 1392-1393. 

11 

and Means explained that, “[u]nder the definition of the 
term contained in existing law there is excluded from 
‘wages’, for [FICA and FUTA tax] purposes, all 
remuneration with respect to employment during any 
calendar year paid to an individual by an employer 
(irrespective of the year of payment) after 
remuneration equal to $3,000 has been paid to such 
individual by such employer with respect to employ- 
ment during such year.” S. Rep. No. 1862, 79th Cong., 
2d Sess. 35 (1946); H.R. Rep. No. 2447, 79th Cong., 2d 
Sess. 35 (1946). These reports further explained that 
the new legislation “amends such definitions, effective 
January 1, 1947, to constitute as the yardstick the 
amount paid during the calendar year (with respect to 
employment to which the taxes under the code are 
applicable), without regard to the year in which the 
employment occurred.” S. Rep. No. 1862, supra, at 35 
(emphasis added); H.R. Rep. No. 2447, supra, at 35 
(emphasis added). The reports concluded that, “in ap- 
plying the $3,000 limitation on wages, the employer, 
employee, and those administering the taxes, may, 
beginning with the calendar year 1947, look only to the 
amount of remuneration paid by the employer to the 
employee during the calendar year, and exclude all 
remuneration paid during the calendar year after $3,000 
has been paid during the year with respect to * * * 
the employment with respect to which the taxes 
imposed by * * * the Federal Insurance Contri- 
butions Act are applicable[.]” S. Rep. No. 1862, supra, 
at 36; H.R. Rep. No. 2447, supra, at 35.7 

7 After the changes enacted in the 1946 Amendments, the 
FICA and FUTA tax provisions were recodified in the Internal 
Revenue Code of 1954 and given their current section numbers. 
Although the applicable tax rates and the amounts of the annual 

12 

Consistent with the language of these statutes and 
their legislative history, Treasury Regulations have 
long specified that the relevant year for determining 
the FICA tax is the year in which the wages are paid or 
received.8 These regulations specify that “[t]he em- 
ployee tax attaches at the time that the wages are 
received by the employee” (26 C.F.R. 31.3101-3) and 
that “[t]he employee tax is computed by applying to the 
wages received by the employee the rate in effect at the 
time such wages are received” rather than during “the 
year in which the services were performed” (26 C.F.R. 

31.3101-2(c) & Example). The regulations further pro- 
vide that “[t]he employer tax attaches at the time that 
the wages are paid by the employer” (26 C.F.R. 

31.3111-3) and that “[t]he employer tax is computed by 
applying to the wages paid by the employer the rate in 
effect at the time such wages are paid” (26 C.F.R. 

31.3111-2(c)).9 The regulations that interpret the statu- 

wage ceilings have changed since the enactment of the 1954 Code, 
as relevant here, the FICA and FUTA provisions involved in this 
case have remained substantially the same since 1946. See 26 

U.S.C. 3101, 3111, 3121(a), 3301, 3306. 

8 In 1960, the Treasury Regulations governing FICA and 
FUTA were consolidated and republished with their current sec- 
tion numbers. T.D. 6516, 25 Fed. Reg. 13,032 (1960). The sub- 
stance of these regulations traces back to earlier promulgations. 
See Treas. Reg. 107, § 403.228(a) (as amended by T.D. 5566, 1947-2 
C.B. 148); Treas. Reg. 106, § 402.228(a) (as amended by T.D. 5566, 
1947-2 C.B. 148); Treas. Reg. 106, §§ 402.301, 402.302, 402.303, 
402.401, 402.402, 402.403 (1940). 

9 As to when wages are paid and received, Treasury regula- 
tions provide that “[i]n general, wages are received by an em- 
ployee at the time that they are paid by the employer to the 
employee. Wages are paid by an employer at the time that they 
are actually or constructively paid unless under paragraph (c) of 
this section [which concerns specified types of minor cash pay- 

13 

tory annual ceiling on wages subject to FICA (26 
U.S.C. 3121(a)) further provide that this limitation 
“relates to the amount of remuneration received during 
any 1 calendar year for employment after 1936 and not 
to the amount of remuneration for employment per- 
formed in any 1 calendar year.” 26 C.F.R. 31.3121(a)(1)- 
1(a)(2). Applying the plain language of these statutes 
and regulations, the Treasury has consistently taken 
the position that back wages are to be taken into ac- 
count for FICA purposes in the year they are actually 
paid. Rev. Rul. 55-203, 1955-1 C.B. 114; Rev. Rul. 89- 
35, 1989-1 C.B. 280. See also Rev. Rul. 57-92, 1957-1 
C.B. 306; Rev. Rul. 78-336, 1978-2 C.B. 255. 

The Treasury Regulations that interpret FUTA are 
to the same effect. The FUTA regulations state that 
“[t]he tax for any calendar year is measured by the 
amount of wages paid by the employer during such 
year” (26 C.F.R. 31.3301-2) and that “[t]he tax is 
computed by applying to the wages paid in a calendar 
year * * * the rate in effect at the time the wages are 
paid” (26 C.F.R. 31.3301-3(b)). The FUTA regulations 
addressing the annual wage ceiling similarly provide 
that “the term ‘wages’ does not include that part of the 
remuneration paid within any calendar year by an 
employer to an employee which exceeds the first $3,000 
of remuneration * * * paid within such calendar year 
by such employer to such employee for employment 
performed for him at any time after 1938.” 26 C.F.R. 

31.3306(b)(1)-1(a)(1). 

10 In addition, the regulations 

ments that are not involved in this case] they are deemed to be 
subsequently paid.” 26 C.F.R. 31.3121(a)-2(a). 

10 Since these regulations were issued, the annual wage ceiling 
has been raised to $7,000. See Tax Equity and Fiscal Responsibil- 
ity Act of 1982, Pub. L. No. 97-248, § 271(a), 96 Stat. 554; Unem- 

14 

addressing the annual wage ceiling expressly provide 
that the ceiling applies “to the amount of remuneration 
paid during any one calendar year for employment 

* * * and not to the amount of remuneration for 
employment performed in any one calendar year.” 26 
C.F.R. 31.3306(b)(1)-1(a)(2). 

b. It is well established that “Treasury regulations 
and interpretations long continued without substantial 
change, applying to unamended or substantially reen- 
acted statutes, are deemed to have received congres- 
sional approval and have the effect of law.” Cottage 
Savings Ass’n v. Commissioner, 499 U.S. 554, 561 
(1991) (internal quotation marks and citations omitted); 
see also Atlantic Mutual Ins. Co. v. Commissioner, 523 
U.S. 382, 389 (1998); National Muffler Dealers Ass’n v. 
United States, 440 U.S. 472, 488 (1979). 

