This case comes here on a certificate of the Court of Appeals for the Ninth Circuit, certifying to us questions of law upon which it desires instructions for the decision of the case. Judicial Code § 239, 28 U.S.C. § 346, 28 U.S.C.A. § 346. Acting under that section we ordered the entire record to be certified to this Court so that we might proceed to a decision, as if the case had been brought here by appeal.
Mitsuye Endo, hereinafter designated as the appellant, is an American citizen of Japanese ancestry. She was evacuated from Sacramento, California, in 1942, pursuant to certain military orders which we will presently discuss, and was removed to the Tule Lake War Relocation Center located at Newell, Modoc County, California. In July, 1942, she filed a petition for a writ of habeas corpus in the District Court of the United States for the Northern District of California, asking that she be discharged and restored to liberty. That petition was denied by the District Court in July, 1943, and an appeal was prefected to the Circuit Court of Appeals in August, 1943. Shortly thereafter appellant was transferred from the Tule Lake Relocation Center to the Central Utah Relocation Center located at Topaz, Utah, where she is presently detained. The certificate of questions of law was filed here on April 22, 1944, and on May 8, 1944, we ordered the entire record to be certified to this Court. It does not appear that any respondent was ever served with process or appeared in the proceedings. But the United States Attorney for the Northern District of California argued before the District Court that the petition should not be granted. And the Solicitor General argued the case here.
Lt. General J. L. De Witt, Military Commander of the Western Defense Command, was designated to carry out the duties prescribed by that Executive Order. On March 2, 1942, he promulgated Public Proclamation No. 1 (7 Fed.Reg. 2320) which recited that the entire Pacific Coast of the United States 'by its geographical location is particularly subject to attack, to attempted invasion by the armed forces of nations with which the United States is now at war, and, in connection therewith, is subject to espionage and acts of sabotage, thereby requiring the adoption of military measures necessary to establish safeguards against such enemy operations.' It designated certain Military Areas and Zones in the Western Defense Command and announced that certain persons might subsequently be excluded from these areas. On March 16, 1942, General De Witt promulgated Public Proclamation No. 2 which contained similar recitals and designated further Military Areas and Zones. 7 Fed.Reg. 2405.
Beginning on March 24, 1942, a series of 108 Civilian Exclusion Orders1 were issued by General De Witt pursuant to Public Proclamation Nos. 1 and 2. Appellant's exclusion was effected by Civilian Exclusion Order No. 52, dated May 7, 1942. It ordered that 'all persons of Japanese ancestry, both alien and non-alien' be excluded from Sacramento, California,2 beginning at noon on May 16, 1942. Appellant was evacuated to the Sacramento Assembly Center on May 15, 1942, and was transferred from there to the Tule Lake Relocation Center on June 19, 1942.
On May 19, 1942, General De Witt promulgated Civilian Restrictive Order No. 1 (8 Fed.Reg. 982) and on June 27, 1942, Public Proclamation No. 8. 7 Fed.Reg. 8346. These prohibited evacuees from leaving Assembly Centers or Relocation Centers except pursuant to an authorization from General De Witt's headquarters. Public Proclamation No. 8 recited that 'the present situation within these military areas requires as a matter of military necessity' that the evacuees be removed to 'Relocation Centers for their relocation, maintenance and supervision', that those Relocation Centers be designated as War Relocation Project Areas, and that restrictions on the rights of the evacuees to enter, remain in, or leave such areas be promulgated. These restrictions were applicable to the Relocation Centers within the Western Defense Command3 and included both of those in which appellant has been confined—Tule Lake Relocation Center at Newell, California, and Central Utah Relocation Center at Topaz, Utah. And Public Proclamation No. 8 purported to make any person who was subject to its provisions and who failed to conform to it liable to the penalties prescribed by the Act of March 21, 1942.
The program of the War Relocation Authority is said to have three main features: (1) the maintenance of Relocation Centers as interim places of residence for evacuees; (2) the segregation of loyal from disloyal evacuees; (3) the continued detention of the disloyal and so far as possible the relocation of the loyal in selected communities.7 In connection with the latter phase of its work the War Relocation Authority established a procedure for obtaining leave from Relocation Centers. That procedure, so far as indefinite leave8 is concerned, presently provides9 as follows: Application for leave clearance is required. An investigation of the applicant is made for the purpose of ascertaining 'the probable effect upon the war program and upon the public peace and security of issuing indefinite leave' to the applicant.10 The grant of leave clearance does not authorize departure from the Relocation Center. Application for indefinite leave must also be made. Indefinite leave may be granted under 14 specified conditions.11 For example, it may be granted (1) where the applicant proposes to accept an employment offer or an offer of support that has been investigated and approved by the Authority; or (2) where the applicant does not intend to work but has 'adequate financial resources to take care of himself' and a Relocation Officer has investigated and approved 'public sentiment at his proposed destination', or (3) where the applicant has made arrangements to live at a hotel or in a private home approved by a Relocation Officer while arranging for employment; or (4) where the applicant proposes to accept employment by a federal or local governmental agency; or (5) where the applicant is going to live with designated classes of relatives.
It is conceded by the Department of Justice and by the War Relocation Authority that appellant is a loyal and law-abiding citizen. They make no claim that she is detained on any charge or that she is even suspected of disloyalty. Moreover, they do not contend that she may be held any longer in the Relocation Center. They concede that it is beyond the power of the War Relocation Authority to detain citizens against whom no charges of disloyalty or subversiveness have been made for a period longer than that necessary to separate the loyal from the disloyal and to provide the necessary guidance for relocation. But they maintain that detention for an additional period after leave clearance has been granted is an essential step in the evacuation program. Reliance for that conclusion is placed on the following circumstances.
It is argued that such a planned and orderly relocation was essential to the success of the evacuation program; that but for such supervision there might have been a dangerously disorderly migration of unwanted people to unprepared communities; that unsupervised evacuation might have resulted in hardship and disorder; that the success of the evacuation program was thought to require the knowledge that the federal government was maintaining control over the evacuated population except as the release of individuals could be effected consistently with their own peace and well-being and that of the nation; that although community hostility towards the evacuees has diminished, it has not disappeared and the continuing control of the Authority over the relocation process is essential to the success of the evacuation program. It is argued that supervised relocation, as the chosen method of terminating the evacuation, is the final step in the entire process and is a consequence of the first step taken. It is conceded that appellant's detention pending compliance with the leave regulations is not directly connected with the prevention of espionage and sabotage at the present time. But it is argued that Executive Order No. 9102 confers power to make regulations necessary and proper for controlling situations created by the exercise of the powers expressly conferred for protection against espionage and sabotage. The leave regulations are said to fall within that category.
It should be noted at the outset that we do not have here a question such as was presented in Ex parte Milligan, 4 Wall. 2, 18 L.Ed. 281, or in Ex parte Quirin, 317 U.S. 1, 63 S.Ct. 2, 87 L.Ed. 3, where the jurisdiction of military tribunals to try persons according to the law of war was challenged in habeas corpus proceedings. Mitsuye Endo is detained by a civilian agency, the War Relocation Authority, not by the military. Moreover, the evacuation program was not left exclusively to the military; the Authority was given a large measure of responsibility for its execution and Congress made its enforcement subject to civil penalties by the Act of March 21, 1942. Accordingly, no questions of military law are involved.
We approach the construction of Executive Order No. 9066 as we would approach the construction of legislation in this field. That Executive Order must indeed be considered along with the Act of March 21, 1942, which ratified and confirmed it (Kiyoshi Hirabayashi v. United States, supra, 320 U.S. at pages 87—91, 63 S.Ct. at pages 1379—1381, 87 L.Ed. 1774) as the Order and the statute together laid such basis as there is for participation by civil agencies of the federal government in the evacuation program. Broad powers frequently granted to the President or other executive officers by Congress so that they may deal with the exigencies of war time problems have been sustained.21 And the Constitution when it committed to the Executive and to Congress the exercise of the war power necessarily gave them wide scope for the exercise of judgment and discretion so that war might be waged effectively and successfully. Kiyoshi Hirabayashi v. United States, supra, 320 U.S. at page 93, 63 S.Ct. at page 1382, 87 L.Ed. 1774. At the same time, however, the Constitution is as specific in its enumeration of many of the civil rights of the individual as it is in its enumeration of the powers of his government. Thus it has prescribed procedural safeguards surrounding the arrest, detention and conviction of individuals. Some of these are contained in the Sixth Amendment, compliance with which is essential if convictions are to be sustained. Tot v. United States, 319 U.S. 463, 63 S.Ct. 1241, 87 L.Ed. 1519. And the Fifth Amendment provides that no person shall be deprived of liberty (as well as life or property) without due process of law. Moreover, as a further safeguard against invasion of the basic civil rights of the individual it is provided in Art. I, Sec. 9 of the Constitution that 'The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.' See Ex parte Milligan, supra.
We mention these constitutional provisions not to stir the constitutional issues which have been argued at the bar but to indicate the approach which we think should be made to an Act of Congress or an order of the Chief Executive that touches the sensitive area of rights specifically guaranteed by the Constitution. This Court has quite consistently given a narrower scope for the operation of the presumption of constitutionality when legislation appeared on its face to violate a specific prohibition of the Constitution.22 We have likewise favored that interpretation of legislation which gives it the greater chance of surviving the test of constitutionality.23 Those analogies are suggestive here. We must assume that the Chief Executive and members of Congress, as well as the courts, are sensitive to and respectful of the liberties of the citizen. In interpreting a war-time measure we must assume that their purpose was to allow for the greatest possible accommodation between those liberties and the exigencies of war. We must assume, when asked to find implied powers in a grant of legislative or executive authority, that the law makers intended to place no greater restraint on the citizen than was clearly and unmistakably indicated by the language they used.
