UNITED STATES v. CLEVELAND INDIANS BASEBALL CO.

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Case Basics
Docket No. 
00-203
Petitioner 
United States
Respondent 
Cleveland Indians Baseball Co.
Advocates
(Argued the cause for the respondent)
(Department of Justice, argued the cause for the petitioner)
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Term:
Facts of the Case 

Under a grievance settlement agreement, the Cleveland Indians Baseball Company owed 8 players backpay for wages due in 1986 and 14 players backpay for wages due in 1987. The Company paid all of the back wages in 1994. No award recipient was a Company employee in that year. The Company also paid its share of employment taxes on the back wages according to 1994 tax rates and wage bases. The payments were subject to Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA) and taxes on wages to fund unemployment benefits under the Federal Unemployment Tax Act (FUTA). Both tax rates and the amount of the wages subject to tax have risen over time. After the Internal Revenue Service denied the Company's claims for a refund of the payments, the Company initiated suit in Federal District Court. The court, bound by precedent, ordered the Government to refund FICA and FUTA taxes. The Court of Appeals affirmed.

Question 

Is backpay subject to federal taxes, under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, based on the year the money should have been paid out?

Conclusion 
Decision: 9 votes for United States, 0 vote(s) against
Legal provision: Internal Revenue Code

No. In a unanimous opinion delivered by Justice Ruth Bader Ginsburg, the Court held that back wages are subject to FICA and FUTA taxes by reference to the year the wages are in fact paid. "Although the regulations, like the statute, do not specifically address backpay, the Internal Revenue Service has consistently interpreted them to require taxation of back wages according to the year the wages are actually paid, regardless of when those wages were earned or should have been paid," wrote Justice Ginsburg for the Court. Justice Antonin Scalia filed an opinion concurring in the judgment.

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UNITED STATES v. CLEVELAND INDIANS BASEBALL CO.. The Oyez Project at IIT Chicago-Kent College of Law. 23 October 2014. <http://www.oyez.org/cases/2000-2009/2000/2000_00_203>.
UNITED STATES v. CLEVELAND INDIANS BASEBALL CO., The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/2000-2009/2000/2000_00_203 (last visited October 23, 2014).
"UNITED STATES v. CLEVELAND INDIANS BASEBALL CO.," The Oyez Project at IIT Chicago-Kent College of Law, accessed October 23, 2014, http://www.oyez.org/cases/2000-2009/2000/2000_00_203.