In the present case, the court of appeals did not 
address the agency’s consistent interpretation of these 
controlling statutory provisions. Nor did the court 
provide any analysis or discussion of the text of the 
statutes or their legislative history. Instead, the Sixth 
Circuit rejected the government’s position solely on the 
basis of that court’s prior decision in Bowman. App., 
infra, 5a. In Bowman, however, the court had also 
failed to address the clear legislative history that 
demonstrates that, after 1946, Congress did not intend 
to allocate back wages to the year in which services 
were performed. The court similarly failed in Bowman 
to reconcile its holding with the plain language of the 
statutes and the applicable Treasury Regulations. In- 
stead, in Bowman, the court of appeals based its hold- 

ployment Compensation Amendments of 1976, Pub. L. No. 94-566, 
§ 211(a), 90 Stat. 2676; Employment Security Amendments of 1970, 
Pub. L. No. 91-373, § 302, 84 Stat. § 713. 

15 

ing that back wages are to be allocated to the years in 
which services were performed, rather than to the year 
in which the back wages were paid, solely on the theory 
that that result is required by the decision of this Court 
in Social Security Board v. Nierotko, 327 U.S. 358 
(1946). See 824 F.2d at 530. 

The Nierotko case involved an application of the 
Social Security Act provisions that predated the 
changes made to these statutes by Congress in 1946. In 
Nierotko, an employee was awarded back pay under the 
National Labor Relations Act for the period from 
February 2, 1937, to September 25, 1939, for a wrongful 
discharge due to his union activities. The back pay was 
paid on July 18, 1941. The principal issue for decision 
was whether that back pay was to be treated as 
“wages” in determining the employee’s entitlement to 
benefits under the Social Security Act of 1935. The 
Court first concluded that back pay constitutes “wages” 
for purposes of the Act. 327 U.S. at 360-370. The Court 
then stated that, “[i]f, as we have held above, ‘back pay’ 
is to be treated as wages, we have no doubt that it 
should be allocated to the periods when the regular 
wages were not paid as usual.” Id. at 370. 

The Nierotko case was decided under the original 
provisions of the Social Security Act of 1935 that de- 
fined “wages” as “remuneration for employment,” sub- 
ject to a $3,000 wage ceiling “with respect to employ- 
ment during any calendar year.” Social Security Act of 
1935, ch. 531, § 210(a), 49 Stat. 625. See 327 U.S. at 360. 
The term “employment” was further defined in that Act 
as “any service * * * performed * * * by an employee 
for his employer.” Social Security Act of 1935, § 210(b), 
49 Stat. 625. The statute applied in Nierotko thus used 
services performed, rather than payments received, to 

16 

define the annual wage ceiling for benefit purposes. 
See pages 9-10, supra. 

In 1946, however, Congress amended the Social Secu- 
rity Act to change the annual “wage” ceiling for benefit 
purposes. For “remuneration * * * with respect to 
employment * * * paid to an individual during any 
calendar year after 1946,” the annual wage ceiling was 
based upon “remuneration * * * paid to such 
individual during such calendar year.” Social Security 
Act Amendments of 1946, Pub. L. No. 79-719, 
§ 414(a)(3), 60 Stat. 991 (emphasis added). The 
legislative reports for the 1946 Act plainly state that 
the annual wage ceiling for benefit computation 
purposes (and for FICA and FUTA tax purposes) was 
thereafter to be determined based upon the date of 
payment and “without regard to the year in which the 
employment occurred.” S. Rep. No. 1862, supra, at 35, 
37; H.R. Rep. No. 2447, supra, at 35-36. The statutory 
scheme considered in Nierotko thus obviously differed 
in this precise critical respect from the statutory 
provisions that have been in effect since 1946—the 
provisions that are involved in this case. 

11 

11 In a program policy statement, the Social Security Admini- 
stration (SSA) has indicated that, for benefit computation pur- 
poses, it will continue to apply the Nierotko rule to one particular 
type of back wages—“back pay under a statute.” SSA, Dep’t of 
Health and Human Servs., SSR 83-7, 1981-1991 Soc. Sec. Rep. Ser. 
18 (1983); see also 20 C.F.R. 404.1242. This policy statement 
applies only for benefit computation purposes; it does not apply for 
tax purposes. SSA, Reporting Back Pay and Special Wage 
Payments to the Soc. Sec. Admin., Pub. No. 957 (Sept. 1997), at 1. 
(“The Social Security Administration (SSA) has special rules for 
back pay * * * for social security coverage and benefit purposes 
only.”). Indeed, the SSA has noted that, under the rule that 
applies for tax purposes under the Social Security Act, “employers 
are liable for Federal Insurance Contribution Act tax payments on 

17 

Moreover, as the Sixth Circuit acknowledged in the 
Bowman case, the decision in Nierotko “is factually 
distinguishable from the present case” because it “in- 
volved back wages in the benefits context as opposed to 
the taxation context.” 824 F.2d at 530. The considera- 
tions relevant for benefits purposes are not necessarily 
the same as those for tax purposes. As this Court 
observed in Flemming v. Nestor, 363 U.S. 603, 609 
(1960), “eligibility for benefits, and the amount of such 
benefits, do not in any true sense depend on contri- 
bution to the program through the payment of taxes, 
but rather on the earnings record of the primary 
beneficiary.” See also note 11, supra. In determining 
an employee’s eligibility for benefits, and the amount 
thereof, an allocation of an award of back wages to the 
periods of employment to which such back wages relate 
may be consistent with the policy of providing security 
to employees in retirement. Absent such an allocation, 
an employee may not obtain credit for a sufficient 
number of quarters to allow him to collect benefits and 
the amount of benefits awarded may similarly be af- 
fected. 

No similar policy considerations are at stake in the 
tax context. Indeed, taxing back wages in the year 
actually paid does not routinely result in additional 
FICA and FUTA tax liability, even though it appears 
to do so in this particular case. To the contrary, in the 
common situation in which, during the year of payment 
(as opposed to the year to which such back wages could 
be attributed), the employee had already reached the 
maximum wage limit, less tax would be owed when the 
back wages are taxed in the year paid. As one 

back pay on the basis of when the payment is made * * *.” SSR 
83-7, at *1; accord Pub. No. 957, supra, at 2. 