Neither the Act nor the orders use the language of detention. The Act says that no one shall 'enter, remain in leave, or commit any act' in the prescribed military areas contrary to the applicable restrictions. Executive Order No. 9066 subjects the right of any person 'to enter, remain in, or leave' those prescribed areas to such restrictions as the military may impose. And apart from those restrictions the Secretary of War is only given authority to afford the evacuees 'transportation, food, shelter, and other accommodations.' Executive Order No. 9102 authorizes and directs the War Relocation Authority 'to formulate and effectuate a program for the removal' of the persons covered by Executive Order No. 9066 from the prescribed military areas and 'for their relocation, maintenance, and supervision.' And power is given the Authority to make regulations 'necessary or desirable to promote effective execution of such program.' Moreover, unlike the case of curfew regulations (Kiyoshi Hirabayashi v. United States, supra), the legislative history of the Act of March 21, 1942, is silent on detention. And that silence may have special significance in view of the fact that detention in Relocation Centers was no part of the original program of evacuation but developed later to meet what seemed to the officials in charge to be mounting hostility to the evacuees on the part of the communities where they sought to go.
We do not mean to imply that detention in connection with no phase of the evacuation program would be lawful. The fact that the Act and the orders are silent on detention does not of course mean that any power to detain is lacking. Some such power might indeed be necessary to the successful operation of the evacuation program. At least we may so assume. Moreover, we may assume for the purposes of this case that initial detention in Relocation Centers was authorized. But we stress the silence of the legislative history and of the Act and the Executive Orders on the power to detain to emphasize that any such authority which exists must be implied. If there is to be the greatest possible accommodation of the liberties of the citizen with this war measure, any such implied power must be narrowly confined to the precise purpose of the evacuation program.
Nor may the power to detain an admittedly loyal citizen or to grant him a conditional release be implied as a useful or convenient step in the evacuation program, whatever authority might be implied in case of those whose loyalty was not conceded or established. If we assume (as we do) that the original evacuation was justified, its lawful character was derived from the fact that it was an espionage and sabotage measure, not that there was community hostility to this group of American citizens. The evacuation program rested explicitly on the former ground not on the latter as the underlying legislation shows. The authority to detain a citizen or to grant him a conditional release as protection against espionage or sabotage is exhausted at least when his loyalty is conceded. If we held that the authority to detain continued thereafter, we would transform an espionage or sabotage measure into something else. That was not done by Executive Order No. 9066 or by the Act of March 21, 1942, which ratified it. What they did not do we cannot do. Detention which furthered the campaign against espionage and sabotage would be one thing. But detention which has no relationship to that campaign is of a distinct character. Community hostility even to loyal evacuees may have been (and perhaps still is) a serious problem. But if authority for their custody and supervision is to be sought on that ground, the Act of March 21, 1942, Executive Order No. 9066, and Executive Order No. 9102, offer no support. And none other is advanced.24 To read them that broadly would be to assume that the Congress and the President intended that this discriminatory action should be taken against these people wholly on account of their ancestry even though the government conceded their loyalty to this country. We cannot make such an assumption. As the President has said of these loyal citizens: 'Americans of Japanese ancestry, like those of many other ancestries, have shown that they can, and want to, accept our institutions and work loyally with the rest of us, making their own valuable contribution to the national wealth and well-being. In vindication of the very ideals for which we are fighting this war it is important to us to maintain a high standard of fair, considerate, and equal treatment for the people of this minority as of all other minorities.' Sen. Doc. No. 96, supra, note 7, p. 2.
That question is not colored by any purpose to effectuate a removal in evasion of the habeas corpus proceedings. It appears that appellant's removal to Utah was part of a general segregation program involving many of these people and was in no way related to this pending case. Moreover, there is no suggestion that there is no one within the jurisdiction of the District Court who is responsible for the detention of appellant and who would be an appropriate respondent. We are indeed advised by the Acting Secretary of the Interior25 that if the writ issues and is directed to the Secretary of the Interior or any official of the War Relocation Authority (including an assistant director whose office is at San Francisco, which is in the jurisdiction of the District Court), the corpus of appellant will be produced and the court's order complied with in all respects. Thus it would seem that the case is not moot.
In United States ex rel. Innes v. Crystal, 319 U.S. 755, 63 S.Ct. 1164, 87 L.Ed. 1708, the relator challenged a judgment of court martial by habeas corpus. The District Court denied his petition and the Circuit Court of Appeals affirmed that order. After that decision and before his petition for certiorari was filed here, he was removed from the custody of the Army to a federal penitentiary in a different district and circuit. The sole respondent was the commanding officer. Only an order directed to the warden of the penitentiary could effectuate his discharge and the warden as well as the prisoner was outside the territorial jurisdiction of the District Court. We therefore held the cause moot. There is no comparable situation here.
The fact that no respondent was ever served with process or appeared in the proceedings is not important. The United States resists the issuance of a writ. A cause exists in that state of the proceedings and an appeal lies from denial of a writ without the appearance of a respondent. Ex parte Milligan, supra, 4 Wall. at page 112, 18 L.Ed. 281; Ex parte Quirin, 317 U.S. 1, 24, 63 S.Ct. 2, 9, 87 L.Ed. 3.
We need not decide whether the presence of the person detained within the territorial jurisdiction of the District Court is prerequisite to filing a petition for a writ of habeas corpus. See In re Boles, 8 Cir., 48 F. 75; Ex parte Gouyet, D.C., 175 F. 230, 233; United States v. Day, 3 Cir., 50 F.2d 816, 817; United States v. Schlotfeldt, 7 Cir., 136 F.2d 935, 940. But see Tippitt v. Wood, 70 U.S.App.D.C. 332, 140 F.2d 689, 693. We only hold that the District Court acquired jurisdiction in this case and that the removal of Mitsuye Endo did not cause it to lose jurisdiction where a person in whose custody she is remains within the district.
I join in the opinion of the Court, but I am of the view that detention in Relocation Centers of persons of Japanese ancestry regardless of loyalty is not only unauthorized by Congress or the Executive but is another example of the unconstitutional resort to racism inherent in the entire evacuation program. As stated more fully in my dissenting opinion in Fred Toyosaburo Korematsu v. United States, 323 U.S. 214, 65 S.Ct. 193, racial discrimination of this nature bears no reasonable relation to military necessity and is utterly foreign to the ideals and traditions of the American people.
Moreover, the Court holds that Mitsuye Endo is entitled to an unconditional release by the War Relocation Authority. It appears that Miss Endo desires to return to Sacramento, California, from which Public Proclamations Nos. 7 and 11, as well as Civilian Exclusion Order No. 52, still exclude her. And it would seem to me that the 'unconditional' release to be given Miss Endo necessarily implies 'the right to pass freely from state to state,' including the right to move freely into California. Twining v. New Jersey, 211 U.S. 78, 97, 29 S.Ct. 14, 19, 53 L.Ed. 97; Crandall v. Nevada, 6 Wall. 35, 18 L.Ed. 744. If, as I believe, the military orders excluding her from California were invalid at the time they were issued, they are increasingly objectionable at this late date, when the threat of invasion of the Pacific Coast and the fears of sabotage and espionage have greatly diminished. For the Government to suggest under these circumstances that the presence of Japanese blood in a loyal American citizen might be enough to warrant her exclusion from a place where she would otherwise have a right to go is a position I cannot sanction.
As in Fred Toyosaburo Korematsu v. United States, 323 U.S. 214, 65 S.Ct. 193, the court endeavors to avoid constitutional issues which are necessarily involved. The opinion, at great length, attempts to show that neither the executive nor the legislative arm of the Government authorized the detention of the relator.
1. With respect to the executive, it is said that none of the executive orders in question specifically referred to detention and the court should not imply any authorization of it. This seems to me to ignore patent facts. As the opinion discloses, the executive branch of the Government not only was aware of what was being done but in fact that which was done was formulated in regulations and in a so-called handbook open to the public. I had supposed that where thus overtly and avowedly a department of the Government adopts a course of action under a series of official regulations the presumption is that, in this way, the department asserts its belief in the legality and validity of what it is doing. I think it inadmissible to suggest that some inferior public servant exceeded the authority granted by executive order in this case. Such a basis of decision will render easy the evasion of law and the violation of constitutional rights, for when conduct is called in question the obvious response will be that, however much the superior executive officials knew, understood, and approved the conduct of their subordinates, those subordinates in fact lacked a definite mandate so to act. It is to hide one's head in the sand to assert that the detention of relator resulted from an excess of authority by subordinate officials.
2. As the opinion states, the Act of March 21, 1942, said nothing of detention or imprisonment, nor did Executive Order No. 9066 of date February 19, 1942, but I cannot agree that when Congress made appropriations to the Relocation Authority, having before it the reports, the testimony at committee hearings, and the full details of the procedure of the Relocation Authority was exposed in Government publications, these appropriations were not a ratification and an authorization of what was being done. The cases cited in footnote No. 24 of the opinion do not justify any such conclusion. The decision now adds an element never before thought essential to congressional ratification, namely, that if Congress is to ratify by appropriation any part of the programme of an executive agency the bill must include a specific item referring to that portion of the programme. In other words, the court will not assume that Congress ratified the procedure of the authorities in this case in the absence of some such item as this in the appropriation bill:—'For the administration of the conditional release and parole programme in force in relocation centers.' In the light of the knowledge Congress had as to the details of the programme, I think the court is unjustified in straining to conclude that Congress did not mean to ratify what was being done.
