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SUTHERLAND v. UNITED STATES

December 10, 1986

GEORGE SUTHERLAND, et al., Plaintiffs
v.
UNITED STATES OF AMERICA, Defendant


Barron P. McCune, District Judge.


The opinion of the court was delivered by: MCCUNE

We consider the parties' cross motions for judgment on the pleadings. *fn1" The sixth amended complaint is now at issue. Five have been dismissed without prejudice.

 At issue is whether the Internal Revenue Service (IRS) may tax a lump sum incentive payment given to terminated employees of the Consolidated Rail Corporation (Conrail) pursuant to 45 U.S.C. § 797a as ordinary income within the calendar year it is received, and whether this court or the Special Court, as set forth in 45 U.S.C. § 1105, has the proper jurisdiction to decide this case.

 For the reasons stated below, we find that this court, and not the Special Court, is the appropriate forum to exercise jurisdiction over the instant matter. Upon review of the pleadings and the relevant statutory law, we will grant plaintiffs' motion for judgment on the pleadings. Defendant's motion will be denied. We decide that the termination payment is income but it must be apportioned over the years in which it was earned.

 Facts

 The plaintiffs in this suit are former employees of Conrail who accepted a lump sum payment of up to $ 25,000 each from Conrail as a termination payment in 1982. The IRS apparently determined that the lump sum payments were to be treated as ordinary income within the year payments were received. Conrail withheld appropriate amounts from the payments. Plaintiffs have filed this suit, seeking tax refunds. Plaintiffs take the position that the amounts were not "wages" and thus not taxable, but in any event, they are not taxable in the year received.

 Procedural History

 These motions come before us with a lengthy procedural history. Plaintiffs filed their initial complaint on June 28, 1983, seeking certification of a class action and relief in the form of a declaratory judgment directing the federal income tax on the lump sum distribution to be apportioned over a period of 20 years, and injunctive relief directing the IRS to refund the excess tax collected and Conrail to discontinue withholding the excess tax. Plaintiffs filed an amended complaint on July 26, 1983, seeking a declaratory judgment that the lump sum payments were not compensation for purposes of the Internal Revenue Code of 1954 and thus not taxable at all.

 Defendants filed a motion to dismiss on November 23, 1983. By order dated December 22, 1983, this court, per Judge Dumbauld, dismissed the plaintiffs' action because the complaint and amended complaint failed to allege that any claim for tax refunds had been filed as required under 26 U.S.C. § 7422. In his order, Judge Dumbauld dismissed the complaint without prejudice to filing of an amended complaint, noting that the plaintiffs had an "arguably meritorious claim."

 Plaintiffs filed an amended complaint on June 7, 1984, claiming that a "substantial" number of them had filed refund claims required by 26 U.S.C. § 7422.

 In a memorandum opinion filed December 11, 1984, we dismissed the plaintiffs' action without prejudice to the filing of another amended complaint. Although we noted that it appeared that the plaintiffs' claim had merit, we found that we lacked the jurisdiction to address these claims in that the plaintiffs had failed to specify which of the named plaintiffs had actually filed refund claims as required. Since the exact dates of the filing of these claims were not alleged, we found it impossible to determine whether the 6-month waiting requirement of 26 U.S.C. § 6532(a)(1) had been met. Accordingly, we found the complaint jurisdictionally defective as to the refund claim. We also barred plaintiffs' prayer for injunctive and declaratory relief.

 Plaintiffs filed a fourth and fifth amended complaint, but failed to cure the defects found in their prior pleadings. The defendant filed a motion for judgment on the pleadings and motions to dismiss on October 8, 1985. By order dated November 19, 1985, we granted the defendant's motion for judgment on the pleadings as to the plaintiffs who had already received the tax refund sought by this litigation and denied plaintiffs' motion for class certification due to their failure to sufficiently plead that all members of the class had filed for a refund. Defendant's motion to dismiss was granted as to those named plaintiffs who resided out of this district for improper venue. Plaintiffs were granted leave to file a sixth amended complaint addressing the remaining claim under 26 U.S.C. § 7422.

 Defendant filed a motion for judgment on the pleadings on April 23, 1986. Plaintiffs promptly responded and filed their pretrial statement on May 5, 1986. By order dated June 3, 1986, we permitted the defendant to file its pretrial ...


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