18 

commentator has pointed out, “[t]he Bowman case will 
seldom provide an advantageous result for current 
[taxpayers].” K. Gideon, Lawsuits and Settlements 
§ 1101.4, at 262 (1995). Moreover, because of the com- 
plexities of restating tax liabilities for cash basis tax- 
payers from the year of payment to former periods of 
time, “Bowman is not only expensive for most tax- 
payers, it also imposes substantial administrative bur- 
dens on the IRS.” Id. at 263 n.42. 

2. The court of appeals correctly noted in this case 
that decisions in other circuits “are at odds with [its] 
Bowman holding” (App., infra, 5a). 

12 For example, in 
Hemelt v. United States, 122 F.3d 204 (4th Cir. 1997), 
the taxpayers had received a payment in settlement of 
a class action suit under Section 502 of the Employee 
Retirement Income Security Act of 1974, Pub. L. No. 
93-406, 88 Stat. 829. The ERISA suit had alleged that 
the taxpayers’ employer had improperly fired them to 
prevent them from qualifying for pension benefits. The 
taxpayers contended that the settlement payment they 
received from the ERISA case did not represent 
“wages” subject to the FICA tax and further con- 
tended, relying on the Sixth Circuit’s decision in Bow- 
man (Appellant’s Br. 46), that, even if the payment 
constituted “wages,” it must be allocated to the years 
the wages would have been earned instead of to the 
year the payment was received. 122 F.3d at 210. The 
Fourth Circuit first concluded that the settlement 

12 The decision in Bowman has been cited favorably in dictum in 
Johnston v. Harris County Flood Control District, 869 F.2d 1565, 
1580 (5th Cir. 1989), cert. denied, 493 U.S. 1019 (1990), and has 
been followed by a district court in another circuit. San Francisco 
Baseball Associates L.P v. United States, 88 F. Supp.2d 1087, 
1094-1095 (N.D. Cal. 2000), cross-appeals pending, Nos. 00-15750 & 
00-15890 (9th Cir). 

19 

payment represented back pay for a wrongful termina- 
tion of employment and therefore constituted “wages” 
for purposes of the FICA tax. Id. at 209-210. The court 
then held that the taxpayer’s reliance on the Bowman 
decision was “meritless.” Id. at 210. 

13 Without 
discussing the Bowman opinion directly, the court 
rejected the reasoning of that decision because “[i]t is 
clear under the Treasury Regulations that ‘wages’ are 
to be taxed for FICA purposes in the year in which 
they are received.” Ibid. (citing 26 C.F.R. 31.3121(a)- 
2(a)). 

14 See also Mazur v. Commissioner, 986 F. Supp. 
752, 755 (W.D.N.Y. 1997) (concluding that the Sixth 
Circuit erred in Bowman by failing to defer to the long- 
standing Treasury Regulations); page 13, supra. 

In Walker v. United States, 202 F.3d 1290 (2000), the 
Tenth Circuit also rejected the analysis and conclusion 
of the Bowman decision. In that case, in the years 1992 
through 1995, a lawyer received a portion of a 
contingency fee payment owed in connection with an 
antitrust lawsuit that had been filed in 1972 and settled 
in 1975. The lawyer paid Self-Employment Contri- 
butions Act (SECA) taxes imposed under 26 U.S.C. 
1401 on the amounts received. He then brought a 
refund suit, claiming that the amounts received during 
the years 1992 through 1995 should be allocated to the 
years in which the services were performed (1971 

13 The court of appeals further noted in the Hemelt case that the 
taxpayers had provided no evidence of how the court should 
allocate the award among the prior years and that the court there- 
fore “could not undertake such allocation even if [it] were allowed 
to do so.” 122 F.3d at 210-211. 

14 The court also rejected the taxpayer’s additional claim that 
this settlement payment was excluded from the federal income tax 
under 26 U.S.C. 104(a)(2) as damages received on account of 
personal injury. See 122 F.3d at 209-210. 

20 

through 1975). In urging that claim, he relied on the 
decision of this Court in Nierotko and the decision of 
the Sixth Circuit in Bowman. For the reasons we have 
described (pages 15-16, supra), the Tenth Circuit found 
the decision in Nierotko “inapposite” and the decision in 
Bowman “unpersuasive.” 202 F.3d at 1293. The Tenth 
Circuit, like the Fourth Circuit in Hemelt, relied signifi- 
cantly on the fact that the governing Treasury regu- 
lations specify that wages are subject to the tax when 
received, not when the services are rendered. Id. at 
1292-1293. 

The Bowman decision is also inconsistent in principle 
with In re Freedomland, Inc., 480 F.2d 184 (2d Cir. 
1973), aff ’d sub nom. Otte v. United States, 419 U.S. 43 
(1974). In that case, former employees of a bankrupt 
corporation filed wage claims for services performed 
prior to the filing of the bankruptcy petition. The 
district court held that the bankruptcy trustee was 
required to withhold federal income and employment 
taxes with respect to such claims. 419 U.S. at 46. The 
district court also held that the government was not 
required to file a proof of claim to recover the withheld 
taxes and that the government claim should be given 
fourth priority. Id. at 46-47. The court of appeals 
affirmed these holdings and rejected the trustee’s 
assertion that requiring the trustee to withhold taxes 
would create an administrative “parade of horribles.” 
480 F.2d at 188. The court of appeals pointed out that 
most wage earners are on a cash basis and report their 
income taxes when their wages are received and that 
the “[w]ithholding of social security taxes is also done 
‘by deducting the amount of the tax from the wages as 
and when paid.’ ” 

Id. at 189 n.8 (quoting 26 U.S.C. 
3102(a)). The court further noted that “[t]he taxes are 
by law calculable only when the wage claims are paid 

21 

and not until then.” Id. at 190. The Second Circuit thus 
recognized that back pay is to be taken into account for 
FICA tax purposes in the year the payment is received, 
rather than the year for which the payment was owed. 