3. I conclude, therefore, that the court is squarely faced with a serious constitutional question,—whether the relator's detention violated the guarantees of the Bill of Rights of the federal Constitution and especially the guarantee of due process of law. There can be but one answer to that question. An admittedly loyal citizen has been deprived of her liberty for a period of years. Under the Constitution she should be free to come and go as she pleases. Instead, her liberty of motion and other innocent activities have been prohibited and conditioned. She should be discharged.
Civilian Exclusion Orders Nos. 1 to 99 were ratified by General De Witt's Public Proclamation No. 7 of June 8, 1942 (7 Fed.Reg. 4498) and Nos. 100 to 108 were ratified by Public Proclamation No. 11 of August 18, 1942. 7 Fed.Reg. 6703.
Six War Relocation Centers and Project Areas were established within and four outside the Western Defense Command. See Final Report, supra, note 2, Part VI. Each one which was outside the Western Defense Command was designated as a military area by the Secretary of War in Public Proclamation No. WDI, dated August 13, 1942. That proclamation provided that all persons of Japanese ancestry in those areas were required to remain there unless written authorization to leave was obtained from the Secretary of War or the Director of the War Relocation Authority. 7 Fed.Reg. 6593. It recited that the United States was subject to 'espionage and acts of sabotage, thereby requiring the adoption of military measures necessary to establish safeguards against such enemy operations emanating from within as well as from without the national boundaries.' And it also purported to make any person who was subject to its provisions and who failed to obey it liable to the penalties prescribed by the Act of March 21, 1942.
The letter of August 11, 1942, is printed in the Final Report, supra, note 2, p. 530. It recited that the delegation of authority was made pursuant to provisions of Public Proclamation No. 8, dated June 27, 1942. Later General De Witt described the supervision of Relocation Centers by the War reloction Authority as follows: 'The initial problem was one of security—the security of the Pacific Coast. The problem was met by evacuation to Assembly Centers followed by a transfer to Relocation Centers. The latter phase—construction, supply, equipment of Relocation Centers and the transfer of evacuees from Assembly to Relocation Centers had been accomplished by the Army. (While the Commanding General was made responsible for this latter phase of the program, in so doing, he was accomplishing a mission of the War Relocation Authority rather than strictly an Army mission.) The second problem—national in scope—essentially a social-economic problem, was primarily for solution by the War Relocation Authority, an agency expressly created for that purpose.' Final Report, supra, note 2, p. 246.
On February 16, 1944, the President by Executive Order No. 9423, 50 U.S.C.A.Appendix, § 601 note, transferred the War Relocation Authority to the Department of the Interior. 9 Fed.Reg. 1903. The Secretary of the Interior by Administrative Order No. 1922, dated February 16, 1944, authorized the Director to perform under the Secretary's supervision and direction the functions transferred to the Department by Executive Order No. 9423.
And see the delegation of authority contained in the Secretary of War's Proclamation WDI of August 13, 1942, supra, note 3, respecting Relocation Centers outside the Western Defense Command.
The Commanding General retained exclusive jurisdiction over the release of evacuees for the purpose of employment, resettlement, or residence within Military Area No. 1 and the California portion of Military Area No. 2. See Final Report, supra, note 2, p. 242. As to the Relocation Centers situated within the evacuated zone, the Commanding General regulated 'the conditions of travel and movement through the area.' Id.
The functioning of Relocation Centers is described in the Final Report, supra note 2, Part VI and in Segregation of Loyal and Disloyal Japanese in Relocation Centers, Sen. Doc. No. 96, 78th Cong., 1st Sess., pp. 4—25.
Provision was also made for groupleave (or seasonal-work leave) and short term leave not to exceed 60 days. See Sen. Doc. No. 96, supra, note 7, p. 17.
The first leave procedure was contained in Administrative Instruction No. 22, dated July 20, 1942. It provided in short that any citizen of Japanese ancestry who had never resided or been educated in Japan could apply for a permit to leave the Relocation Center if he could show that he had a specific job opportunity at a designated place outside the Relocation Center and outside the Western Defense Command. Every permittee was said to remain in the 'constructive custody' of the military commander in whose jurisdiction the Relocation Center was located. The permit could be revoked by the Director and the permittee required to return to the Relocation Center if the Director found that the revocation was necessary 'in the public interest'. The Regulations of September 26, 1942, provided more detailed procedures for obtaining leave. See 7 Fed.Reg. 7656. Administrative Instruction No. 22 was revised November 6, 1942. It was superseded as a supplement to the Regulations by the Handbook of July 20, 1943. The Regulations of September 26, 1942 were revised January 1, 1944. See 9 Fed.Reg. 154.
Handbook, § 60.6.6. Nine factors are specified each of which is 'regarded by intelligence agencies as sufficient to warrant a recommendation that leave clearance be denied unless there is an adequate explanation'. Sec. 60.10.2. These include, among others, a failure or refusal to swear unqualified allegience to the United States and to forswear any form of allegiance to the Japanese Emperor or any other foreign government, power, or organization; a request for repatriation or expatriation whether or not subsequently retracted; military training in Japan; employment on Japanese naval vessels; three trips to Japan after the age of six, except in the case of seamen whose trips were confined to ports of call; an organizer, agent, member, or contributor to specified organizations which intelligence agencies consider subversive.
Id. The War Relocation Authority also recommends communities in which an evacuee will be accepted, renders aid in finding employment opportunities, and provides cash grants, if needed, to assist the evacuee in reaching a specified destination and in becoming established there. The Authority has established eight area offices and twenty-six district offices to help carry out the relocation program.
Cf. the account of the meeting by General De Witt in the Final Report, supra, note 2, pp. 243—244.
And see the Fourth Interim Report of the Tolan Committee, H.R. Rep. No. 2124, 77th Cong., 2d Sess., p. 18.
There were 108,503 evacuees transferred to Relocation Centers. Final Report, supra, note 2, p. 279. As of July 29, 1944, there were 28,911 on indefinite leave and 61,002 in the Relocation Centers other than Tule Lake. It was sought to assemble at Tule Lake those whose disloyalty was deemed to be established and those who persisted in a refusal to say they would be willing to serve in the armed forces of the United States on combat duty wherever ordered and to swear unqualified allegiance to the United States and forswear any form of allegiance to the Japanese Emperor or any other foreign government, power or organization. This group, together with minor children, totaled 18,684 on July 29, 1944. And see Hearings, Subcommittee on the National War Agencies Appropriation Bill for 1945, p. 611.
Insofar as Public Proclamation No. WD 1, dated August 13, 1942, supra, note 3, might be deemed relevant, it is not applicable here since the Relocation Centers with which we are presently concerned were within the Western Defense Command.
See, for example, United States v. Chemical Foundation, 272 U.S. 1, 12, 47 S.Ct. 1, 5, 71 L.Ed. 131; United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 57 S.Ct. 216, 81 L.Ed. 255; Yakus v. United States, 321 U.S. 414, 64 S.Ct. 660; Bowles v. Willingham, 321 U.S. 503, 64 S.Ct. 641.
Stromberg v. California, 283 U.S. 359, 51 S.Ct. 532, 75 L.Ed. 1117, 73 A.L.R. 1484; Lovell v. Griffin, 303 U.S. 444, 58 S.Ct. 666, 82 L.Ed. 949; Hague v. Committee for Industrial Organization, 307 U.S. 496, 59 S.Ct. 954, 83 L.Ed. 1423; Schneider v. State, 308 U.S. 147, 60 S.Ct. 146, 84 L.Ed. 155; Cantwell v. Connecticut, 310 U.S. 296, 60 S.Ct. 900, 84 L.Ed. 1213, 128 A.L.R. 1352.
United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 82, 53 S.Ct. 42, 43, 77 L.Ed. 175; Interstate Commerce Commission v. Oregon-Washington R. & N. Co., 288 U.S. 14, 40, 53 S.Ct. 266, 274, 77 L.Ed. 588; Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 348, 56 S.Ct. 466, 483, 80 L.Ed. 688; National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 30, 57 S.Ct. 615, 621, 81 L.Ed. 893, 108 A.L.R. 1352; Anniston Mfg. Co. v. Davis, 301 U.S. 337, 351, 352, 57 S.Ct. 816, 822, 823, 81 L.Ed. 1143.
