Quality Stores, Inc. Update

Department of Justice files petition for rehearing en banc, challenging the Sixth Circuit's recent decision that severance payments paid pursuant to an involuntary reduction in force are exempt from FICA taxes.

On October 18, the Department of Justice (DOJ) filed a petition for rehearing en banc in United States v. Quality Stores, Inc., No. 10-1563 (6th Cir. Sept. 7, 2012). 1 In Quality Stores, the U.S. Court of Appeals for the Sixth Circuit issued the most significant pro-taxpayer payroll tax decision in the last 10 years, holding that severance payments that satisfy the Internal Revenue Code's statutory definition of "supplemental unemployment compensation benefits" or SUB-Pay are not taxable wages for Social Security and Medicare (Federal Insurance Contributions Act or FICA) tax purposes. 2 Specifically, the Sixth Circuit held that severance payments paid to former employees pursuant to an involuntary reduction in force were SUB-Pay and not taxable "wages" for FICA tax purposes. 3]

Petition for Rehearing En Banc

Rehearings en banc are only granted in rare cases when the petitioning party establishes the existence of issues that affect the integrity of the circuit's case law (e.g., intracircuit...