This Court affirmed. 419 U.S. at 58. The Court first 
concluded that, although “the payments to the wage 
claimants [were] * * * made after the employment 
relationship terminated,” they were still “wages” for 
purposes of income tax withholding (419 U.S. at 49) and 
that “[t]he situation is the same with respect to FICA 
withholding” (419 U.S. at 51). The Court then observed 
that “Section 3102(a) of the Internal Revenue Code, 26 
U.S.C. § 3102(a), provides that the tax is to be collected 
by the employer by deducting ‘from the wages as and 
when paid.’ ” 419 U.S. at 51. The Court therefore 
concluded that “the payments clearly are ‘wages’ under 
that statute, even though again, at the time of payment, 
the employment relationship between the bankrupt and 
the claimant no longer exists.” Ibid. The Court stated 
that this conclusion was also supported by the long- 
standing regulations that “consistently have been to 
this effect.” Ibid. The Court emphasized that the pay- 
ments became subject to FICA tax when paid, rather 
than when earned, for “[l]iability for the taxes accrues 
only when the wage is paid.” Id. at 55 (citing 26 U.S.C. 
3402(a), 3101(a)). The Court explained that “[t]he 
wages that are the subject of the wage claims, although 
earned before bankruptcy, were not paid prior to 
bankruptcy. Freedomland [the debtor] had incurred no 
liability for the taxes. Liability came into being only 
during bankruptcy. The taxes do not partake, there- 
fore, of the nature of debts of the bankrupt for which 
proofs of claim must be filed.” 419 U.S. at 55. While 
neither the court of appeals nor this Court was faced in 
In re Freedomland with the precise question presented 

22 

in this case, the conclusion in that case that, under the 
plain text of these statutes, FICA tax liability arises at 
the time the wages are paid, rather than at the time the 
work to which the wage claim relates is performed, 
directly supports the government’s position in this case. 

3. The Internal Revenue Service has announced that 
it does not acquiesce in, and will not follow, the decision 
in Bowman. AOD 1988-006, 1988 WL 570743 (IRS) 
(May 6, 1988); Rev. Rul. 89-35, 1989-1 C.B. 280. In view 
of the conflict that exists among the circuits on the 
question presented in this case, employers that are 
subject to a judgment for back wages, or that enter into 
a settlement of a claim for back wages, lack adequate 
guidance as to how they should compute the FICA and 
FUTA taxes attributable to such payments. Moreover, 
either choice made by the employer is likely to generate 
controversy and result in litigation—instituted by the 
government if the Bowman rule is followed or by the 
employer or employee if the cases rejecting Bowman 
are followed. 

Statistics compiled by the Director of the Admini- 
strative Office of the United States Courts show that 
over the five-year period from 1995 to 1999, more than 
100,000 private civil rights cases involving employment 
claims were commenced in the federal district courts. 
Statistics Division, Administrative Office of the United 
States Courts, Judicial Business of the United States 
Courts: 1999 Annual Report of the Director 140 (2000). 
The Enforcement Statistics of the Equal Employment 
Opportunity Commission show that, in each of the 
years 1992 through 1999, more than 70,000 charges of 
unlawful employment practices were received. 

15 While 

15 These statistics can be accessed on the internet at 
http//www.eeoc.gov/stats/charges.html. 

23 

many of these claims may not result in a judgment 
favorable to the claimant or a settlement in which back 
pay is paid, there are undoubtedly significant numbers 
of such claims that do. In addition, as the cases cited in 
this petition illustrate, awards of back wages also occur 
in ERISA and bankruptcy cases and many other 
settings. 

Moreover, the specific context in which this case 
arose has already led to intensive litigation in the lower 
courts. Disputes over the tax treatment of the distri- 
butions from the collective bargaining settlement in- 
volved in this case have, to this date, already spawned 
eight other tax refund suits raising the Bowman issue. 
See San Francisco Baseball Assocs. L.P v. United 
States, 88 F. Supp. 2d 1087 (N.D. Cal. 2000), cross- 
appeals pending, Nos. 00-15750 & 00-15890 (9th Cir.); 
The Minnesota Twins Partnership v. United States, 
No. 00-CV-356ADM/AJB (D. Minn.); The Boston Red 
Sox Baseball Club v. United States, No. 00-CV-10312 
(D. Mass.); Kansas City Royals Baseball Corp. v. 
United States, Nos. 00-0105-CV-W-3 (W.D. Mo.); St. 
Louis Cardinals, L.P. v. United States, No. 4:00-CV- 
00138-CAS (E.D. Mo.); Baseball Club of Seattle, L.P. v. 
United States, No. C99-2061-Z (W.D. Wash.); San Diego 
Padres Baseball Partnership v. United States, No. 99- 
CV-0828W (LSP) (S.D. Cal.); The Phillies, a Penn- 
sylvania Limited Partnership v. United States, No. 
99-CV-4054 (E.D. Pa.). This one single settlement 
agreement may lead to 17 additional suits if each of the 
remaining clubs chooses to litigate the issue. 

The question presented in this case is thus manifestly 
a recurring issue of substantial importance in the 
administration of the tax laws. Resolution of this com- 
monly recurring issue is needed to avoid continuing un- 
certainty and uneven application throughout the Nation 

24 

of these widely applicable FICA and FUTA tax 
provisions. 

CONCLUSION 

The petition for a writ of certiorari should be 
granted. 

Respectfully submitted. 

SETH P. WAXMAN 

Solicitor General 

PAULA M. JUNGHANS 

Acting Assistant Attorney 

General 

LAWRENCE G. WALLACE 

Deputy Solicitor General 

KENT L. JONES 

Assistant to the Solicitor 

General 

KENNETH L. GREENE 
ROBERT W. METZLER 

Attorneys 

AUGUST 2000 

APPENDIX A 

UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT 

No. 99-3410 

CLEVELAND INDIANS BASEBALL COMPANY, 
A LIMITED PARTNERSHIP, PLAINTIFF-APPELLEE 

v. 

UNITED STATES OF AMERICA, 
DEFENDANT-APPELLANT 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF OHIO 

[Filed: May 10, 2000] 

OPINION 

Before: SUHRHEINRICH, COLE, Circuit Judges; and 
QUIST, District Judge.  

PER CURIAM. The United States appeals from the 
judgment of the district court in which the court found 
that an award of back wages is taxed for the purposes 
of the Federal Insurance Contribution Act (FICA), 26 
U.S.C. §§ 3101-3128, and Federal Unemployment Tax 

• The Honorable Gordon J. Quist, United States District Court 

for the Western District of Michigan, sitting by designation. 

(1a) 

2a 

Act (FUTA), 26 U.S.C. §§ 3301-3311, in the year in 
which those wages were earned rather than the year in 
which the award of back wages was actually paid. For 
the following reasons, we AFFIRM the district court’s 
judgment. 

