BNSF Railway Company v. United States

Case: 13-10014 Document: 00512560484 Page: 1 Date Filed: 03/13/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 13, 2014
No. 13-10014
Lyle W. Cayce
Clerk
BNSF RAILWAY COMPANY, formerly The Burlington Northern and Santa
Fe Railway Company, as successor by merger to Burlington Northern
Railroad Company and The Atchison Topeka and Santa Fe Railway
Company,
Plaintiff – Appellee
v.
UNITED STATES OF AMERICA,
Defendant – Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before HIGGINBOTHAM, OWEN, and HIGGINSON, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
BNSF Railway Company (“BNSF”) filed suit seeking refunds of certain
taxes that it, and its predecessor companies, paid pursuant to the Railroad
Retirement Tax Act (“RRTA”). BNSF claimed that it overpaid when it included
(i) Non-Qualified Stock Options (“NQSO”), and (ii) certain moving expenses as
taxable compensation. The parties stipulated to the facts and, on cross-
motions for summary judgment, the district court granted summary judgment
in favor of BNSF on all its refund claims. We REVERSE.
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I
BNSF is a rail carrier 1 that operates an international railroad system
consisting of approximately 32,000 miles of rail throughout the Western
United States and Canada. BNSF was formed by the 1996 merger of The
Atchison Topeka and Santa Fe Railway Company with the Burlington
Northern Railroad Company. 2 At issue in this case are (i) Burlington Northern
Railroad Company’s 1993, 1994, and 1995 tax years; (ii) The Atchison Topeka
and Santa Fe Railway Company’s 1994 and 1995 tax years; and, (iii) BNSF’s
1996, 1997, and 1998 tax years.
As a rail carrier, BNSF and its employees are subject to the Railroad
Retirement Tax Act (“RRTA”). 3 BNSF now seeks a refund of the employer and
employee portions of taxes paid on the exercise of NQSOs and certain moving
expenses.
A
During the tax years at issue, BNSF offered salaried employees and
executives a combination of Incentive Stock Options (“ISO”) 4 and NQSOs. The
stated purpose of the stock option plans was to provide employees with a
competitive compensation package. 5 At the time the stock option plans were
1As defined by Part I of the Interstate Commerce Act, 49 U.S.C. § 3(a) and 26 U.S.C.
§ 3231(g).
2 The companies are collectively referred to as BNSF.
3 26 U.S.C. §§ 3201 et seq.
4 The taxation of the ISOs is not at issue. An employee does not recognize income on
the grant or exercise of an ISO. When the stock acquired by the exercise of the ISO is disposed
of, the employee must recognize capital gain, as measured by the difference between the
strike price and the disposition price. See 26 U.S.C. § 421. To qualify for favorable tax
treatment, either (i) the option must be held for at least two years from the date of the grant
or (ii) the stock must be held for at least one year from the date of exercise. See id. at §
422(a)(1). A premature exercise or sale is a “disqualifying disposition” and any income from
such a disposition is treated as ordinary income. See id. at § 421(b).
5 First Stipulation of Fact, ¶ 68.
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adopted, BNSF paid its employees and executives salaries that were below
industry average, but because of the stock option plans, provided an overall
compensation package that was above industry average. 6 Each year, BNSF’s
Board of Directors determined the number of stock options to grant. 7 Once the
number was determined, BNSF awarded stock options in part as compensation
for services rendered by employees and in part as an award for job
performance. 8 These options were then awarded as either ISOs or NQSOs. 9
Additionally, BNSF’s Board of Directors determined the final deadline for
exercising the options and the vesting period for each option grant. 10
When an employee exercised a NQSO, the employee would pay the price
for the share that was the market price on the day the option was granted (the
“strike price”). 11 Approximately 90-95% of the time, the employee would then
sell the share at the same time, such that the employee would only receive the
difference between the strike price and the exercise price. 12 Alternatively, the
