Section of Taxation Publications
  VOL. 55
NO. 1
FALL 2001
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 IRS Gets Its Money When You Do: FICA and FUTA Taxation in United States v. Cleveland Indians Baseball Co.
Dimitra Doufekias Joannou


In United States v. Cleveland Indians Baseball Co., the Supreme Court resolved a split in the circuits regarding the proper allocation of back wages with respect to the payment of Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes. Allocation of back wages to either the year in which they were earned or the year in which they are paid can have a profound effect on the taxpayer if the tax rate has changed in the intervening period. Reversing the Sixth Circuit in Cleveland, the Supreme Court held that, consistent with long-standing Service practice, back wages are properly allocated to the period in which they are actually paid.

Part I of this Note discusses the legal framework surrounding the Cleveland decision, including the FICA and FUTA statutes, the early cases which analyze the proper allocation of back wages under these statutes, and the split amongst the circuit courts with respect to this issue. Part II discusses the facts and holding of the Cleveland decision. Part III analyzes the Supreme Court’s decisions in Cleveland. After reviewing the legislative history, the public policy considerations, and the Service’s long-standing, consistent interpretation of the statute, Part IV concludes that the Supreme Court’s reversal of the Sixth Circuit in Cleveland is the proper resolution of the allocation issue.


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


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