I. 

The parties stipulated to the facts of this case before 
the district court, which we briefly summarize here. 
Major League Baseball Clubs (the “Clubs”) and 
the Major League Baseball Players Association 
(“MLBPA”) were involved in three separate grievances 
in 1990, wherein the MLBPA claimed that the Clubs 
breached the Collective Bargaining Agreement 
(“CBA”) with respect to free agency rights of the 
baseball players in 1986, 1987 and 1988. After an 
arbitration panel issued a series of rulings adverse to 
the Clubs, the Clubs and the MLBPA settled their 
grievances on December 21, 1990. The settlement 
required the Clubs to contribute $280 million to a 
custodial account for distribution to affected players 
according to the MLBPA framework approved by the 
arbitration panel. 

The Cleveland Indians Baseball Company’s (“In- 
dians”) share of the settlement fund was $610,000 for 
the 1986 season and $1,457,848 for the 1987 season. The 
Indians received the funds in 1994 and distributed 
those funds to the affected players—eight players who 
were employed in 1986 and fifteen players who were 
employed in 1987. Unsure as to the tax treatment of 
these distributions, the Indians paid FICA and FUTA 
taxes on the total funds as if the payments were wages 
for services rendered in 1994. In other words, the 
Indians paid FICA and FUTA taxes on the funds as if 

3a 

they were actually wages received by the players in 
1994, the year of distribution. The Indians paid these 
tax obligations in April 1994 and January 1995. None of 
the affected players, however, performed services for 
the Indians in 1994 or 1995. The Indians filed this 
instant action seeking reimbursement of the FICA and 
FUTA taxes paid to the United States. 

The Indians sought a refund of FICA and FUTA 
taxes claiming that, (1) a portion of the funds paid to the 
Indians and disbursed to its former players constituted 
non-taxable interest; and (2) the non-interest portion 
was not taxable because the funds were damages for 
the wrongful breach of the CBA and not wages for 
services rendered. Finally, even if the payments 
constituted wages for services rendered rather than 
interest and damages, the Indians argued that they 
should have paid taxes at the 1986 and 1987 tax rates 
applicable when the services were rendered. Because 
the 1986 and 1987 FICA and FUTA taxes of each of the 
affected players were already paid to the maximum 
required amount, the Indians asserted that they are 
entitled to a full refund if the payments were deter- 
mined to be wages for services rendered in 1986 and 
1987. 

The government initially disputed the Indians’s 
claims. Both parties eventually agreed, however, that 
$629,000 of the payments from the settlement fund to 
affected players constituted interest and were not 
subject to FICA and FUTA taxes. Thus, the Indians 
were entitled to a refund for taxes paid on the interest 
portion of the settlement. The parties also agreed that 
the remaining portion of the payments, approximately 
$2 million, constituted back-wage payments, earnings 

4a 

that would have been paid in 1986 and 1987 but for the 
Clubs’ breach of the CBA. The issue presented to this 
court is the tax year applicable to these back-wage 
payments made in 1994 for services rendered in the 
1986 and 1987 baseball seasons. 

In the district court, the government and the Indians 
agreed that our decision in Bowman v. United States, 
824 F.2d 528 (6th Cir.1987) directly addressed this 
precise issue. The Bowman court held that “a 
settlement for back wages should not be allocated to 
the period when the employer finally pays but ‘should 
be allocated to the periods when the regular wages 
were not paid as usual.’ ” 824 F.2d at 530 (quoting 
Social Security Bd. v. Neirotko, 327 U.S. 358, 370 
(1946)). Following Bowman, the district court entered 
judgment in favor of the Indians and ordered the 
United States to refund the FICA and FUTA taxes 
paid on the settlement disbursements designated as 
back wages, including interest from the dates on which 
the payments were made. 

The United States sought en banc reversal of the 
Bowman decision. This court declined the en banc 
petition and the case was referred to this panel. 

II. 

Typically, statutory interpretations such as those 
presented in this appeal are reviewed de novo. See 
Williams v. Coyle, 167 F.3d 1036, 1038 (6th Cir. 1999). 

Here, our precedent clearly indicates that the 
statutory provision in question requires settlements for 
back wages to be allocated to the period in which they 
were earned or should have been paid, and not to the 

5a 

period in which the back wages were actually dis- 
bursed. See Bowman, 824 F.2d at 530. The gov- 
ernment contends that Bowman was wrongly decided, 
arguing that the plain language, legislative history and 
applicable FICA and FUTA Treasury Regulations 
demonstrate that back wages are subject to tax in the 
year in which payment is made and not in which the 
services were rendered. In addition, the government 
cites cases from our sister circuits that are at odds with 
our Bowman holding. Despite these arguments, the 
government “agrees with taxpayer that the issue pre- 
sented in this case was decided in Bowman.” Appellant 
Reply Br. at 1. 

Even if we were persuaded by the government’s 
argument, we are bound by the Bowman decision. It is 
firmly established that one panel of this court cannot 
overturn a decision of another panel; only the court 
sitting en banc can overturn such a decision. See United 
States v. Smith, 73 F.3d 1414, 1418 (6th Cir. 1996). “The 
earlier determination is binding authority unless a de- 
cision of the United States Supreme Court mandates 
modification or this Court sitting en banc overrules the 
prior decision.” 

United States. v. Moody, 206 F. 3d 
609,—(6th Cir. 2000) (citing Salmi v. Secretary of HHS, 
774 F.2d 685, 689 (6th Cir.1985)). Accordingly, fol- 
lowing Bowman, we reject the government’s argument 
and affirm the district court’s judgment that FUTA and 
FICA taxes paid on the back wage disbursements 
should have been paid as if earned in 1986 and 1987. 

III. 

For the foregoing reasons, we AFFIRM the district 
court’s judgment. 

6a 

UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF OHIO 
EASTERN DIVISION 

Case No. 1:96-CV-2240 

CLEVELAND INDIANS BASEBALL CO., PLAINTIFF 

v. 

UNITED STATES OF AMERICA, DEFENDANT 

[Filed: Jan. 25, 1999] 

MEMORANDUM & OPINION 

By this action, the plaintiff, Cleveland Indians Base- 
ball Company (the Indians), seeks a refund from the 
United States of taxes paid pursuant to the Federal 
Insurance Contribution Act (FICA) and the Federal 
Unemployment Tax Act (FUTA). Before the Court are 
the parties’ Cross-Motions for Summary Judgment on 
Stipulated Facts. For the reasons briefly set forth be- 
low, the Indians’ motion is GRANTED, the Government 
motion is DENIED and judgment is entered in favor of 
plaintiffs for a total of $97,202.20, plus interest. 