employee could keep the stocks, either by paying the broker the strike price
when executing the option or by selling enough stock to cover the strike price
and taxes, and then keeping the remaining shares. 13
NQSOs were exercised in one of two ways: (i) non-executive employees
exercised their NQSOs through BNSF’s transfer agent, 14 and (ii) executive
6 Id. at ¶ 69.
7 Id. at ¶ 70.
8 Id. at ¶ 71-72.
9 Id. at ¶ 73.
10 Id. at ¶ 75.
11 Id.
12 Id. at ¶ 11.
13 Rawle 995–96.
14 Rawle 952 n3.
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employees were permitted to use their private brokers to exercise their
NQSOs. 15 Non-executive employees would either fax or hand-deliver an
exercise notification sheet to BNSF’s compensation department, who would
then authorize BNSF’s transfer agent to exercise the option. 16 The transfer
agent would then either forward the stock certificate to the employee or
disburse the net gain amount on the sale of the stock. For executives, the
transfer agent would directly transfer the purchased shares to the executive’s
private broker. 17
BNSF did not directly pay cash or send the stock certificate to the
employee, but it did record all transaction information into a stock option
tracking system. BNSF would calculate the amount of RRTA taxes due and
would inform the transfer agent of the amount of tax to be withheld. 18
During the years at issue, 3,192 BNSF employees exercised NQSOs,
representing $348,805,183.03 total spread on exercise. 19 BNSF and its
employees paid a total of $16,432,583.01 in RRTA taxes on exercised NQSOs. 20
B
From 1994 to 1996, many BNSF employees were required to relocate as
a result of the consolidation and restructuring of operations, the merger, and
employee promotions and transfers. 21 Whenever BNSF asked an employee to
move, it would pay a substantial portion of the moving expenses. 22 In total,
15 Rawle 988–89.
16 Rawle 989.
17 Rawle 990.
18 Id.
19 Id.
20 Rawle 987.
21 Rawle 991.
22 Rawle 971.
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BNSF paid approximately $135,000,000 in employee moving expenses during
the period at issue. 23
These payments were made pursuant to a written policy in BNSF’s
relocation manuals for non-union employees and pursuant to collective
bargaining agreements for union employees. 24 Typically, BNSF paid moving
expenses in one of two ways: (i) by direct payment to the service providers, or
(ii) by a lump sum payment to employees, who could generally keep any excess
payment over expenses actually incurred and who were not required to provide
substantiation. 25 When BNSF paid a lump sum, it typically did so through a
third-party agent hired by BNSF to administer the moving-expenses benefit
program. 26 The lump sum payments were calculated by using a benchmark
based on average reimbursement amounts paid by similarly situated
companies. Typically, the lump sum payment was $20,000 for homeowners
and $10,000 for non-homeowners. 27 Additionally, BNSF generally paid
employees a ‘tax gross-up’ to cover additional tax due on these moving expense
benefits. 28
BNSF considered certain moving expenses to be properly excluded
moving expense payments and reimbursements under 26 U.S.C. § 217. BNSF
did not withhold federal income tax or RRTA employment tax on these
expenses, and accordingly, these expenses are not at issue. 29 BNSF provided
a number of other moving expense benefits that were not excludable under §
23 Rawle 976.
24 Rawle 991.
25 Stipulations of Fact, ¶ 80; Plt.’s Mot. Summ. J. Exh. 112.
26 Id.
27 Def.’s Mot. Summ. J., Exh. J.
28 Id.
29 Stipulations of Fact, ¶ 78.
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217, including: professional relocation company expenses, babysitting
expenses, car rental expenses, home sale costs (including appraisals, title
searches, and inspections), meals, pest extermination, pet relocation services,
personal property storage, and reimbursement for lease cancellation fees. 30
BNSF claims that these expenses were not provided as compensation for
employees’ services to BNSF, but instead were provided as a means of
retaining qualified and knowledgeable employees. 31 In short, BNSF claims
that without these moving expense benefits, employees would have been
unable to relocate and thereby forced to resign. Accordingly, BNSF claims that
these benefits were paid to stay competitive.
C
From 1993 to 1998, BNSF, and its predecessors-in-interest, filed refund
claims for both the employer and employee portions of the RRTA tax paid on
NQSOs exercised during that time period. 32 Additionally, BNSF filed formal
refund claims for the employer portion of tax paid on moving expenses for 1994
through 1998, 33 as well as the employee portion for 1994, 1995, and 1998. 34
The Internal Revenue Service (“IRS”) granted the refund claims for the
employer portion of the RRTA tax paid on moving expenses for 1996 through
1998, and although the IRS now claims those refunds were in error, the IRS
does not seek recovery of those refunds as the relevant statute of limitations
has expired.
