Balestra v. United States

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FICA tax includes social security tax and hospital insurance tax, 26 U.S.C. 3101(a)–(b). Balestra was a United Airlines pilot from 1979 until his 2004 retirement. He was eligible for life-long retirement benefits through a nonqualified deferred compensation plan that was a nonaccount balance plan, starting the day of his retirement. United withheld $4,199.22 in hospital insurance tax from Balestra in 2004 based on statutory tax rate applied to the present value of the deferred compensation that Balestra was to receive under the plan. United’s obligation to pay the benefits was eventually discharged in bankruptcy. United ceased paying Balestra’s benefits in 2010. Balestra actually received only $63,032.09 in benefits, although he paid hospital tax based on $289,601.18 in benefits, and sought a refund of $3,285.26—the amount of tax paid on compensation he will never receive. The IRS and Claims Court rejected the claim. The Federal Circuit affirmed. The term “amount deferred” is not defined by statute, but a Treasury regulation defines it in terms of deferred compensation’s “present value,” without consideration of an employer’s financial condition. While the regulation may seem unfair in a specific instance, in balancing the desire for simplicity against the ideal of ultimate comprehensiveness, the agency has a reasonable degree of discretion. View "Balestra v. United States" on Justia Law

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