7a 

I. 

The FICA and FUTA taxes at issue were paid by the 
Indians in April 1994 and January 1995, respectively. 
The taxes were premised on payments made by the 
Indians in 1994 to certain of its former players, specifi- 
cally eight players who were employed by the Indians 
in 1986 and fifteen players employed by the plaintiff in 
1987 

1 The money for these payments came from a fund 
created pursuant to a settlement between the Union 
and twenty-six Major League Baseball Clubs after an 
initial arbitration decision finding that the Clubs had 
violated the collective bargaining agreement between 
them.2 

The Indians share of the settlement fund (which 
totaled $280 million) was $610,00.00 for the 1986 season 
and $1,457,848.00 for the 1987 season. The Indians re- 
ceived its share of the fund in 1994 and proceeded to 
disburse those funds to its effected [sic] players in that 
same year. Because it was unsure of the tax treatment 
to be afforded these funds, the Indians paid FICA and 
FUTA taxes on the total funds disbursed as if the funds 
represented wages paid for services rendered and paid 
those taxes premised upon the tax obligation which 

1 Of these fifteen, one was not actually employed by the Indians 
in 1987. Because he was no longer in baseball in 1994, he was 
“deemed” an employee of the last team to employ him-the Indians. 

2 Specifically, the arbitration panel found that the Clubs 
breached Article XVIII(H) of the bargaining agreement, which 
prohibits the Clubs from taking concerted action to interfere with 
the free agency rights of their players. The arbitrators concluded 
that the Clubs violated this provision of the bargaining agreement 
by their conduct at the close of the 1985 and 1986 playing seasons, 
thereby affecting the market and artificially depressing salaries of 
would-be free agents in the subsequent seasons. 

8a 

would have been applicable in the year in which the 
funds were actually received by the players, 1994. The 
Indians subsequently filed this action seeking 
reimbursement of all sums paid to the United States. 

II. 

The Indians initially contended that it was entitled to 
a full refund for the following reasons: 

1. A portion of the funds paid to the Indians and 
disbursed to its former players ($629,000.00) 
constituted non-taxable interest; 

2. The remaining portion of the funds (approxi- 
mately $2,000,000.00) were non-taxable payments 
because they represented damages for a wrongful 
breach of the bargaining agreement, not wages 
for services performed; and 

3. Even if the payments constituted wages for 
services rendered (and not interest or damages), 
they should have been taxed at the 1986 and 1987 
tax rate, respectively, requiring reimbursement 
of all payments, because the FICA and FUTA 
obligations of the effected [sic] players had been 
satisfied previously for those tax years. 

The government initially disputed all three points, ar- 
guing that the payments were all for wages and that 
FICA and FUTA taxes must be paid in the year in 
which wages actually are received, not the year in 
which they were earned or came due. 

The parties eventually settled two of their disputes, 
though not the primary one. Thus, the parties agreed 
that $629,000.00 of the payments made by the Indians 

9a 

out of the settlement fund constituted interest pay- 
ments to which FICA and FUTA were inapplicable, 
requiring a reimbursement of at least $13,071.10 of the 
taxes paid in 1994. The parties also agreed that all 
remaining sums did constitute back-pay wage pay- 
ments, reflecting monies that would have been earned 
in 1986 and/or 1987 but for the Clubs’ joint breach of the 
bargaining agreement. The remaining issue, on which 
the parties continue to disagree, is the question of to 
which tax year those wages are attributable for FICA 
and FUTA purposes. 

Interestingly, however, this remaining area of dis- 
pute is really a disagreement over what the law ought 
to be; the parties do not seriously dispute what the law 
is-at least in this Circuit. Thus, the Indians cite to and 
rely upon the Sixth Circuit’s decision in Bowman 

v. United States, 824 F.2d 528 (6th Cir.1987) (Merritt, 
Martin and Brown), where the panel unanimously con- 
cluded that, “[A] settlement for back wages should not 
be allocated to the period when the employer finally 
pays but ‘should be allocated to the periods when the 
regular wages were not paid as usual.’ ” Id. At 530, 
quoting Social Security Bd. v. Neirotko, 327 U.S. 358, 
370 (1946). Based on this authority, which the Indians 
contend is eminently sound, the Indians assert that this 
Court has no choice but to (1) follow Bowman, (2) allo- 
cate the wages paid in 1994 to 1986 and 1987-years in 
which the maximum FICA and FUTA taxes had al- 
ready been paid, and (3) enter judgment in the Indians 
favor for a full refund of all taxes paid in connection 
with the disbursement of settlement funds in 1994. 

The government’s response to Bowman is pointedly 
honest. The government concedes that Bowman is fac- 

10a 

tually “indistinguishable from this case” and that, “un- 
der the facts in this case, the Court appears bound to 
follow the decision in Bowman.” (Gov’t Brief at 4-5). 
The government contends, however, that the Bowman 
decision was wrongly decided” and that, presumably, it 
will be able to convince the Sixth Circuit of that fact on 
appeal. Thus, the government explains in detail in its 
brief to this Court why it believes Congress intended 
FICA and FUTA obligations to apply in, or, in the lan- 
guage of Bowman, to be allocated to, the tax years in 
which wages actually are disbursed by the employer. 
The government notes that it must engage in this exer- 
cise, despite its earlier concessions regarding this 
Court’s apparent lack of options in the face of Bowman, 
“to preserve the record for appeal.” (Gov’t. Brief at 5). 

Apparently not fully content with the prospect of an 
appeal from the record as it stands, moreover, the 
government goes on to ask this Court to “consider” its 
arguments regarding the wisdom of Bowman and 
“issue a decision which reflects what this Court would 
do if it were given the privilege of a clean slate upon 
which to draw its decision.” (Gov’t. Brief at 5). While 
this Court, of course, has considered all of the govern- 
ment’s arguments, and has examined all authority cited 
by both parties, it is disinclined to issue what is es- 
sentially an advisory opinion, particularly in the face of 
a clear, unanimous directive from a distinguished Sixth 
Circuit panel. 