30 Id. at ¶ 80 (identifying 28 distinct moving expenses that BNSF paid).
31 Rawle 992.
32 Rawle 998.
33 Rawle 949–50.
34 Id.
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With respect to the employee portions of tax paid on moving expenses for
1996 and 1997, BNSF did not file a formal refund claim. 35 When BNSF
amended its federal railroad retirement tax returns (Form CT-1) for tax years
1996 and 1997, it included an attachment stating that BNSF “is not requesting
refund of the employee with this Form CT-1 . . . [h]owever, [BNSF] is
separately filing a claim for refund of the employee taxes over-collected with
respect to the above-described payments on a Form 843.” 36 Yet, BNSF never
filed a formal claim for refund of these employee taxes on a Form 843 for either
1996 or 1997 prior to the filing of this suit.
On June 30, 2011, BNSF brought this suit in the district court, seeking
refunds of the employer and employee portions of RRTA tax paid on NQSOs,
the employer portion of RRTA tax paid on moving expenses benefits in 1994
and 1995, and the employee portion of RRTA tax paid on moving expenses in
1996 through 1998. On cross-motions for summary judgment, the district court
granted summary judgment in favor of BNSF. In so doing, the district court
held that NQSOs are not compensation for purposes of the RRTA, and that
moving expenses are properly excluded from income under the RRTA.
Additionally, the district court held that BNSF provided sufficient notice to the
IRS to warrant jurisdiction over the refund claims for employee taxes paid on
moving expenses in 1996 and 1997.
II
“We review a district court’s grant of summary judgment de novo and
apply the same standards as the district court.” 37 Accordingly, “[s]ummary
35BNSF recently filed formal refund claims for these taxes on September 6, 2013. See
Appellee’s Rule 28.4 Letter (Sept. 6, 2013).
36 Rawle 585, 591.
37Hernandez v. Yellow Trans., Inc., 670 F.3d 644, 650 (5th Cir. 2012) (citing Adams v.
Travelers Indem. Co. of Conn., 465 F.3d 156, 163 (5th Cir. 2006)).
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judgment is proper if the pleadings and evidence show there is no genuine issue
of material fact and the moving party is entitled to judgment as a matter of
law.” 38
III
Our resolution of the NQSO issue is informed by a brief history of the
RRTA. Unlike most American employers and employees, rail carriers and
their employees are subject to the RRTA instead of the Federal Insurance
Contributions Act 39 (“FICA”). By the 1920s, nearly 80% of railroad workers
were employed by rail carriers offering pensions. 40 These employer-provided
pension plans were rife with problems such as inadequate funding, capricious
terminations, and limited benefits for disabled employees. 41 Because the
planned social security system would not provide benefits for work before 1937,
and was not planned to pay benefits for several years thereafter, Congress
intervened in the railroad retirement system in the 1930s by enacting the
Railroad Retirement Act 42 (“RRA”) and the RRTA. 43
Like FICA, the RRTA imposes a tax on both employers and employees to
fund the RRA’s retirement and disability benefits. 44 Unlike FICA, there are
two tiers of taxes and benefits under the RRTA and RRA. Tier I provides
benefits and taxes in a manner almost identical to FICA and, in essence, is the
social security analog for railroad workers; indeed, the Tier I rates are
38 Id. (citing Rule 56(a), Fed.R.Civ.P.).
39 28 U.S.C. §§ 3101 et seq.
See Kevin Whitman, An Overview of the Railroad Retirement Program, 68 Soc. Sec.
40
Bulletin 2 (2008).
41 Id.
42 45 U.S.C. §§ 231 et seq.
43 See Whitman, supra n.40.
44 See, e.g., Std. Office Bldg. Corp. v. United States, 819 F.2d 1371, 1373 (7th Cir.
1987).
