Wisconsin Central Ltd. v. United States

Whether stocks that a railroad issues to employees are subject to taxation under the Railroad Retirement Tax Act, 26 U.S.C. § 3231(e)(1).

Petitioners issued stocks to their employees who then exercised their stock options granted to them.  Petitioners became subject to federal taxes when their employees used those stock options. Petitioners then filed a suit seeking reimbursements for the taxes paid. The parties filed cross summary judgment motions and the district court ruled for the government and that petitioners were not entitled to any tax refunds. The court based its reasoning on the fact that the statute is ambiguous and therefore the government's interpretation is entitled to deference under Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). On appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed the district court because it determined that stock now qualifies as a form of money remuneration and that the government’s interpretation of the statute made practical sense. Petitioners recognize that there is a circuit split as to whether the stock is taxable compensation under the Railroad Retirement Tax Act (RRTA). The Seventh and Fifth circuit determined that these stocks are taxable compensation; whereas, the Eighth Circuit determined that it is not. Petitioners argue that the stocks are not taxable because the term money remuneration should be strictly construed to solely include its plain language meaning of cash or other mediums of exchange, not including stock.  Petitioners further assert that the stocks are not taxable compensation because they are not a medium of exchange in the same manner as cash.