Ai v. United States

Section 606(b) of the Covenant which governs United States-Commonwealth of the Northern Mariana Islands relations applies equally to the CNMI as it does to Guam; thus, the Federal Insurance Contributions Act applies to all employees and employers in Guam, notwithstanding their citizenship or residency.

The heart of this dispute lies with the workers employed at Concorde facilities in the Commonwealth of the Northern Mariana Islands (CNMI). Concorde Garment Manufacturing Corporation (Concorde) and its former nonresident CNMI employees paid Federal Insurance Contributions Act (FICA) taxes between 2004 and 2007. FICA helps fund Social Security and Medicare. In 2008, Concorde applied for a refund for the FICA taxes paid for between 2004 and 2007, but the Internal Revenue Service (IRS) only refunded Concorde’s 2006 claims. The district court held that, pursuant to Section 606(b) of the Covenant governing United States-CNMI relations (the Covenant), temporary foreign workers in the CNMI and their employers were required to pay FICA taxes, and consequently entered a judgment favoring the United States. On appeal, the Ninth Circuit determined the issue of whether FICA taxes on employee wages is a United States law imposing excise and self-employment taxes to support the United States Social Security System. Under 26 U.S.C. §§ 3101(a), 3111(a), on employee and employer tax respectively, FICA applies to wages associated with work performed within the United States without regard to the citizenship or residence of the employee or employer. Moreover 26 U.S.C. § 3121 governs those wages associated with work performed outside of the United States specifically to the CNMI. However 26 U.S.C. § 3121 makes no reference to any requirement of employee or employer citizenship or residency. The panel held that because Section 606(b) of the Covenant actively applies to CNMI it equally applies to Guam as well. Further, because FICA under 26 U.S.C. § 3121 applies to all employees and employers in Guam, notwithstanding their citizenship or residency, the IRS’s reading of the statute was not unconstitutionally vague when it decided not to issue a refund to Concorde. AFFIRMED.