Accordingly, this Court will follow the course pro- 
posed by the Indians and dictated by Bowman. The 
government will be free on appeal to point out that 
many of the arguments presented here were not (ap- 
parently) presented to the Bowman panel and that at 

11a 

least one court has disagreed with Bowman since that 
decision was issued, instead applying the allocation the 
government urges here. Judgment will be entered in 
favor of the Indians and the United States ordered to 
refund the $97,202.20 in FICA and FUTA taxes paid in 
connection with the 1994 settlement disbursements, 
plus interest from the dates on which such payments 
were made, at the rate dictated by Internal Revenue 
Code Sections 6621 and 6622.3 

IT IS SO ORDERED. 

/S/ KATHLEEN M. O’MALLEY 

KATHLEEN M. O’MALLEY 
United States District Judge 

3 This total encompasses both the taxes paid on the interest 
portion of the disbursements and the taxes paid on the back-pay or 
wage portion thereof. 

12a 

APPENDIX C 

UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF OHIO 
EASTERN DIVISION 

Case No. 1:96-CV-2240 

CLEVELAND INDIANS BASEBALL CO., PLAINTIFF 

v. 

UNITED STATES OF AMERICA, DEFENDANT 

[Filed: Jan. 25, 1999] 

ORDER 

For the reasons set forth in the Memorandum and 
Opinion issued in conjunction with this Order, judgment 
is hereby entered in favor of plaintiff, the Cleveland In- 
dians Baseball Company, and against defendant, the 
United States of America for refunds of (1) FICA taxes 
in the amount of $96,250.20, plus interest from April 30, 
1994 at the rate dictated by I.R.C. §§ 6621 and 6622 and 
(2) $952.00 in FUTA taxes, plus interest from January 
31, 1995 at the rate fixed by I.R.C. §§ 6621 and 6622. 

13a 

Based on this judgment, the case is hereby dismissed. 

IT IS SO ORDERED. 

/S/ KATHLEEN M. O’MALLEY 

KATHLEEN M. O’MALLEY 
United States District Judge 

14a 

APPENDIX D 

1. 26 U.S.C. 3101 provides in relevant part: 

(a) Old-age, survivors, and disability insurance. 

In addition to other taxes, there is hereby imposed 
on the income of every individual a tax equal to the fol- 
lowing percentages of the wages (as defined in section 
3121(a)) received by him with respect to employment 
(as defined in section 3121(b))— 

In cases of wages received during: 
The rate shall be: 

1984, 1985, 1986, or 1987 ..........…… 5.7 percent 

1988 or 1989 ….....................………. 6.06 percent 

1990 or thereafter .................…….. 
6.2 percent. 

(b) Hospital insurance. 

In addition to the tax imposed by the preceding 
subsection, there is hereby imposed on the income of 
every individual a tax equal to the following 
percentages of the wages (as defined in section 3121(a)) 
received by him with respect to employment (as defined 
in section 3121(b))— 

(1) with respect to wages received during the 
calendar years 1974 through 1977, the rate shall be 

0.90 percent; 

(2) with respect to wages received during the 
calendar year 1978, the rate shall be 1.00 percent; 

15a 

(3) with respect to wages received during the 
calendar years 1979 and 1980, the rate shall be 1.05 
percent; 

(4) with respect to wages received during the 
calendar years 1981 through 1984, the rate shall be 

1.30 percent; 

(5) with respect to wages received during the 
calendar year 1985, the rate shall be 1.35 percent; 
and 

(6) with respect to wages received after Decem- 
ber 31, 1985, the rate shall be 1.45 percent. 

* * * * * 

16a 

2. 26 U.S.C. 3111 provides in relevant part: 

(a) Old-age, survivors, and disability insurance. 

In addition to other taxes, there is hereby imposed 
on every employer an excise tax, with respect to having 
individuals in his employ, equal to the following 
percentages of the wages (as defined in section 3121(a)) 
paid by him with respect to employment (as defined in 
section 3121(b))— 

In cases of wages received during: The rate shall be: 

1984, 1985, 1986, or 1987 ..........…… 
5.7 percent 

1988 or 1989 ….....................………. 
6.06 percent 

1990 or thereafter .................…….. 
6.2 percent. 

(b) Hospital insurance. 

In addition to the tax imposed by the preceding 
subsection, there is hereby imposed on every employer 
an excise tax, with respect to having individuals in his 
employ, equal to the following percentages of the wages 
(as defined in section 3121(a)) paid by him with respect 
to employment (as defined in section 3121(b))— 

(1) with respect to wages paid during the cal- 
endar years 1974 through 1977, the rate shall be 

0.90 percent; 

(2) with respect to wages paid during the cal- 
endar year 1978, the rate shall be 1.00 percent; 

17a 

(3) with respect to wages paid during the cal- 
endar years 1979 and 1980, the rate shall be 1.05 
percent; 

(4) with respect to wages paid during the cal- 
endar years 1981 through 1984, the rate shall be 

1.30 percent; 

(5) with respect to wages paid during the cal- 
endar year 1985, the rate shall be 1.35 percent; and 

(6) with respect to wages paid after December 
31, 1985, the rate shall be 1.45 percent. 

* * * * * 

18a 

3. 26 U.S.C. 3121 provides in relevant part: 

(a) Wages. 

For purposes of this chapter, the term “wages” 
means all remuneration for employment, including the 
cash value of all remuneration (including benefits) paid 
in any medium other than cash; except that such term 
shall not include— 

(1) in the case of the taxes imposed by sections 
3101(a) and 3111(a) that part of the remuneration 
which, after remuneration (other than remuneration 
referred to in the succeeding paragraphs of this sub- 
section) equal to the contribution and benefit base 
(as determined under section 230 of the Social 
Security Act) with respect to employment has been 
paid to an individual by an employer during the 
calendar year with respect to which such contri- 
bution and benefit base is effective, is paid to such 
individual by such employer during such calendar 
year. If an employer (hereinafter referred to as 
successor employer) during any calendar year 
acquires substantially all the property used in a 
trade or business of another employer (hereinafter 
referred to as a predecessor), or used in a separate 
unit of a trade or business of a predecessor, and 
immediately after the acquisition employs in his 
trade or business an individual who immediately 
prior to the acquisition was employed in the trade or 
business of such predecessor, then, for the purpose 
of determining whether the successor employer has 
paid remuneration (other than remuneration 
referred to in the succeeding paragraphs of this 
subsection) with respect to employment equal to the 

