Section of Taxation Publications
  VOL. 54
NO. 4
Contents | TTL Home

 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

The Wages of Not Working: FICA Liability for Severance Payments in Associated Electric Cooperative, Inc. v. United States

Jeremy L. Hirsh


In Associated Electric Cooperative v. United States, the Federal Circuit held that payments arising under a voluntary severance agreement were wages for employment tax purposes. In affirming the decision of the Court of Federal Claims, the court found “[t]he payments were designed to replace wages until the employees found other employment.” In addition, the court held the payments arose out of the employer-employee relationship and were therefore within the statutory definition of wages in section 3121.

Part I of this note reviews the Code provisions defining wages for FICA purposes and summarizes the facts of Associated II. Part II explains the decision of the Court of Federal Claims. Part III describes the taxpayer’s arguments on appeal and discusses the opinion of the Federal Circuit. Lastly, Part IV analyzes the opinion of the Federal Circuit and considers the tax planning implications of Associated II.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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