Most outstanding claims for FICA tax refunds will be denied, IRS announces

In response to last year’s Supreme Court decision unanimously holding that severance payments to employees are subject to Federal Insurance Contributions Act taxes (Quality Stores, Inc., 134 S. Ct. 1395 (2014)), the IRS announced that it will disallow all of the more than 3,000 refund claims (except for those that satisfy a narrow exception in Rev. Rul. 90-72) filed while the resolution of this issue was pending, as well as the appeals filed in response to the denial of refund claims (Announcement 2015-08). This disallowance also includes claims for refund of Railroad Retirement Tax Act (RRTA) and Federal Unemployment Tax Act (FUTA) taxes.

Claims may still be pursued by taxpayers whose claims for refund are based on the narrow statutory exception for supplemental unemployment compensation benefits that are linked to the receipt of state unemployment compensation and satisfy certain other requirements contained in Rev. Rul. 90-72. According to the Supreme Court, those amounts are excludable from wages for FICA, FUTA, and income tax withholding, and are not compensation for RRTA purposes.

Taxpayers with pending refund claims based on the Rev. Rul. 90-72 exception should contact the IRS employee listed in the announcement on how to proceed with the appeal request for that portion of the claim. If they do not, the IRS will take no further action. Taxpayers also have two years from the date on the disallowance letter they were mailed by certified or registered mail to file a claim for a refund in federal district court or the Court of Federal Claims. This period is not extended by filing an appeal request with the IRS.  

—Sally P. Schreiber is a JofA senior editor.