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statutorily linked to FICA. 45 Tier II functions like a private pension plan and
is essentially an extension of the system of railroad pension plans that then
existed when the RRA and RRTA were enacted in the 1930s. 46 The Tier II
benefits are tied to an employee’s “earnings and career service.” 47
Under Tier I, the RRTA imposes “on the income of each employee a tax
equal to the applicable percentage of the compensation received during any
calendar year by such employee for services rendered by such employee.” 48
Compensation is then defined as “any form of money remuneration paid to an
individual for services rendered as an employee to one or more employers,”
subject to certain enumerated exceptions. 49 In the applicable Treasury
Regulation, the IRS has defined RRTA “compensation” as having “the same
meaning as the term wages in section 3121(A) . . . except as specifically limited
by the [RRTA.]” 50 The parties sharply dispute whether NQSOs are
“compensation” as used in the RRTA.
The Government argues that the term “compensation” and the phrase
“any form of money remuneration” as used in the RRTA is inherently
ambiguous. Thus, the Government argues that the Treasury Regulation
definition for “compensation”, that is, that it should have the same meaning as
“wages” under FICA, should be awarded Chevron 51 deference. The
Government notes that this definition supports the remedial purposes of the
RRTA, and avoids rendering superfluous statutory exclusions from RRTA
45 See Hisquierdo v. Hisquierdo, 439 U.S. 572, 575 (1979).
46 Id. at 574.
47 Id.
48 26 U.S.C. § 3201(a).
49 26 U.S.C. § 3231(e)(1).
50 26 C.F.R. § 31.3231(e)-1(a)(1).
51 Chevron USA, Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837 (1983).
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compensation. Thus, in the Government’s view, NQSOs are “compensation”
because they qualify as “wages” under FICA.
In contrast, BNSF argues that “compensation” and “any form of money
remuneration” are not ambiguous. BNSF explains that the plain language
meaning of “any form of money remuneration” is any form of “payment or
compensation in cash or other medium of exchange authorized by
governmental authorities.” 52 BNSF thus argues that NQSOs cannot qualify
as money because they are not cash or other medium of exchange authorized
by governmental authorities, and therefore, are not “compensation” under the
RRTA.
To this end, the district court held that NQSOs are not “compensation”
under the RRTA. The district court explained that:
The common accepted meaning of the words ‘any form of money
remuneration’ could reasonably be thought to include cash
(whether coin or paper money or a combination of the two), or a
paycheck drawn on an account of the employer at a financial
institution, or a wire transfer of pay check funds to the employee’s
bank account, or script issued to an employee by an employer for
use as the employer’s company store. . . . There is no ‘ordinary,
contemporary, common meaning’ of the words ‘money
remuneration’ that would include receipt by such an employee of
an NQSO or the financial gain realized by such an employee from
a later exercise of the option. 53
We disagree. Analysis properly begins with Chevron, as the Supreme
Court has made clear that IRS regulations may receive Chevron deference. 54
Under Chevron, we “first ask whether Congress has directly spoken to the
52 Br. of Appellee at 21.
53 Rawle 998-99.
54 See Mayo Foundation for Medical Educ. and Research v. United States, 131 S. Ct.
704, 711–714 (2011) (applying Chevron deference framework to tax regulations interpreting
FICA).
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precise question at issue.” 55 If so, we “must give effect to the unambiguously
expressed intent of Congress.” 56 But if we find “that the statute is silent or
ambiguous with respect to the specific issue we then ask whether the
regulation is based on a permissible construction of the statute.” 57
Here we find that “compensation” and “any form of money remuneration”
are inherently ambiguous. Although the district court’s definition is within
the realm of possible definitions, it is not the ordinary, common-sense
definition compelled by the plain language of the RRTA; indeed, there is no
such ordinary, common-sense definition. To begin with, we are unaware of any
other federal statute, nor have the parties identified any such statute, that
uses “any form of monetary remuneration” to define compensation, nor has any
Court of Appeals defined “any form of monetary remuneration.”
Second, we find the dictionary definitions of “money” to be less than
helpful. On the one hand, some dictionaries offer narrow definitions that
confine “money” to “a medium of exchange,” 58 and define “medium of exchange”
as “anything generally accepted a payment in a transaction and recognized as
a standard of value.” 59 On the other hand, other dictionaries define “money”
more broadly as “assets or compensation in the form [of] or readily convertible
55Lion Health Svcs., Inc. v. Sebelius, 635 F.3d 693, 700 (5th Cir. 2011) (quoting
Chevron, 467 U.S. at 842 (internal quotation marks omitted)).
