Section of Taxation Publications
  VOL. 54
NO. 1
FALL 2000
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 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.

Disparate Treatment of University Administrators’ and Tenured Faculty Members’ Early Retirement Payments for FICA Taxation: North Dakota State University v. United States

Heather L. Turner


In North Dakota State University v. United States, the U.S. District Court for the District of North Dakota held that early retirement payments made to university administrators are subject to Federal Insurance Contributions Act (FICA) taxation, while similar payments made to tenured university faculty are not. The central issue in the case was whether the retirement payments were wages, and thus subject to FICA taxation. In basing its decision on whether the retiree had tenure, the court reasoned that the retirement payments to the tenured faculty were payments to acquire the retiree’s property interest in tenure and were not to be considered wages. However, the court found that the administrators’ notice rights were not property interests, and thus the payments to the administrators were considered wages subject to FICA taxation.

Part I of this Note discusses the history of FICA and the facts of the case. Part II summarizes the court’s decision and the disparate tax treatment of identical early retirement programs. Finally, Part III analyzes the court’s decision. It concludes that the court should have treated the programs the same and should not have based the applicability of FICA taxes on whether the retiree had tenure.


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


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