It is argued, to be sure, that there has been Congressional ratification of the detention of loyal evacuees under the leave regulations of the Authority through the appropriation of sums for the expenses of the Authority. 57 Stat. 533, P.L. 139, 78th Cong., 1st Sess., approved July 12, 1943 and P.L. 372, 78th Cong., 2d Sess., approved June 28, 1944, 58 Stat. 533, 545. It is pointed out that the regulations and procedures of the Authority were disclosed in reports to the Congress and in Congressional hearings. See, for example, Sen. Doc. No. 96, supra, note 7; Report and Minority Views of the Special Committee on Un-American Activities on Japanese War Relocation Centers, H. Rep. No. 717, 78th Cong., 1st Sess., pp. 23—26; Hearings, Subcommittee of the Senate Military Affairs Committee on S. 444, 78th Cong., 1st Sess., pp. 45—46; Japanese War Relocation Centers, Subcommittee Report on S. 444 and S. 101 and 111, 78th Cong., 1st Sess., pp. 4—5 et seq. And it is shown that the leave program of the Authority was mentioned both in the House and Senate committee hearings on the 1944 Appropriation Act (Hearings, Subcommittee of the House Committee on Appropriations, National War Agencies Appropriation Bill for 1944, 78th Cong., 1st Sess., pp. 698, 699, 710; Hearings of the Senate Subcommittee on Appropriations, National War Agencies Appropriation Bill for 1944, 78th Cong., 1st Sess., p. 382) and on the floor of the House prior to passage of the 1944 Act. 89 Cong. Rec. p. 5983—5985. Congress may of course do by ratification what it might have authorized. Swayne & Hoyt, Ltd., v. United States, 300 U.S. 297, 301, 302, 57 S.Ct. 478, 479, 480, 81 L.Ed. 659. And ratification may be effected through appropriation acts. Isbrandtsen-Moller Co. v. United States, 300 U.S. 139, 147, 57 S.Ct. 407, 411, 81 L.Ed. 562; Brooks v. Dewar, 313 U.S. 354, 361, 61 S.Ct. 979, 982, 85 L.Ed. 399. But the appropriation must plainly show a purpose to bestow the precise authority which is claimed. We can hardly deduce such a purpose here where a lump appropriation was made for the overall program of the Authority and no sums were earmarked for the single phase of the total program which is here involved. Congress may support the effort to take care of these evacuees without ratifying every phase of the program.
In a letter dated October 13, 1944 to the Solicitor General and filed here.
The entire section provides: 'The several justices of the Supreme Court and the several judges of the circuit courts of appeal and of the district courts, within their respective jurisdictions, shall have power to grant writs of habeas corpus for the purpose of an inquiry into the cause of restraint of liberty. A circuit judge shall have the same power to grant writs of habeas corpus within his circuit that a district judge has within his district; and the order of the circuit judge shall be entered in the records of the district court of the district wherein the restraint complained of is had.' The last clause was added by § 6 of the Act of February 13, 1925, 43 Stat. 940. But we find no indication that it was added to change the scope of jurisdiction in habeas corpus proceedings. On its face it is no more than a recording requirement.


A company was found to have used unsafe mining methods where miners worked around a 230-to-300-ft. highwall, despite the use of spotters and frequent inspections to look for potentially dangerous conditions, according to a recent Commission decision.
The decision upholds ALJ Margaret Miller’s September 2011 findings that Connolly-Pacific Co., located on Catalina Island, Calif., violated §56.3130, §56.3131 and §56.3200 (33 FMSHRC 2270). In addition, the Commission agreed that the conditions cited by MSHA constituted an imminent danger.
Since the 1950s, Connolly-Pacific Co. has owned and operated the Pebbly Beach quarry. The company would blast the highwall, which measured as high as 300 ft., and gather rock along the talus pile created below. “Rainfall and gravity” would also bring down the rock.
The company maintained that the 300-ft. quarry walls could not be scaled and it was undisputed that the company has never used benches. For safety, it used a system of spotters, photographs and management inspections to observe any changes and predict the fall of material. No worker had ever been injured by a rock fall. Although inspected by MSHA since at least 1992, the quarry had never been cited for using this type of mining technique, until a May 2011 inspection.
The first citation issued by MSHA inspector Chad Hilde alleged a violation of §56.3130 where a loader operator was working under the highwall. The inspector said the highwall had loose and unconsolidated materials, and a 70-ft. tall pile of rock at the base of the highwall. MSHA said that Connolly Pacific had not taken any action to determine or maintain the stability of the highwall. ALJ Margaret Miller upheld the violation and increased MSHA’s proposed penalty of $555 to $1,000.
The second violation of §56.3131 involved an area 230 ft. in height above the talus pile, with loose and unconsolidated material that had not been sloped to the angle of repose. The operator was also cited for failing to correct fall-of-materials hazards. In this instance, the judge upheld MSHA’s penalty of $555.
In the third violation, the company was cited for failing to post warning signs or barricading an unsafe area to restrict access – a violation of §56.3200. The company said at the time of the citation that it had intended to barricade the area. Judge Miller increased MSHA’s proposed penalty of $555 to $1,000 for this violation.
After finding the conditions, MSHA issued an imminent danger order directing the company to cease all mining operations in two areas of the quarry. The company maintained before the Commission that the highwall was stable. They noted that bench construction or scaling was impossible, but they could safely mine. Because it had been using these unconventional mining methods for years, and took precautions, it claimed in it argument before the Commission that Judge Miller erred in how she applied the standards. The company also argued it was deprived of fair notice and due process.
In agreeing with Judge Miller’s findings and MSHA’s citations, the Commission said that Connolly’s mining methods do not comply with the plain language of the three regulations.
Allowing rock to slide down a highwall does not maintain wall stability where miners work and travel; creates a fall-of-material hazard at or near the quarry perimeter; and, does not comply with the language that requires hazardous ground conditions to be taken down or supported before miners work or travel in the area, the commissioners said.
The company’s reliance on a spotter does not prevent a fall of materials, and the Commission questioned whether a spotter could even warn an equipment operator in time to move away from a rock fall.
On the day of the citations and imminent danger order, photographs showed the highwall was hazardous with a potential of sliding or toppling rocks, and it was reasonable for the inspector to issue the imminent danger order. Witnesses agreed about the conditions, but had differing opinions as to the danger that existed. The Commission found no reasons to overturn Judge Miller’s credibility determinations or evident that the inspector did not abuse his discretion – especially given the extraordinary height of the highwall.
The company also questioned Judge Miller’s reliance on an MSHA/NIOSH publication on highwall stability, which noted that 100 ft. was the outer limit of an acceptable highwall height. However, Connolly did not question the ALJ’s reliance on the document during the hearing, and the company had an opportunity to respond to the document during the hearing before Judge Miller, but failed to do so.
All five commissioners agreed that Connolly did not comply with the three standards in question; did not correct the hazardous conditions before permitting miners to work under the highwall; and, that the conditions photographed and described by MSHA presented an imminent danger.
Wall, bank, and slope stability.
Mining methods shall be used that will maintain wall, bank and slope stability in places where persons work or travel in performing their assigned tasks. When benching is necessary, the width and height shall be based on the type of equipment used for cleaning of benches or for scaling of walls, banks, and slopes.
Pit or quarry wall perimeter.
In places where persons work or travel in performing their assigned tasks, loose or unconsolidated material shall be sloped to the angle of repose or stripped back for at least 10 ft. from the top of the pit or quarry wall. Other conditions at or near the perimeter of the pit or quarry wall which create a fall-of-material hazard to persons shall be corrected.
Ground conditions that create a hazard to persons shall be taken down or supported before other work or travel is permitted in the affected area. Until corrective work is completed, the area shall be posted with a warning against entry and, when left unattended, a barrier shall be installed to impede unauthorized entry.


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The internet has given businesses the ability to reach customers across the country, or even across the world. Doing business across state lines can involve different legal issues from keeping one’s business activities within California, and understanding state and federal regulations of business activities that cross state lines is crucial to operating a successful business. A petition for certiorari to the U.S. Supreme Court is asking for clarification on two constitutional doctrines that appear to conflict with each other. Texas Package Stores Assoc., Inc. v. Fine Wine and Spirits of North Texas, LLC, No. 16-242, pet. for cert. (Sup. Ct., Aug. 19, 2016). A doctrine known as the “dormant Commerce Clause” limits the ability of any one state to enact laws restricting interstate commerce, while the Twenty-First Amendment to the U.S. Constitution gives the states broad authority to regulate commerce involving alcohol.
The Commerce Clause, U.S. Const. art I, § 8, cl. 3, empowers Congress “to regulate Commerce…among the several States.” The Supreme Court has interpreted this authority very broadly. It has also recognized a negative converse to this doctrine, known as the dormant Commerce Clause, which bars state laws that discriminate against out-of-state businesses or otherwise unreasonably interfere with interstate commerce. The dormant Commerce Clause has been used, for example, to invalidate a state law that imposed an assessment on all milk sold within the state but only distributed the assessment to in-state dairy farmers. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994). The court held that this amounted to a discriminatory tax on out-of-state dairy farmers.
The Twenty-First Amendment is best known for repealing the Eighteenth Amendment and ending the period from 1919 to 1933, known as Prohibition, when alcohol was banned throughout the country. Section 2 of the Twenty-First Amendment gives the states the authority to regulate alcohol, including “the transportation or importation into” a state.
The Supreme Court ruled on the conflict between the dormant Commerce Clause and the Twenty-First Amendment in Granholm v. Heald, 544 U.S. 460 (2005). A group of small wineries challenged state laws that allowed in-state wine producers to sell directly to consumers but required out-of-state wineries to sell to in-state distributors. The plaintiffs argued that this violated the dormant Commerce Clause, while the state defendants claimed that § 2 of the Twenty-First Amendment authorized the laws. The court ruled for the plaintiffs, holding that the Twenty-First Amendment does not override the dormant Commerce Clause.
The dispute presented in Tex. Package Stores Assoc. arises from conflicting federal appellate circuit interpretations of Granholm. The petitioner argues that two circuits have found that Granholm only prohibits laws discriminating against out-of-state alcohol “producers and products.” Tex. Package Stores Assoc., pet. at 8, citing Southern Wine & Spirits of Am., Inc. v. Division of Alcohol & Tobacco Control, 731 F.3d 799 (8th Cir. 2013); Arnold’s Wines, Inc. v. Boyle, 571 F.3d 185 (2d Cir. 2009). The Fifth Circuit, however, has held that Granholm applies to laws discriminating against any out-of-state alcohol-related business, such as a retailer or distributor. Cooper v. Tex. Alcoholic Beverage Comm’n, 820 F.3d 730 (5th Cir. 2016). The petition asks the Supreme Court to resolve the conflict.