56 Id. (internal quotation marks omitted).
57 Id. (internal quotation marks omitted).
58See, e.g., Merriam-Webster's Collegiate Dictionary 750 (10th ed. 1994) (defining
“money” as “something generally accepted as a medium of exchange, measure of value, or a
means of payment: as a: officially coined or stamped metal currency”); Black's Law Dictionary
1096 (9th ed. 2009) (defining “money” as a “medium of exchange currently authorized or
adopted by a government as part of its currency”).
59 Black’s Law Dictionary 1072 (9th ed. 2009).
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to cash,” 60 “[a]ssets that can easily be converted to cash,” 61 and “[c]apital that
is invested or traded as a commodity.” 62 And when “money” is used as an
adjective, rather than as a noun, it may carry a different meaning—such as,
“of or pertaining to capital or finance” 63—or it may simply be superfluous. 64
Third, we find that usage of “money remuneration” that is
contemporaneous to the passage of the RRTA is not helpful. The phrase only
appears in a handful of academic publications in the 1920s-40s, and, at most,
we can only draw the conclusion that it was used to distinguish between in-
kind benefits and benefits of a more monetary nature. 65 Accordingly, we
conclude that, at least as applied to NQSOs, the term “compensation”, as used
and defined by the RRTA, is inherently ambiguous.
60 Webster’s Third New International Dictionary 1458 (1993).
61 Black’s Law Dictionary (9th ed. 2009).
62 Id.
63 Rand House Webster’s Unabridged Dictionary 1241 (2d ed. 2001).
64 See Bryan Garner, A Dictionary of Modern Legal Usage 571 (2d ed. 1995).
65 See, e.g., Alexander Baykov, The Development of the Soviet Economic System: An
Essay on the Experience of Planning in the U.S.S.R., at 43 (1947) (“As the purchasing power
of money declined very rapidly, money remuneration began to play a much less important
part in the total 'wages' of workers than the supply of bare necessities in kind.”); Termination
of Contracts of Employment of Salaried Employees and Technical Staff, 35 Int'l Lab. Rev.
803, 819 (1937) (“the words ‘remuneration’ and ‘salary’ are taken to mean the total income of
the employee, including, in addition to the money remuneration, any other advantages and
additional payments, namely, tips, percentages, discounts, premiums, free dwellings, and
other similar benefits”); Salaries of School-Teachers in Colonial America, 28 Monthly Lab.
Rev. 27, 31 (1929) (“Besides the money remuneration, the districts boarded the teachers.”);
Employment and Unemployment, 19 Monthly Labor Review 146, 174 (1924) (“If the agent is
furnished subsistence, the cost thereof is deducted from his money remuneration.”); see also,
2 Wisc. Stat. 2401 (E.E. Brossard, ed., 1923) (“Where an employee of the county receives
board and maintenance in addition to money remuneration, the value of such board and
maintenance forms part of his earnings and should be deducted from the amount of his
exemptions . . .”).
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We proceed to the second step of the Chevron analysis and ask whether
the IRS’s definition “is based on a permissible construction of the statute.” 66
Treasury Regulation § 31.3231(e)-1 provides that the “term compensation has
the same meaning as the term wages in section 3121(a) . . . except as
specifically limited by the [RRTA.]” 67 Section 3121 provides that the term
“‘wages’ means all remuneration for employment, including the cash value of
all remuneration (including benefits) paid in any medium other than cash[.]’” 68
Here, we find that this definition is reasonable as applied to the NQSOs.
Although RRTA “compensation” may exclude certain in-kind benefits such as
free rail passes that would otherwise be compensation under § 3121, we
conclude that NQSOs are properly included as “compensation” under the
RRTA as interpreted by Treasury Regulation § 31.3231(e)-1.
