FICA tax refunds for deferred compensation denied
Beavis v. United States (Fed. Cir. 2025)
The Federal Circuit affirmed dismissal of retired United Airlines pilots’ FICA tax refund suits, holding that FICA taxes on deferred compensation under 26 U.S.C. §3121(v)(2) were lawfully assessed when benefits began, even if the plan later terminated and benefits were not fully received.
Holding
The court held that the FICA taxes paid on the present value of deferred compensation benefits were validly assessed under §3121(v)(2).
The Claims Court properly dismissed refund claims for failure to state a claim and for lack of jurisdiction where one plaintiff’s administrative claim was untimely.
Section 3121(v)(2) is constitutional, as FICA is an excise tax rather than an income tax, and its timing rule lawfully applies to deferred benefits.
Why It Matters
Confirms that FICA taxes on nonqualified deferred compensation are assessed when benefits vest or payments begin, not when received.
Clarifies that §3121(v)(2)’s special timing rule is constitutionally valid and not subject to income tax realization principles.
Reinforces that refund suits require timely administrative claims under §§7422(a) and 6511(a).
Demonstrates that perceived overpayment from plan termination does not entitle taxpayers to FICA refunds.
Timeline
2002–2005: Pilots retired from United Airlines and began receiving benefits under a nonqualified deferred compensation plan.
2002–2006: United withheld and paid FICA taxes in lump sums on the present value of the deferred benefits under §3121(v)(2).
2005–2006: United entered and completed bankruptcy; the plan was terminated, halting further benefit payments.
2007: Some pilots filed refund claims with the IRS; one claim (Biscailuz) was untimely.
2009: Koopmann and more than 160 pilots filed refund suits in the Court of Federal Claims; the cases were later divided into groups, including the “Beavis group.”
July 20, 2023: Claims Court dismissed all Beavis group claims—eighteen for failure to state a claim and one (Biscailuz) for lack of jurisdiction.
Oct. 23, 2025: Federal Circuit affirmed the dismissals in Beavis v. United States.
Key Facts
Plaintiffs: Nineteen retired United Airlines pilots.
Issue: Refund of FICA taxes paid in a lump sum upon retirement based on the deferred compensation plan’s present value.
Plan terminated during United’s bankruptcy, leaving pilots with less income than taxed initially.
Plaintiffs alleged constitutional violations, unjust enrichment, and administrative errors.
One plaintiff (Biscailuz) filed an untimely refund claim; all others filed timely but lost on the merits.
Statutory or Regulatory Framework
26 U.S.C. §3121(v)(2): Special timing rule for FICA taxation of nonqualified deferred compensation; tax applies when the right to payment is no longer subject to substantial risk of forfeiture.
26 U.S.C. §§7422(a), 6511(a): Require timely administrative refund claims as a jurisdictional prerequisite to suit.
Tucker Act, 28 U.S.C. §1491: Waives sovereign immunity for specific claims but not for equitable unjust enrichment.
FICA taxes under §§3101–3128 are excise taxes on wages, not income taxes under the Sixteenth Amendment.
Arguments
Taxpayers argued:
Section 3121(v)(2) is unconstitutional because it taxes unrealized future income.
The government was unjustly enriched by keeping FICA taxes on income never received.
The IRS improperly relied on internal Chief Counsel advice during the administrative review process.
Refunds to other pilots required equal treatment under the law.
Government argued:
FICA is an excise tax, not an income tax, so realization rules do not apply.
Congress lawfully defined the timing of “wages” for FICA purposes under §3121(v)(2).
The Tucker Act does not waive sovereign immunity for unjust enrichment claims.
Refunds mistakenly issued to others do not establish entitlement.
One plaintiff’s administrative claim was untimely, depriving the court of jurisdiction.
Court’s Reasoning
FICA is an excise tax authorized by Article I, Section 8, not an income tax under the Sixteenth Amendment.
Congress can define “wages” for FICA purposes to include the present value of deferred benefits, and taxation before actual receipt is permissible.
The Claims Court correctly found that §3121(v)(2) created a valid exception to the general “as and when paid” rule in §3102.
Unjust enrichment claims fall outside the Tucker Act’s waiver of sovereign immunity.
Any IRS procedural issues were irrelevant because refund suits are reviewed de novo.
The pilot who filed late (Biscailuz) failed to meet jurisdictional deadlines under §6511(a).
Prior erroneous refunds to others do not bind the government or create precedent.
Forward-Looking Implications
Confirms the government’s position that FICA taxes on deferred compensation remain valid even if future payments are reduced or terminated.
Highlights the jurisdictional importance of timely refund claims under §§7422(a) and 6511(a).
Reinforces that §3121(v)(2) taxation principles apply broadly across deferred compensation structures.
Suggests limited recourse for taxpayers in similar bankruptcy or plan-termination contexts.
Result
Judgment of the Court of Federal Claims affirmed. All refund claims were dismissed for failure to state a claim or lack of jurisdiction.
The Takeaway
Deferred compensation is subject to FICA when the right to payment vests, not when benefits are received. Even if future payments are lost, taxpayers cannot reclaim those taxes once assessed under §3121(v)(2).
List of Citations
26 U.S.C. §3121(v)(2): Special timing rule for FICA taxation of deferred compensation.
26 U.S.C. §§7422(a), 6511(a): Refund claim filing requirements and time limits.
United States v. Fior D’Italia, Inc., 536 U.S. 238 (2002): Defines FICA as an excise tax.
United States v. Cleveland Indians Baseball Co., 532 U.S. 200 (2001): Timing of wage taxation under FICA.
Xianli Zhang v. United States, 640 F.3d 1358 (Fed. Cir. 2011): FICA timing rule upheld.
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955): Defines “income” for income tax purposes.
Dickman v. Commissioner, 465 U.S. 330 (1984): Erroneous refunds do not bind the government.
Baude v. United States, 955 F.3d 1290 (Fed. Cir. 2020): Pro se litigants may not represent others.