For the past 40 years, business litigation attorney James G. Schwartz has advocated on behalf of Bay Area businesses and business owners. Contact us online or at (925) 463-1073 today to schedule a free and confidential consultation with a member of our knowledgeable and experienced team.

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Chief Counsel opinion on 403(b) plans. Under Internal Revenue Code (“Code”) section 3121(a)(5)(D), contributions to a 403(b) plan are subject to FICA taxes (Social Security taxes if the employer is subject to Social Security and Medicare taxes) if the contributions are paid pursuant to a salary reduction agreement. A Chief Counsel Opinion dated November 26, 2001 (attached) concluded that even contributions to a 403(b) plan pursuant to a one-time irrevocable salary reduction agreement (treated as nonelective contributions for income tax purposes) would nevertheless be subject to FICA taxes under this provision.
Although the Chief Counsel’s opinion expressed a position that many employers had already expected, it raised issues for other employers that had treated 403(b) contributions pursuant to a one-time election as exempt from FICA.
The direct result of the Chief Counsel’s opinion is that contributions made to a 403(b) plan pursuant to a salary reducation agreement are subject to FICA taxes, even if the agreement is a one-time irrevocable agreement for the term of employment.
Potential effect of Chief Counsel opinion on picked up contributions under qualified plans.
(v) Treatment of certain deferred compensation and salary reduction arrangements.
(1) Certain employer contributions treated as wages. Nothing in any paragraph of subsection (a) (other than paragraph (1)) shall exclude from the term "wages"
(B) any amount treated as an employer contribution under section 414(h)(2) where the pickup referred to in such section is pursuant to a salary reduction agreement (whether evidenced by a written instrument or otherwise).
Instances in which the picked up amounts are treated as wages for purposes of calculating benefits under the plan.
Instances in which picked up contributions are made on behalf of all employees of certain localities, but some localities treat them as salary reduction contributions and some do not.
Instances in which picked up contributions are treated as part of wages for purposes of minimum wage laws.
Instances in which picked up contributions are stated to be made in lieu of a salary increase.
As an economic matter, all picked up contributions can in some sense be said to be in lieu of salary or in lieu of a salary increase. Thus, the IRS activities raise the question of what, if any, pickups will be treated as pursuant to a salary reduction agreement.
Use of unused sick and vacation leave to improve plan benefits.
Private Letter Ruling 200027044 (April 3, 2000) discussed a situation in which an individual who had unused sick leave at the time of retirement would receive a supplemental benefit under the retirement plan based on the cash value of accumulated unused sick leave. The IRS held that the contribution in lieu of unused sick leave would be treated as a pretax employer contribution.
Although this ruling aroused little comment when it was initially issued, several governmental entities since then have set up similar arrangements to convert unused sick or vacation pay to additional retirement benefits.
This has become popular with employers because the result in many instances is to eliminate an immediate cash payment by the employer, and substitute an increase in the benefit under the retirement plan, the cost of which can be funded over a period of years.
As a prerequisite to its findings, the IRS stated that it treated the sick leave program as bona fide, on the basis that, “the primary function of the Employer’s program for the crediting and use of sick leave (including the proposed change to the sick leave conversion program) is to provide employees with paid time off from work when necessary because of sickness.” Thus, if a program as a whole provided for amounts of vacation time that the employee could not reasonably be expected to take as vacation, but which would be converted to sick leave and then later to cash or some other form of benefit, this could be an issue.
The ruling dealt only with mandatory conversion of sick leave to retirement benefits. Thus, a program that allowed employees a choice between sick leave and increased retirement benefits would still cause the employee to be taxed on the cash value of the sick leave, even if he or she elected not to receive it.
This may present a contractual problem under state law, if employees have previously been promised the right to take unused sick leave in the form of cash, and now can receive it only as an additional retirement benefit.
As a practical matter, the employer can if desired often overcome either employee relations issues or legal problems by permitting a retiree to take an immediate distribution of an amount equal to the cash value of the sick leave. Although the employee cannot have a choice as to whether the money goes into the retirement plan initially, the employee can be given distribution options at retirement, which is typically the time when the conversion takes place.
Treas. Reg. § Section 1.7476-1 requires in general that an employer that requests an IRS determination letter relating to the qualification of its plan must give notice to certain “interested parties” (e.g., employees and retirees who participate in the plan, and unions that represent them).
Treas. Reg. § 1.7476-1(b)(7) provides that Treas. Reg. § 1.7476-1(b), relating to the definition of interested parties, applies only to retirement plans filing an application for advance determination with the IRS that are subject to the requirements under section 410.
(A) a governmental plan (within the meaning of section 414(d)), . . .
(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section for purposes of section 401(a), except that in the case of a plan described in subparagraph (B), (C), or (D) of paragraph (1), this paragraph shall apply only if such plan meets the requirements of section 401(a)(3) (as in effect on September 1, 1974).
Preamble, apparently relying on the exemption from 401(a)(4) provided by Code section 401(a)(5)(G) rather than the actual exemption from 410 quoted above, was limited to state and local governmental plans. Because the actual 410 exemption applies to all governmental plans (including those of federal government agencies, tribal governments, and international organizations), the exemption from the notice to interested parties requirement should also apply to them. However, the language in the preamble creates uncertainty on this point.
This Chief Counsel Advice responds to your request for assistance. Please distribute this memorandum to affected field offices as you deem appropriate. In accordance with Internal Revenue Code section 6110(k)(3), this Chief Counsel advice should not be cited as precedent.
ISSUE: Whether contributions made pursuant to a section 403(b) plan under the circumstances described below are made by reason of “salary reduction agreements” and therefore are wages for Federal Insurance Contributions Act (FICA) tax purposes under section 3121(a)(5)(D).
CONCLUSION: The contributions are made by reason of salary reduction agreements and are not excluded from wages by section 3121(a)(5)(D). Therefore, the contributions are wages for purposes of the FICA. Any refund claims for FICA taxes paid with respect to salary reduction contributions to Plan A should be denied.
FACTS: Employees of the Employer are covered for FICA tax purposes pursuant to the section 218 agreement between State C and the predecessor of the Secretary of Health and Human Services. State C maintains two separate and mutually exclusive retirement programs for employees of public educational institutions and certain related agencies. These two programs are Plan B and Plan A. Plan B is a defined benefit pension plan intended to be qualified under section 401(a), The designated “employee contributions” to Plan B are intended to be “picked up” within the meaning of section 414(h). The amount contributed from the employee’s salary to Plan B is r percent.
Plan A is intended to be a section 403(b) plan. Only certain categories of workers are eligible to participate in Plan A. Plan A, including the participation rules and contribution requirements, is provided for by statute (State C Statutes m).
Employees who are eligible to participate in Plan A are initially automatically covered in Plan B. To participate in Plan A, the employee must make an election to participate before the v day after first becoming eligible to participate in Plan A. An employee who does not elect to participate in Plan A is considered to have chosen to continue membership in Plan B. An employee can cease participation in Plan A only upon death, retirement, or termination of employment at all institutions of higher education. The taxpayer has indicated the election to participate in Plan A and to have salary reduced is irrevocable, although the agreement providing for the salary reduction says that the salary reduction will continue “until revoked by either party.” Each participant is currently required to make salary reduction contributions of s percent of compensation to Plan A (a different percentage amount than the contribution from the employee’s salary to Plan B), and State C makes additional contributions equal to t or u percent of the employee’s compensation depending upon the date of hire.
It appears that at some date a revision was made in the agreement form and a new document has been used. The new document is entitled *******. This document provides that the employee certifies that he or she has never been previously eligible for Plan A. It states that the employer is hereby notified that the employee has “elected to participate in [Plan A] to be effective [on a date selected] in lieu of [Plan B]”. The form also provides the conditions under which the employee could become a member of Plan B in the future and also the conditions under which membership in Plan A is terminated. The employee designates the carrier for his or her Plan A participation. The form is signed by the employee and signed by an authorized representative of the Employer.
State C statutes characterize the documents executed by employees and the Employer as salary reduction agreements. State C Statute n, is titled State C Statute n provides that a participant in Plan A and either the employing institution of higher education or, as applicable, the Agency F, acting through its governing board, State C Statute p provides that the salary reduction agreement is “irrevocable” until the earlier of (1) the date the participant ceases participation in Plan A or (2) the date that it is determined by the IRS or legislation that the contributions of participants to Plan A are elective deferrals within the meaning of section 402.
the forms is the gross salary for the indicated budget period only and is subject to deductions required by state and federal law and, if permitted by law, other deductions that the employee authorizes. The forms are signed by a representative of the Employer. The employee also signs the form indicating that he or she accepts the appointment.
State C statutes provide that a state agency may not make a deduction from the compensation paid to an officer or employee whose compensation is paid in full or in part from state funds unless the deduction is authorized by law. For this purpose, state agency is defined to include a State C institution of higher education. State C statutes also provide that the state shall withhold money from salaries and wages paid to state officers and employees in accordance with applicable federal law, including federal law relating to withholding for purposes of the federal income tax. The statutes also provide that the state shall make any required employer contributions in accordance with applicable federal law.
Vesting of the State C matching contributions to Plan A occurs one year and one day following the effective date of Plan A participation. In contrast, a participant is immediately vested in Plan A contributions that are made by salary reduction. Until an individual vests in the State C matching contributions, the salary reduction contributions and State matching contributions are invested separately. If an individual does not vest in the State C matching contributions, such contributions must be refunded by Plan A to State C.