Moreover, this conclusion finds firm support in the purpose, structure,
and legislative history of the RRTA. To begin, it is well-established that the
RRTA and FICA are parallel statutes, and courts often look to FICA when
interpreting the RRTA. 69 Indeed, as courts have noted, the “Railroad
Retirement Act is substantially a Social Security Act for employees of common
carriers.” 70 Second, the structure of the RRTA firmly supports a broader
interpretation of “compensation.” Section 3231 of the RRTA contains a number
66 Lion Health Svcs., 635 F.3d at 700.
67 26 C.F.R. § 31.3231(e)-1 (emphasis added).
68 26 U.S.C. § 3121(a).
69 See, e.g., North Dakota State Univ. v. United States, 255 F.3d 599, 604 (8th Cir.
2001) (noting that the RRTA is “the equivalent of FICA for railroad employees”); Montana
Rail Link, Inc. v. United States, 76 F.3d 991, 993 (9th Cir. 1996) (noting that the RRTA
“served as the functional equivalent” of social security “for railroad employers”); Chicago
Milwaukee Corp. v. United States, 40 F.3d 373, 374 (Fed. Cir. 1994) (noting that the RRTA is
similar to FICA); Std. Office Bldg. Corp., 819 F.2d at 1373 (RRTA “is to the railroad industry
what the Social Security Act is to other industries”).
70 Duckworth v. Allianz Life Ins. Co. of N. Am., 706 F.3d 1338, 1344 (11th Cir. 2013).
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of exceptions from taxation as “compensation” for non-cash benefits. For
example: § 3231(e)(12) excludes ISOs from compensation, § 3231(e)(5) excludes
non-cash employee achievement awards from compensation, and § 3231(e)(9)
excludes the value of meals and lodgings provided to employees from
compensation. The narrow definition of “compensation” adopted by the district
court would render each of these exceptions superfluous, because—except in
the most extreme of circumstances—each of these benefits is a form of non-
cash compensation. In contrast, “compensation” as defined by Treasury
Regulation § 31.3231(e)-1 readily accommodates each of the enumerated
exceptions.
Finally, this conclusion finds firm support in the legislative history of the
RRTA. The original 1934 Railroad Retirement Act used the term
“compensation,” without further definition. 71 When that act was declared
unconstitutional, Congress separated the taxing and benefit statutes, and the
1935 iteration of the taxing statute 72 defined “compensation” as “any form of
money remuneration for active service, received by an employee from a carrier,
including salaries and commissions, but shall not include free
transportation[.]” 73 The use of the phrase “any form of” and the specific
exclusion of free transportation in this iteration suggests that Congress
understood “money remuneration” to encompass non-cash benefits. It is thus
reasonable to infer that when Congress re-enacted the RRTA with its present
language, Congress did not intend to further narrow the meaning of “money
remuneration.” To be sure, BNSF argues that pre-existing railroad pension
systems were funded on the basis of employees’ base pay, base salary, or
71 48 Stat. 1283 (1934).
72 49 Stat. 974 (1935).
73 Id. at § 1(d).
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regular pay, and that non-monetary payments were typically excluded. But
this fact does not change the reasonable inferences that may be drawn from
the drafting history of the RRTA, namely that “money remuneration”
encompasses more than simply cash benefits. Accordingly, we hold that the §
31.3231(e)-1’s definition of “compensation” is a reasonable definition and thus,
NQSOs are properly taxed as compensation under the RRTA.
IV
A
We next turn to whether the claimed moving expenses are properly
excluded from compensation under the RRTA. We begin with the
Government’s argument that BNSF has failed to perfect its refund claims for
the employee tax paid on moving-expense benefits in 1996 and 1997. The
Government first argues that BNSF’s alleged informal claims for these years
do not qualify under the informal claim doctrine as informal claims, and second
argues that BNSF’s failure to perfect the refund claims prior to filing suit
requires dismissal of these refund claims.
