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In the money? Some companies may be due an employment tax refund.

Article Excerpt
For years the IRS has insisted companies collect and pay Social Security, Medicare and unemployment taxes on all severance payments they made to former employees after a layoff or termination. About 13 years ago, CSX Corp. challenged this established practice and IRS interpretations. The company had been withholding and paying the employee and employer's shares of employment taxes on several types of severance payments. Then it had filed amended returns and had requested refunds. The IRS disallowed the claims so CSX took the agency to court.

It was not an easy task and it took CSX many years, but on April 1, 2002, the U.S. Court of Federal Claims issued its opinion in CSX Corp., 52 Fed. C1.208 (2002). It held that payments a company makes to involuntarily terminated employees under a reduction-in-force plan are supplemental unemployment compensation benefits (SUCBs) and thus not "wages" for purposes of Social Security, Medicare and unemployment taxes.

The statutory time now has passed and the IRS no longer can appeal the decision. It remains silent instead of issuing an action on decision (AOD) indicating what direction its acquiescence in the case will take. The IRS national media relations office would not comment on CSX or any future agency action. The IRS, however, has issued some guidance in Supplemental Circular E, demonstrating its intent to follow parts of CSX. This article explains how CPAs can help their employers and clients get refunds of previously paid employment taxes.

WHAT HAPPENED?

The federal claims court held that under IRC section 3402(o)(2)(A), certain of CSX's severance payments were in fact supplemental unemployment compensation. SUCBs are amounts an employer pays to an employee under a plan "to which the employer is a party, because of an employee's involuntary separation from employment (whether or not such separation is temporary), resulting directly from a reduction in force, the discontinuance of a plant or operation, or...