The Employer requested a ruling concerning the FICA tax status of the salary reduction contributions to Plan A and later withdrew the ruling request upon being advised that an adverse opinion would be issued. The Employer has also filed claims for FICA tax refunds for FICA taxes paid with respect to these contributions. Numerous other State C educational and other entities also have employees who can elect to participate in Plan A, but are otherwise covered by Plan B.
The FICA taxation of contributions to section 403(b) plans has been shaped by concern for the protection of the social security revenue base and employees’ social security benefits. The concern is reflected in the broad interpretation of taxable “wages” for purposes of the FICA taxation of contributions to such plans. That broad interpretation.5 of “wages” has justified the concept that, in this context, “wages” for FICA tax purposes is a broader term than income for income tax purposes. Thus, even though section 403(b) contributions are excludable from gross income, such contributions are subject to FICA taxes if they are made by reason of a salary reduction agreement.
The principle that FICA taxation applies to certain section 403(b) contributions was set forth in Rev. Rul. 65-208, 1965-2 C.B. 383. In that ruling, an employee entered into an agreement with a nonprofit organization to take a reduction in salary for the purpose of providing funds for the purchase of an annuity contract meeting the requirements of section 403(b). The salary reduction amounts were excludable from the employee’s gross income for purposes of section 403(b) as employer contributions to a section 403(b) plan and were not subject to federal income tax withholding.
Thus, in Rev. Rul. 65-208, a distinction was made between salary reduction contributions (made from the funds of the employee) and salary supplement contributions (made from the funds of the employer). The salary reduction contributions were held to be subject to FICA taxes whereas the salary supplement contributions were not subject to FICA taxes. Although the terminology “salary supplement” contribution was not used in Rev. Rul. 65-208, discussions of the ruling in later litigation discussed below have used this terminology to explain the distinction drawn by Rev. Rul. 65-208.
A Supreme Court case called the validity of Rev. Rul. 65-208 into question. In Rowan Companies, Inc. v. United States, 452 U.S. 247 (1981), the Supreme Court considered whether amounts (the value of meals and lodging) that were excludable from gross income under section 119 and not subject to income tax withholding were wages subject to FICA taxes. The Court overturned a long-standing Treasury regulation and held that the amounts were not wages for FICA tax purposes. In this decision, the Supreme Court set forth the principle that the definition of wages for social security tax purposes and the definition of wages for income tax withholding purposes must be interpreted in the same manner in the absence of statutory provisions to the contrary. The Rowan principle conflicts with Rev. Rul. 65-208, because Rev. Rul 65-208 applies FICA taxes without explicit statutory authority to amounts that were not subject to federal income tax withholding.
Under cash or deferred arrangements, certain tax-sheltered annuities, certain cafeteria plans, and eligible State deferred compensation plans, the employer contributes funds which are set aside by individual employees for individual savings arrangements, and thus, the committee believes that such employer contributions should be included in the FICA base, as is the case for IRA contributions. Otherwise, individuals could, in effect, control which portion of their compensation was to be included in the social security wage base. This would make the system partially elective and would undermine the FICA tax base. Senate Report No. 98-23 at 40.
The committee report evidences Congress’ concern with making inclusion of compensation in the “social security wage base” elective; it does not support the notion that the new law was aimed at only those plans that give the employees an option to receive cash. Thus, if two alternatives are available to an employee and one option results in the exclusion of an amount from FICA wages and the other option results in the inclusion of the amount in FICA wages, that would be a situation Congress sought to avoid, regardless of whether the employee had any option to receive cash. For that reason, the above language from the legislative history supports the position that the Plan A contributions were intended to be treated as wages for purposes of the FICA. Under the current facts, if the employee remains in Plan B and does not elect Plan A, the contributions deducted from his or her salary will be subject to FICA taxes under Public Employees’ Retirement Board v. Shalala, 153 F.3d 1160 (10th Cir. 1998), which held that mandatory pick-up contributions made pursuant to a state statute were wages for FICA tax purposes. However, the taxpayer maintains that if the employee elects to participate in Plan A, the salary reduction amount should not be subject to FICA taxes. The taxpayer’s position would “make the system partially elective and would undermine the FICA tax base” in contravention of the concern expressed in the legislative history.
The bill also provides that any amounts paid by an employer to a tax-sheltered annuity by reason of a salary reduction agreement between the employer and the employee would be includible in the employee’s social security wage base. The committee intended that the provision would merely codify the holding of Revenue Ruling 65-208, 1965-2 C.B. 383, without any implication with respect to the issue of whether a particular amount paid by an employer to a tax-sheltered annuity is, in fact, made by reason of a “salary reduction agreement”.
The conference agreement generally follows the Senate amendment by providing that employer contributions to a section 403(b) annuity contract would be included in the wage base if made by reason of a salary reduction agreement (whether evidenced by a written agreement or otherwise). For this purpose, the conferees intend that employment arrangements, which under the facts and circumstances are determined to be individually negotiated, would be treated as salary reduction agreements. Of course, the mere fact that one individual is receiving employer contributions (e.g., when the employer has only a few employees, only one of whom is a member of a class eligible for such contributions) is not, by itself, to be considered proof of individual negotiation. H.R. Rep. No. 98-47, 98th Cong., 1st Sess 147 (1983).
There is an element of ambiguity in whether the description in the conference report is intended to be the exclusive definition of salary reduction agreement and what is the meaning of the term “individually negotiated.” The conferees merely stated that individually negotiated employment arrangements would be treated as salary reduction agreements. They did not say that no other type of arrangement could constitute a salary reduction agreement. The final sentence of the cited language simply supports the idea that receipt by only one individual of employer contributions does not definitively establish the individual’s salary is being reduced. In other words, the employer could be making employer contributions for the employee without necessarily arising from an agreement of the employer to make any contributions in lieu of salary (i.e., they could be salary supplement contributions).
Even if individual negotiation were a requirement, in Plan A, each individual must elect to participate in the section 403(b) plan. Whenever someone files such an election there has been an individual decision as to the terms of that employee’s employment contract. The individual is choosing between two retirement plans and two different levels of salary reduction.
The second part of the 1983 Amendments that is of importance in this context is the amendment made to overturn the broad rationale of Rowan. This provision, which is referred to as the “anti-Rowan amendment” is codified in the penultimate sentence of section 3121(a). The anti-Rowan amendment provides that nothing in the regulations prescribed for purposes of chapter 24 (relating to income tax withholding) which provides an exclusion from “wages” as used in such chapter shall be construed to require a similar exclusion from “wages” in the regulations prescribed for purposes of the FICA.
The social security program aims to replace the income of beneficiaries when that income is reduced on account of retirement and disability. Thus, the amount of “wages” is the measure used both to define income which should be replaced and to compute FICA tax liability. Since the [social] security system has objectives which are significantly different from the objective underlying the income tax withholding rules, the committee believes that amounts exempt from income tax withholding should not be exempt from FICA unless Congress provides an explicit FICA tax exclusion. Senate Report No. 98-23 at 42.
In addition, Congress amended the FICA to eliminate the exception from “retirement” provided by section 3121(a)(2) for payments under employer plans on account of retirement. Generally, this amendment had the effect of limiting exceptions from FICA wages for retirement plans to specific exceptions provided for employer contributions to certain qualified plans under section 3121(a)(5), such as the exception at issue here. Section 3121(a)(5)(D), as added by the 1983 Amendments, could be read as reinstating the distinction between salary reduction agreement contributions and salary supplement contributions in Rev. Rul. 65-208. In addition, the concept set forth in Rev. Rul. 65-208 that terms can be interpreted differently for FICA than for income tax purposes was, in effect, incorporated into the statute by the anti-Rowan amendment. Deficit Reduction Act of 1984.
If the 1965 revenue ruling were determined to be invalid, then employers and employees would be eligible for refunds for open years because taxable wages would be lower. In addition, wages for benefit computation purposes would be reduced, leading in some cases to reduction of social security benefits being paid to current beneficiaries and recoupment of a portion of benefits which have been paid in recent years on the basis of wage records which included the salary reduction contributions. H.R. Rep. 98-432, 98th Cong., 2d Sess. 1658 (1984).
The 1984 effective date change was also designed to insure that the prior effective date provision (remuneration paid after March 4, 1983) would not be used “as demonstrating Congressional intent that the reasoning of the Rowan decision should generally apply before these dates to types of remuneration other than meals and lodging excluded under section 119, e.g., to contributions under a salary reduction agreement to tax-sheltered annuities (sec. 403(b)).” H. Conf. Rep. No. 98-861, 98th Cong., 2d Sess. 1414 (1984). The legislative history also states as follows in describing the effect of the 1984 amendment: “for example, if an employer treated as wages, for FICA and FUTA taxes (or both), the amounts contributed during 1982 to an employee’s tax-sheltered annuity pursuant to a salary reduction agreement, the FICA or FUTA taxes (as the case may be) paid by the employer and employee may not be refunded or credited.” H.R. Rep. No. 98-432 at 1658.
The conferees intend that the term salary reduction agreement also includes any salary reduction arrangement, regardless of whether there is approval or choice of participation by individual employees or whether such approval or choice is mandated by State statute. H. Conf. Rep. No. 98-861 at 1415.
