Earlier today, the Supreme Court agreed to review the Sixth Circuit’s decision United States v. Quality Stores.  In that decision, the Sixth Circuit sided with taxpayers and concluded that certain severance payments that qualify as supplemental unemployment benefit payments (or “SUB” payments) for federal income tax purposes are not subject to tax under the Federal Insurance Contribution Act (FICA).

The Supreme Court is expected to resolve a split between the Sixth Circuit and the Federal Circuit.  The Federal Circuit had previously agreed with the government in an earlier case, CSX Corp. v. United States, that the term “wages” has different definitions for FICA and income tax purposes and that all severance payments are wages subject to FICA taxes if they (1) are paid in lump sum or (2) are not conditioned on the receipt of state unemployment benefits.

The Government has stated that the amount at stake regarding this issue exceeds $1 billion and is expected to grow.  We believe that, in fact, much more is at stake than that.

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Photo of Robert Newman Robert Newman

Robert Newman is a partner in the firm’s employee benefits and executive compensation practice group.  He represents clients ranging from small employers to some of the nation’s largest employers, including for-profit and tax-exempt entities.  His practice includes:

  • designing, drafting, and amending a wide

Robert Newman is a partner in the firm’s employee benefits and executive compensation practice group.  He represents clients ranging from small employers to some of the nation’s largest employers, including for-profit and tax-exempt entities.  His practice includes:

  • designing, drafting, and amending a wide range of retirement plans (including 401(k) plans, ESOPs, and traditional and hybrid defined benefit plans) and welfare plans (including health, severance, and cafeteria plans);
  • creating executive compensation arrangements including nonqualified deferred compensation plans, stock option plans, and other incentive plans;
  • representing clients before the IRS and the Department of Labor;
  • assisting clients with legislative initiatives;
  • providing benefits expertise in corporate transactions and ERISA litigation;
  • counseling clients with respect to pension fund investments in private equity funds and hedge funds; and
  • negotiating and writing employment agreements.

Chambers USA ranks Robert as Band 1 for Employee Benefits & Executive Compensation, citing client interviews describing him as “an excellent lawyer and a great problem solver,” and “extremely knowledgeable, thoughtful and thorough,” while commending his “wealth of experience handling pension derisking transactions as well as a proven ability to handle litigious matters.”

Photo of Richard C. Shea Richard C. Shea

Richard Shea is immediate past chair of Covington’s Employee Benefits and Executive Compensation practice. Richard is widely regarded as the nation’s leading authority on cash balance, pension equity, and other complex benefit plan designs. His practice spans the full breadth of activities needed to help his…

Richard Shea is immediate past chair of Covington’s Employee Benefits and Executive Compensation practice. Richard is widely regarded as the nation’s leading authority on cash balance, pension equity, and other complex benefit plan designs. His practice spans the full breadth of activities needed to help his clients resolve novel, sensitive, or intractable issues. His approach focuses on developing important new legal insights and ideas, and then combining them into effective litigation, legislative, regulatory, and benefit design strategies for his clients. The representative matters described below offer a sampling of the important and challenging assignments he has handled.

Before joining Covington in 1991, Richard served as Associate Benefits Tax Counsel at the Treasury Department, where, together with his colleagues at the Treasury Department and the Internal Revenue Service, he was responsible for developing federal tax legislation and regulations governing employee benefits and executive compensation.