19a 

contribution and benefit base (as determined under 
section 230 of the Social Security Act) to such 
individual during such calendar year, any remu- 
neration (other than remuneration referred to in the 
succeeding paragraphs of this subsection) with re- 
spect to employment paid (or considered under this 
paragraph as having been paid) to such individual 
by such predecessor during such calendar year and 
prior to such acquisition shall be considered as 
having been paid by such successor employer; 

* * * * * 

20a 

4. 26 U.S.C. 3301 (1994 & Supp. IV 1998) provides: 

There is hereby imposed on every employer (as 
defined in section 3306(a)) for each calendar year an 
excise tax, with respect to having individuals in his 
employ, equal to— 

(1) 6.2 percent in the case of calendar years 
1988 through 2007; or 

(2) 6.0 percent in the case of calendar year 2008 
and each calendar year thereafter; 

of the total wages (as defined in section 3306(b)) paid by 
him during the calendar year with respect to employ- 
ment (as defined in section 3306(c)). 

21a 

5. 26 U.S.C. 3306 provides in relevant part: 

* * * * * 

(b) Wages. 

For purposes of this chapter, the term “wages” 
means all remuneration for employment, including the 
cash value of all remuneration (including benefits) paid 
in any medium other than cash; except that such term 
shall not include— 

(1) that part of the remuneration which, after 
remuneration (other than remuneration referred to 
in the succeeding paragraphs of this subsection) 
equal to $7,000 with respect to employment has 
been paid to an individual by an employer during 
any calendar year, is paid to such individual by such 
employer during such calendar year. 

* * * * * 

22a 

6. 26 C.F.R. 31.3101-2 provides in relevant part: 

* * * * * 

(c) Computation of employee tax. The employee tax 
is computed by applying to the wages received by the 
employee the rate in effect at the time such wages are 
received. 

Example. In 1972, employee A performed for 
employer X services which constituted employment 
(see § 31.3121(b)-2). In 1973 A receives from X $1,000 
as remuneration for such services. The tax is payable at 
the 5.85 percent rate (4.85 percent plus 1.0 percent) in 
effect for the calendar year 1973 (the year in which the 
wages are received) and not at the 5.2 percent rate 
which was in effect for the calendar year 1972 (the year 
in which the services were performed). 

7. 26 C.F.R. 31.3101-3 provides: 

The employee tax attaches at the time that the wages 
are received by the employee. For provisions relating 
to the time of such receipt, see § 31.3121(a)-2. 

8. 26 C.F.R. 31.3111-2 provides in relevant part: 

* * * * * 

(c) Computation of employer tax. The employer tax 
is computed by applying to the wages paid by the 
employer the rate in effect at the time such wages are 
paid. 

23a 

9. 26 C.F.R. 31.3111-3 provides: 

The employer tax attaches at the time that the wages 
are paid by the employer. For provisions relating to the 
time of such payment, see § 31.3121(a)-2. 

10. 26 C.F.R. 31.3121(a)-2 provides in relevant part: 

* * * * * 

(a) In general, wages are received by an 
employee at the time that they are paid by the em- 
ployer to the employee. Wages are paid by an em- 
ployer at the time that they are actually or construc- 
tively paid unless under paragraph (c) of this section 
they are deemed to be subsequently paid. For 
provisions relating to the time when tips received by an 
employee are deemed paid to the employee, see 
§ 31.3121(q)-1. 

(b) Wages are constructively paid when they 
are credited to the account of or set apart for an 
employee so that they may be drawn upon by him at 
anytime although not then actually reduced to posses- 
sion. To constitute payment in such a case the wages 
must be credited to or set apart for the employee 
without any substantial limitation or restriction as to 
the time or manner of payment or condition upon which 
payment is to be made, and must be made available to 
him so that they may be drawn upon at any time, and 
their payment brought within his own control and 
disposition. For provisions relating to the treatment of 
deductions from remuneration as payments of remu- 
neration, see § 31.3123-1. 

* * * * * 

24a 

11. 26 C.F.R. 31.3121(a)(1)-1(a)(2) provides: 

The annual wage limitation applies only if the 
remuneration received during any 1 calendar year by 
an employee from the same employer for em- 
ployment performed after 1936 exceeds the amount 
of such limitation. The limitation in such case relates 
to the amount of remuneration received during any 1 
calendar year for employment after 1936 and not to 
the amount of remuneration for employment per- 
formed in any 1 calendar year. 

* * * * * 

12. 26 C.F.R. 31.3301-2 provides: 

The tax for any calendar year is measured by the 
amount of wages paid by the employer during such year 
with respect to employment after December 31, 1938. 
(See §31.3306(b)-1, relating to wages, and §§31.3306(c)-1 
to 31.3306(c)-3, inclusive, relating to employment.) 

13. 26 C.F.R. 31.3306(b)(1)-1 provides in relevant part: 

(a) In general. (1) the term “wages” does not 
include that part of the remuneration paid within any 
calendar year by an employer to an employee which 
exceeds the first $3,000 of remuneration (exclusive of 
remuneration excepted from wages in accordance with 
paragraph (j) of §31.3306(b)-1 or §§31.3306(b)(2)-1 to 

31.3306(b)(8)-1, inclusive), paid within such calendar 
year by such employer to such employee for employ- 
ment performed for him at any time after 1938. 

(2) The $3,000 limitation applies only if the 
remuneration paid during any one calendar year by an 

25a 

employer to the same employee for employment 
performed after 1938 exceeds $3,000. The limitation in 
such case relates to the amount of remuneration paid 
during any one calendar year for employment after 
1938 and not to the amount of remuneration for 
employment performed in any one calendar year. 

Example. Employer B, in 1955, pays employee A 
$2,500 on account of $3,000 due him for employment 
performed in 1955. In 1956 employer B pays employee 
A the balance of $500 due him for employment 
performed in the prior year (1955), and thereafter in 
1956 also pays A $3,000 for employment performed in 
1956. The $2,500 paid in 1955 is subject to tax in 1955. 
The balance of $500 paid in 1956 for employment during 
1955 is subject to tax in 1956, as is also the first $2,500 
paid of the $3,000 for employment during 1956 (this 
$500 for 1955 employment added to the first $2,500 paid 
for 1956 employment constitutes the maximum wages 
subject to the tax which could be paid in 1956 by B to 
A). The final $500 paid by B to A in 1956 is not included 
as wages and is not subject to the tax. 

* * * * *