Although the general rule is that legislative history of later enacted legislation (in this case, the amendment to section 3121(v)(1)(B)) is given limited effect in interpretations of prior legislation (section 3121(a)(5)(D)), that rule must be considered in the context of the 1984 legislation. As noted above, the 1984 legislation, by changing the effective date of the anti-Rowan amendment, was designed to insure in effect that section 3121(a)(5)(D) and the codification of Rev. Rul. 65-208 would be effective for prior years for those taxpayers who had paid FICA taxes on salary reduction contributions to section 403(b) plans. Congress was clearly focused on the taxation of section 403(b) plans in the 1984 legislation, so that its interpretation of identical language added to the same Code section in the legislation is entitled to weight. We would also note that the change in the anti-Rowan effective date and the amendment to section 3121(v)(1)(B) are discussed seriatim in the Conference Report with the preface that “[o]nly the following two provisions [relating to Technical Corrections to the Social Security Amendments of 1983] require additional explanation.” House Conf. Rep. 98-861 at 1413. Also, there is no indication in the committee reports that the interpretation given “salary reduction agreement (whether evidenced by a written instrument or otherwise)” in the Conference Report is intended to be restricted to section 3121(v)(1)(B) and not to reflect its meaning for purposes of other identical language in section 3121. Under these circumstances, it is reasonable to consider this Congressional statement as reflecting a Congressional understanding of what this language found elsewhere in the same Code provision would mean.
Taxpayers brought many refund suits seeking refunds of FICA taxes paid with respect to section 403(b) contributions for years prior to 1983 and challenging the constitutionality of the changed effective dates of the 1984 Amendments. In a series of cases, courts upheld the Service’s denial of the refund claims. These cases emphasized the distinction between salary reductions and salary supplements that is at the heart of determining whether FICA taxes apply to section 403(b) contributions. See Temple University v. United States, 769 F.2d 126, 130 (3d Cir. 1985), which supports the distinction drawn by Rev. Rul. 65-208 between salary reduction contributions and contributions from the employer’s own funds. See New England Baptist Hospital v. United States, 807 F.2d 280, 282 (1st Cir. 1986), which rejected the distinction made by the Government in Rev. Rul. 65-208 between “salary reductions” and “salary supplements” and stated that “[i]n 1983, Congress amended the statutes to codify Revenue Ruling 65-208." The court in New England Baptist also stated that the 1983 law had the effect of “making it clear that salary reduction plans are subject to FICA taxes.” Id. at 284. See Canisius College, 799 F.2d at 20-21, which also acknowledged the distinction between “salary reduction plans” and “salary supplement plans.” The court in Canisius College concluded that “the 1984 provision retroactively validated previously unlawful FICA taxes paid on amounts contributed under salary reduction plans in conformity with Revenue Ruling 65-208.” Id, at 22.
For 36 years, a distinction has existed for FICA tax purposes between salary reduction agreement contributions and salary supplement contributions made to section 403(b) plans. This distinction has survived an adverse Supreme Court decision and years of contentious litigation, and has been supported by Congress at crucial junctures in order to protect the social security revenue base. This established distinction supports the position that the contributions made to Plan A under the salary reduction arrangements authorized by State C statutes are made under “salary reduction agreements” for FICA tax purposes and are therefore wages for FICA tax purposes.
The taxpayer has argued that these contributions are mandatory employee contributions and therefore, are not made pursuant to a salary reduction agreement. If the taxpayer were correct that these contributions from the employee’s salaries are not made pursuant to a salary reduction agreement, then case law and Service authority would indicate that the contributions would be contributions made by salary deduction rather than salary reduction for FICA tax purposes. As salary deduction contributions, the contributions would be employee contributions to the section 403(b) plan and the issue of whether section 3121(a)(5)(D) applies would not even be reached. Section 3121(a)(5) applies only to employer contributions to the listed plans in the subparagraphs of section 3121(a)(5). No exception is provided for employee contributions to such plans Thus, employee contributions to section 403(b) plans simply fall within the basic definition of wages under section 3121(a) with no applicable exception. Accordingly, if the contributions were made by salary deduction (rather than salary reduction), the contributions would also be subject to FICA taxes.
In Zwiener v. Commissioner, 743 F.2d 273 (5th Cir. 1984), the court held that mandatory employee contributions to the Employees Retirement System of Texas were includible in income, on either of two grounds: (1) compulsory employee contributions are refundable upon termination of employment for reasons other than death or retirement; (2) amounts contributed purchase (in the nature of an annuity) some valuable present economic benefit. The court cited similar cases holding that amounts contributed by federal employees to the federal civil service retirement system are income received by the employees subject to federal income taxation. In University of North Dakota v. United States, 603 F.2d 702 (8th Cir. 1979), the court held that a salary reduction agreement could be effective to defer income taxation, if it is adopted in lieu of mandatory employee contributions to a state plan. Under the facts of the case, employees were given an option to make annuity contributions through salary deductions or to have their salary reduced by the amount that would otherwise be deducted from their salaries.
Rev. Rul. 70-582, 1970-2 C.B. 95, illustrates that the salary reduction and salary deduction alternative can also apply in the context of section 403(b) plans. Thus, these plans could also have taxable employee contributions if the contributions to the plan are made by salary deduction rather than salary reduction.
For income tax purposes, the question of whether a salary reduction agreement exists is significant for several purposes. Under section 403(b)(12), differing nondiscrimination requirements apply based on whether a salary reduction agreement exists. Also, under sections 403(b)(7) and 403(b)(11), the situations in which distributions may be made differ based on whether a salary reduction agreement exists. In addition, the question of whether the elective deferral limitations apply depend upon whether a salary reduction agreement exists. See section 403(b)(1)(E) and section 402(g)(3)(C).
As noted, the interpretation of terms for purposes of income taxes has differed from the interpretation of the terms for FICA purposes because of the different purposes of the provisions. The difference in interpretation of the term “salary reduction agreement” has been incorporated into the statute with respect to certain matters. For example, the term “salary reduction agreement” is defined in a manner different from the FICA for the purpose of determining whether a section 403(b) plan meets the nondiscrimination requirements of section 403(b)(12). See the flush language after section 403(b)(12)(A)(ii), which states that for purposes of section 403(b)(12)(A)(i), a contribution shall be treated as not made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the program or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations.
In section 403(b)(12)(A), Congress created a special rule for salary reduction agreements to the effect that a contribution will not be deemed to be pursuant to such an agreement if it is made pursuant to a one-time irrevocable election. No such special rule was placed in section 3121(a)(5)(D). It is well-settled that “where Congress included particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Gozlon-Peretz v. United States, 498 U.S. 395, 404 (1991), quoting Russello v. United States, 464 U.S. 16, 23 (1983). Although the ordinary, common meaning of “agreement” would include an agreement made pursuant to a one-time irrevocable election, Congress created a special rule in section 403(b)(12)(A) that was explicitly made applicable only to clause (i) of that section. Thus, it may be inferred that Congress intentionally decided not to incorporate this special rule into section 3121(a)(5)(D).
The conference agreement clarifies the definition of elective deferrals to which the annual limit applies. In the case of an employer that allows employees a one-time election to participate in a contributory defined benefit pension plan with a single mandatory contribution rate or a tax-sheltered annuity program with elective deferrals, neither the election of an employee to participate in the defined benefit plan nor the employee contributions made to the defined benefit plan are to be treated as elective deferrals for purposes of the annual limit.
Similarly, if an employee is required to contribute a fixed percentage of compensation to a tax-sheltered annuity as a condition of employment, the contributions are not treated as elective deferrals. This is considered elective deferrals [sic] if the employer and employee enter into temporary employment contracts. The conferees do not intend these examples to constitute the only situations in which contributions are not treated as elective deferrals. The conferees direct the Secretary to provide guidance to employers on other contributions that are not to be treated as elective deferrals.
Under present law, employer contributions to purchase an annuity contract under a salary reduction agreement (within the meaning of sec. 3121(a)(5)(D)) are considered elective deferrals. The Statement of Managers with respect to the [Tax Reform] Act [of 1986] provides that an employer contribution is not treated as an elective deferral if the contribution is made pursuant to a one-time election to participate in the tax-sheltered annuity even though such contribution would be considered made under a salary reduction agreement under section 3121(a)(5)(D).
The bill conforms the statutory language to the legislative history by providing that contributions to a tax-sheltered annuity are not considered elective deferrals if the contributions are made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the annuity or are made pursuant to a similar arrangement specified in regulations. The bill does not change the definition of salary reduction agreement for purpose of section 3121(a)(5)(D). The amendment also does not affect the definition of elective deferrals other than with respect to tax-sheltered annuities.
Another possible interpretation would be that this flush language at the end of 402(g)(3) is indicating that this type of “salary reduction agreement” is not a salary reduction agreement within the meaning of section 3121(a)(5)(D). This seems like a strained interpretation in that it presumes that Congress intended to use salary reduction agreement as having two meanings within the same paragraph (402(g)(3)).
Also, this alternative interpretation contradicts the legislative history discussed above.
[Emphasis added.) H.R. Rep. 100-795, 100th Cong., 2d Sess. (1988) 145, and Sen. Rep. 100-445, 100th Cong., 2d Sess. (1988) 151. See also Conference Report, H.R. Rep. 100-1104 (1988) 1, 6. Thus, section 402(g)(3) indicates that a salary reduction agreement described in section 3121(a)(5)(D) can include a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement. The language “under the salary reduction agreement such contribution is made pursuant to a one-time election at the time of initial eligibility” implies that the employer contributions were under a salary reduction agreement described in section 3121(a)(5)(D) but were not to be treated as elective deferrals.1 This language in section 402(g)(3) added in 1986, soon after the passage of the 1983 Amendments, supports our position that the taxpayer’s arrangements are salary reduction agreements. Also, the legislative history cited above strongly supports the idea that a one-time election can still be a salary reduction agreement under section 3121(a)(5)(D).