We agree. 26 U.S.C. § 7422(a) provides a limited waiver of sovereign
immunity that permits taxpayers to file suits seeking refunds. Section 7422(a)
provides that “[n]o suit shall be maintained in any court for the recovery of any
internal revenue tax alleged to have been erroneously . . . collected . . . until a
claim for refund or credit has been duly filed with the Secretary[.]” To be duly
filed, (i) the claim must be filed within the time limits set by 26 U.S.C. §
6511(a) 74 and (ii) the claim must “set forth in detail each ground upon which a
credit or refund is claimed and facts sufficient to apprise the Commissioner of
74 See, Alexander Proudfoot Co. v. United States, 454 F.2d 1379, 1382 n.6 (Ct. Cl. 1972).
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the exact basis thereof.” 75 A failure to comply with these requirements
requires threshold dismissal. 76
If a taxpayer fails to file a formal claim within the statutory time limits,
the taxpayer’s claim may still be preserved by the well-established informal
claim doctrine. 77 Under the informal claim doctrine, “an informal claim is
sufficient if it is filed within the statutory period, puts the IRS on notice that
the taxpayer believes an erroneous tax has been assessed, and describes the
tax and year with sufficient particularity to allow the IRS to undertake an
investigation.” 78 But even if the informal claim is timely, “the doctrine is
predicated on an expectation that these formal deficiencies will at some point
be corrected.” 79 This is because “[i]nformal claims have been likened to
pleadings, for which technical deficiencies can generally be corrected by
amendment so as to relate back to the original date of filing suit.” 80
Importantly, where courts have applied the informal claim doctrine, “the
taxpayers followed their informal submissions with proper formal claims
before initiating litigation.” 81 Thus, a taxpayer’s “subsequent failure to file a
formal claim bar[s] the court from exercising any jurisdiction over the claim.” 82
Although the informal claims that BNSF filed for the employee tax paid
on moving-expense benefits in 1996 and 1997 may satisfy the informal claims
doctrine, it is undisputed that BNSF failed to perfect those claims prior to filing
75 26 C.F.R. § 301.6402–2(b)(1).
76 See United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 5–8 (2008); United
States v. Dalm, 494 U.S. 596 (1990).
77 See PALA, Inc. Employees Profit Sharing Plan and Trust Agreement v. United
States, 234 F.3d 873, 877 (5th Cir. 2000) (“While its theoretical underpinnings remain
shrouded in some obscurity, the informal claim doctrine has received the endorsement of the
Supreme Court.” (citing United States v. Kales, 314 U.S. 186, 194 (1941))).
78 Id. (citing Kales, 314 U.S. at 194–95).
79 Id. at 879.
80 Id.
81 Green-Thapedi v. United States, 549 F.3d 530, 533 (7th Cir. 2008).
82 Id.; see also, PALA, 234 F.3d at 877.
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the present suit. Accordingly, BNSF’s refund claims for those years must be
dismissed.
B
We next turn to the merits. The parties agree that certain moving
expenses are properly excluded under § 3231(e)(5), 83 which provides that
benefits excludable under § 132 84 are excluded from RRTA compensation.
BNSF argues that moving expenses not excludable under § 3231(e)(5) are
properly excluded under § 3231(e)(1)(iii). Section 3231(e)(1)(iii) provides, in
pertinent part, that:
[Compensation] does not include . . . an amount paid
specifically—either as an advance, as reimbursement
or allowance—for travelling or other bona fide and
necessary expenses incurred or reasonably expected to
be incurred in the business of the employer[.]
BNSF explains that those moving expenses not excluded under § 3231(e)(5)
should be excluded under § 3231(e)(1)(iii) because they were bona fide and
necessary expenses incurred in its business. BNSF states that these expenses
were paid, not as compensation to employees, but as a means of retaining
skilled and knowledgeable workers.
The district court agreed, holding that “BNSF has satisfied its summary
judgment burden to establish that the relocation benefits in question were
necessary to the business of BNSF . . . and were reasonably expected by them
to be incurred.” 85 The district court explained that there was “no suggestion
that any of those relocation benefits were not benefits actually or in reality
83 Compensation “[s]hall not include any benefit provided to or on behalf of an
employee if at the time such benefit is provided it is reasonable to believe that the employee
will be able to exclude such benefit from income under [§ 132.]” 26 U.S.C. § 3231(e)(5).
“[G]ross income shall not include any fringe benefit which qualifies as a . . . qualified
84
moving expense reimbursement.” 26 U.S.C. § 132.
