CERTIORARI
TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Argued
April 16, 2018
As the Great Depression took its toll, struggling railroad
pension funds reached the brink of insolvency. During that
time before the rise of the modern interstate highway system,
privately owned railroads employed large numbers of Americans
and provided services vital to the nation's commerce. To
address the emergency, Congress adopted the Railroad
Retirement Tax Act of 1937. That legislation federalized
private railroad pension plans and it remains in force even
today. Under the law's terms, private railroads and their
employees pay a tax based on employees' incomes. In
return, the federal government provides employees a pension
often more generous than the social security system supplies
employees in other industries.
This case arises from a peculiar feature of the statute and
its history. At the time of the Act's adoption, railroads
compensated employees not just with money but also with food,
lodging, railroad tickets, and the like. Because railroads
typically didn't count these in-kind benefits when
calculating an employee's pension on retirement, neither
did Congress in its new statutory pension scheme. Nor did
Congress seek to tax these in-kind benefits. Instead, it
limited its levies to employee "compensation, " and
defined that term to capture only "any form of money
remuneration."
It's this limitation that poses today's question. To
encourage employee performance and to align employee and
corporate goals, some railroads have (like employers in many
fields) adopted employee stock option plans. The government
argues that these stock options qualify as a form of
"compensation" subject to taxation under the Act.
In its view, stock options can easily be converted into money
and so qualify as "money remuneration." The
railroads and their employees reply that stock options
aren't "money remuneration" and remind the
Court that when Congress passed the Act it sought to mimic
existing industry pension practices that generally took no
notice of in-kind benefits. Who has the better of it?
Held:
Employee stock options are not taxable
"compensation" under the Railroad Retirement Tax
Act because they are not "money remuneration."
When Congress adopted the Act in 1937, "money" was
understood as currency "issued by [a] recognized
authority as a medium of exchange." Pretty obviously,
stock options do not fall within that definition. While stock
can be bought or sold for money, it isn't usually
considered a medium of exchange. Few people value goods and
services in terms of stock, or buy groceries and pay rent
with stock. Adding the word "remuneration" also
does not alter the meaning of the phrase. When the statute
speaks of taxing "any form of money remuneration, "
it indicates Congress wanted to tax monetary compensation in
any of the many forms an employer might choose. It does not
prove that Congress wanted to tax things, like stock, that
are not money at all.
The broader statutory context points to this conclusion. For
example, the 1939 Internal Revenue Code, adopted just two
years later, also treated "money" and
"stock" as different things. See, e.g.,
§27(d). And a companion statute enacted by the same
Congress, the Federal Insurance Contributions Act, taxes
"all remuneration, " including benefits "paid
in any medium other than cash." §3121(a). The
Congress that enacted both of these pension schemes knew well
the difference between "money" and "all"
forms of remuneration and its choice to use the narrower term
in the context of railroad pensions alone requires respect,
not disregard.
Even the IRS (then the Bureau of Internal Revenue) seems to
have understood all this back in 1938. Shortly after the
Railroad Retirement Tax Act's enactment, the IRS issued a
regulation explaining that the Act taxes "all
remuneration in money, or in something which may be used in
lieu of money (scrip and merchandise orders, for
example)." The regulation said the Act covered things
like "[s]alaries, wages, commissions, fees, [and]
bonuses." But the regulation nowhere suggested that
stock was taxable.
In light of these textual and structural clues and others,
the Court thinks it's clear enough that the term
"money" unambiguously excludes "stock."
Pp. 2-8.
856 F.3d 490, reversed and remanded.
GORSUCH, J., delivered the opinion of the Court, in which
ROBERTS, C. J., and Kennedy, Thomas, and Alito, JJ., joined.
OPINION
GORSUCH, JUSTICE.
As the
Great Depression took its toll, struggling railroad pension
funds reached the brink of insolvency. During that time
before the modern interstate highway system, privately owned
railroads employed large numbers of Americans and provided
services vital to the nation's commerce. To address the
emergency, Congress adopted the Railroad Retirement Tax Act
of 1937. That legislation federalized private railroad
pension plans and it remains in force today. Under the
law's terms, private railroads and their employees pay a
tax based on employees' incomes. 26 U.S.C.
§§3201(a)-(b), 3221(a)-(b). In return, the federal
government provides employees a pension often more generous
than the social security system supplies employees in other
industries. See Hisquierdo v. Hisquierdo, 439 U.S.
572, 573-575 (1979).
Our
case arises from a peculiar feature of the statute and its
history. At the time of the Act's adoption, railroads
compensated employees not just with money but also with food,
lodging, railroad tickets, and the like. Because railroads
typically didn't count these in-kind benefits when
calculating an employee's pension on retirement, neither
did Congress in its new statutory pension scheme. Nor did
Congress seek to tax these in-kind benefits. Instead, it
limited itself to taxing employee "compensation, "
and defined that term to capture only "any form of money
remuneration." §3231(e)(1).
It's
this limitation that poses today's question. To encourage
employee performance and align employee and corporate goals,
some railroads (like employers in many fields) have adopted
employee stock option plans. Typical of many, the plan before
us permits an employee to exercise stock options in various
ways-purchasing stock with her own money and holding it as an
investment; purchasing stock but immediately selling a
portion to finance the purchase; or purchasing stock at the
option price, selling it all immediately at the market price,
and taking the profits. App. 41-42. The government argues
that stock options like these qualify as a form of taxable
"money remuneration" under the Act because stock
can be easily converted into money. The railroads
reply that stock options aren't "money" at all
and remind us that when Congress passed the ...