The additional breadth intended to be provided to the definition of salary reduction agreement under section 3121(a)(5)(D) and section 3121(v)(2)(B) is also indicated by the additional parenthetical language contained in these provisions “whether evidenced by a written agreement or otherwise.” This additional language imparting breadth of coverage is not found in the section 403(b) and section 402(g) provisions.
In summary, the reference in section 402(g) indicates that a one-time irrevocable election can be a salary reduction agreement under section 3121(a)(5)(D), although this election would apparently not be a salary reduction agreement for the limited purpose of section 403(b)(12). However, the application of each of these provisions is limited to the purposes of the particular paragraph (either 402(g)(3) or section 403(b)(12)) in which they are contained. To the extent either provision has any effect, the specific reference in section 402(g)(3) to section 3121(a)(5)(D) implies that section 402(g)(3) should be given greater weight.
To the extent the income tax provisions have significance for FICA tax purposes, section 402(g)(3) and its legislative history provide support for the treatment of the salary reduction contributions to Plan A as FICA wages.
2. The Definition of Salary reduction agreement in Rev. Rul. 2000-35.
Rev. Rul. 2000-35 provides that contributions to purchase annuity contracts under § 403(b) may be made either pursuant to a salary reduction agreement or not pursuant to a salary reduction agreement. Contributions made pursuant to a salary reduction agreement are subject to different requirements than are contributions not made pursuant to a salary reduction agreement. (See, for example, §§ 403(b)(1)(E), 403(b)(7)(A)(ii), 403(b)(11) and 403(b)(12).) In general, a contribution is not treated as made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement. See §§ 402(g)(3)(C) and 403(b)(12).
In this case, … the employee has a reasonable period before the cash is currently available to elect to receive the cash in lieu of having it contributed towards the purchase of an annuity contract. Thus, the employee has an effective opportunity to elect to receive cash or have a contribution made towards the purchase of an annuity contract….Finally, compensation reduction contributions made under the plan are not contributions made pursuant to a one-time irrevocable election because the employee can change the election in the future, Consequently, the compensation reduction contributions under [the plan at issue in the revenue ruling] as amended are contributions made pursuant to a salary reduction agreement described in § 403(b). Rev. Rul. 2000-35 is an income tax ruling and thus should not be controlling with respect to what constitutes a salary reduction agreement for FICA tax purposes.
Consistent with the legislative history and Public Employees’ Retirement Board, a contribution made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the section 403(b) plan agreement or a salary reduction contribution that is a condition of employment is a salary reduction agreement for purposes of section 3121(a)(5)(D). The difference between salary reduction contributions and salary supplement contributions has been the decisive factor in FICA taxation since the publication of Rev. Rul. 65-208. The legislative history in the Background section and the 1988 change to section 402(g)(2)(C) offer support for having an interpretation of salary reduction agreement for FICA purposes that is different from the interpretation for income tax purposes.
This revenue ruling was never cited by the taxpayer or used as support for its requested ruling. We agree that it is not controlling here and is yet another manifestation of the distinction between interpretations of terms for FICA purposes and interpretations of terms for income tax purposes that originated in Rev. Rul. 65-208.
There does not appear to be a dispute that the employees are undergoing a salary reduction with respect to their contributions to Plan A. The faculty member or other employee receiving a memorandum of appointment is promised a gross salary and the employee authorizes the reduction in that salary for contributions to Plan A. The dispute is whether there is in place a “salary reduction agreement.” Under contract law, the documents that the participants sign to have their salaries reduced for contributions to Plan A are binding agreements. The taxpayer’s argument that the document is not an agreement is contrary to the plain meaning and common law meaning of the term “agreement.” Under section 3 of the RESTATEMENT OF CONTRACTS (SECOND), an agreement is defined as a manifestation of mutual assent on the part of two or more persons. Comment b to section 3 provides that this manifestation of assent “may be made by words or by any other conduct.” Here, the employee signs the document authorizing the reduction in salary and a representative of the Employer signs the document.
Given the IRS’s interpretation of “pickup” and given Congress’s subsequent endorsement of that interpretation in section 3121(v)(1)(B), a salary reduction agreement necessarily includes any arrangement in which there is a reduction in an employee’s salary in exchange for the employer’s contribution of the amount of the reduction to a pension plan on the employee’s behalf. An “agreement” is not limited to individually negotiated contracts, as the State suggests, but may also refer generally to “a manifestation of mutual assent on the part of two or more persons.” RESTATEMENT (SECOND) OF CONTRACTS § 3. Such manifestation of assent “may be made by words or by any other conduct.” Id. at comment b; see also id. at § 19 (elaborating on conduct as manifestation of assent). Here, an employee’s decision to go to work or continue to work as a State employee constitutes conduct manifesting assent to a salary reduction by continuing employment with the State. 153 F.3d at 1166.
Plan A has aspects that are similar to the plan at issue in Public Employees’ Retirement Board. However, Plan A is different in that the employee must make an election to participate in Plan A and must sign an individual agreement to participate in Plan A and have his or her salary reduced for the Plan A employee contributions. Thus, the current fact situation represents an even stronger case for the existence of an agreement. We note the court found “the term ‘salary reduction agreement’ is not ambiguous but rather has a plain meaning.” 153 F.3d at 1163 (Emphasis added.). This discussion by the court strongly militates against giving language in section 3121(a)(5)(D) a different interpretation than the similar language in section 3121(v)(1)(B) when there is no provision within section 3121 indicating the language should be interpreted differently or no surrounding language supporting a different interpretation. Absent a specific statutory directive within the FICA, the language “salary reduction agreement (whether evidenced by a written instrument or otherwise)” should be given a similar interpretation within the same section of the Internal Revenue Code. Furthermore, in the case of section 3121(a)(5)(D), the legislative history and case law have stressed the distinction between salary reduction contributions and salary supplement contributions in Rev. Rul. 65-208 that is, in effect, consistent with Public Employees. Of particular significance is the fact this identical clause “salary reduction agreement (whether evidenced by a written instrument or otherwise)” is found only in sections 3121(a)(5)(D) and 3121(v)(1)(B).
The taxpayer does not believe that Public Employees’ has any relevance to its ruling request because the claim is made that the court’s interpretation of the term “salary reduction agreement” in section 3121(v)(1)(B) in the case was dictated by the Service’s definition of what constitutes a valid pick-up under section 414(h)(2). The taxpayer contrasts the mandatory status of pick-up contributions under section 414(h)(2) with contributions from employees’ salaries under section 403(b) plans which “may be either voluntary or mandatory.” Thus, their position that salary reduction agreement for purposes of section 403(b) includes only “voluntary” agreements would mean that certain contributions to section 403(b) plans would still continue to be subject to FICA taxes as contributions under a salary reduction agreement.
We do not believe Congress intended for the same language within the same Code section to have such a contradictory interpretation. The Public Employees case is consistent with the salary reduction and salary supplement dichotomy found in the FICA taxation of section 403(b) plans, in that the case would seem to hold that any salary reduction contributions that were picked-up under section 414(h)(2) would be subject to FICA taxes. Conversely, if the section 414(h)(2) contributions had been made pursuant to a salary supplement plan, rather than a salary reduction plan, the contributions would presumably be employer contributions that would not be subject to FICA taxation.
The courts have generally recognized that the term “wages” in section 3121(a) is to be interpreted broadly. The corollary of that rule is that exceptions from wages are to be interpreted narrowly. In State of New Mexico v. Weinberger, 517 F.2d 989, 993 (10th Cir. 1975), the Court of Appeals for the Tenth Circuit recognized “the Congressional policy underlying Federal Social Security legislation which requires courts to interpret the Act liberally, and to resolve any doubts in favor of coverage.” Consideration of the purposes of FICA taxation supports applying the Tenth Circuit’s interpretation of “salary reduction agreement” in Public Employees’ Retirement Board for purposes of section 3121(a)(5)(D). Also, the recent cases emphasizing the expansive nature of the definition of wages for purposes of the FICA appear to suggest a more restrictive definition of “salary reduction agreement” for purposes of section 3121(a)(5)(D) would not be justified.
Other cases which held that “wages” and “employment” are given a broad interpretation include Mayberry v. United States, 151 F.3d 855, 860 (8th Cir. 1998); Hemelt v. United States, 122 F.3d 204, 209 (4th Cir. 1997); and Lane Processing Trust v. United States, 25 F.3d 662, 665 (8th Cir. 1994). But see, Dotson v. United States, 87 F.3d 682 (5th Cir. 1996), in which the court held that a settlement of an action under the Employee Retirement Income Security Act (ERISA) was excludable from FICA wages except to the extent the settlement included back pay. Thus, there is an additional fundamental reason why the term “salary reduction agreement” should be given a broad interpretation for purposes of section 3121 that is not present in determining whether the nondiscrimination requirements applicable to section 403(b) plans are met or whether the contribution is an elective deferral.
In light of the above, we have concluded the contributions at issue here are being made pursuant to salary reduction agreements and therefore are includible in wages for FICA tax purposes. Therefore, any refund claims for FICA taxes paid on the salary reduction contributions to Plan A should be denied.
Plan A is generally available to faculty members and certain other personnel in all State C educational establishments in State C and certain other State C entities. Thus, refund claims from educational establishments that are part of the State C university system related to Plan A contributions should be denied. Also, refund claims from other related State C entities related to Plan A contributions should also be denied.