85 BNSF Ry. Co. v. United States, 904 F. Supp. 2d 604, 617 (N.D. Tex. 2012).
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provided for the employees in connection with employee relocations required
by the business of the employer.” 86
The Government appeals this decision, arguing that because the RRTA
provides a specific exclusion from moving expenses in § 3231(e)(5), it is not
appropriate to include such expenses under the more general exclusion found
in § 3231(e)(1)(iii). Additionally, the Government explains that such a broad
reading of § 3231(e)(1)(iii) would render the narrower exception under §
3231(e)(5) superfluous.
We agree, informed by two statutory interpretation canons: the specific-
general canon and the rule against superfluities. The specific-general canon
applies where there is a specific statutory provision that would be subsumed
by a general statutory provision. 87 Here, § 3231(e)(5) provides a specific
exclusion for certain moving expenses, while § 3231(e)(1)(iii) provides a
broader exclusion for travelling expenses and bona fide and necessary business
expenses. Although § 3231(e)(1)(iii) could be read to include moving expenses,
such a reading would subsume the specific exclusion for moving expenses;
indeed, such a broad reading would subsume almost all the specific exclusions
found in § 3231(e). For example, § 3231(e)(5) also excludes certain employee
achievement awards. 88 If a rail carrier justifies an employee achievement
award as bona fide and necessary to recruit and retain well-qualified
86 Id. at 616.
87 See, e.g., Hinck v. United States, 550 U.S. 501, 506 (2007) (describing the “well-
established principle” that “a precisely drawn, detailed statute preempts more general
remedies” (internal quotation marks and citations omitted)); EC Term of Years Trust v.
United States, 550 U.S. 429, 433 (2007) (same); Radzanower v. Touche Ross & Co., 426 U.S.
148, 153 (1976) (“Where there is no clear intention otherwise, a specific statute will not be
controlled or nullified by a general one, regardless of the priority of enactment.” (quoting
Morton v. Mancari, 417 U.S. 535, 550-51 (1974))).
88Section 3231(e)(5) excludes benefits reasonably excluded from income under § 74(c),
which is an “[e]xception for certain employee achievement awards.”
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employees in a competitive industry, then under the broad interpretation
offered by BNSF, and accepted by the district court, such expenses would
already be excluded under § 3231(e)(1)(iii). A similar problem arises under the
rule against superfluities, 89 as the broad interpretation of § 3231(e)(1)(iii)
renders virtually every exception in § 3231(e) inoperative.
We conclude that a more reasonable interpretation of § 3231(e)(1)(iii)
permits exclusion of payments to employees for traveling expenses and bona
fide and reasonable expenses related to travel, an interpretation harmonizing
§ 3231(e)(1))(iii) and § 3231(e)(5) as required by the specific-general canon and
the rule against superfluities. To be sure, BNSF argues that the provisions
can be harmonized under the broad interpretation by understanding §
3231(e)(5) to exclude items that benefit the employee, while understanding §
3231(e)(1)(iii) to exclude items that benefit the employer. Well stated, but the
argument fails to persuade, as even such an understanding does not address a
broad interpretation of § 3231(e)(1)(iii) rendering the remaining § 3231(e)
exceptions inoperative.
C
BNSF argues that even if the disputed moving expenses are not properly
excluded under § 3231(e)(1)(iii), some of the disputed moving-expenses do not
qualify as “compensation” under the RRTA, because they are provided as in-
kind benefits. The district court did not address this argument, as it concluded
that all of the moving expenses were properly excluded.
A review of the record makes clear that these disputed moving-expense
benefits were paid in various ways, including: direct payment to the service
provider, advances to the employee, reimbursements to the employee, and
89See, e.g., Colautti v. Franklin, 439 U.S. 379, 392 (1979) (a cardinal rule of statutory
construction is that “a statute should be interpreted so as not to render one part inoperative”).
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allowances to the employee. A determination will need to be made on an
expense by expense basis as to whether the benefit qualifies as “compensation”
under the RRTA.
On remand, the district court should parse the disputed moving expenses
to determine (i) whether each disputed moving expense qualifies as
“compensation” as explicated in Part III of this opinion, and (ii) whether each
disputed moving expense may be properly excluded as a traveling expense, or
a bona fide and reasonable expense related to travel.
V
For these reasons we REVERSE the district court and REMAND for
further proceedings consistent with this opinion.
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