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Sutherland v. Egger

filed: January 6, 1989.

GEORGE W. SUTHERLAND, RICHARD C. COZZIE, HARRY B. SOMERS, WILLIAM STEVENS, JAMES R. FERRELL, NORMAN J. KRIEGER, ANTHONY W. MAZZEO, ALFRED E. HYDE, EARL J. GEOFFRION, RUTH A. LANGSTON, ANTHONY FREDICINE, CHARLES M. MC CORRISTIN, ROBERT E. SWACKHAMMER SR., H. O. WALTERS, JAMES R. HENRY, ROCCO AGRUSTI, JOHN G. ELKO, DALLAS D. HANN, JAMES W. GREGORY, LEROY D. KARBER, SERPHINE D. COLUMBUS, GARY N. ZECHMAN, JOSEPH A. SHIROKEY, HOWARD F. REED, S. L. CHRISTIE, JOHN L. DAVIS, CHARLES W. GAVIN, ALTON W. FLY, HOWARD GREEN, COVA M. GARVER, JAMES R. PETERS, JACK H. REEFER, THEODORE SCHMID, RONALD E. HIGGINS, EDWARD SOLKOSKE, FRANK J. PRIBBLE, JAMES R. PULVER, CHARLES L. KIDD, JR., JOSEPH D. ICKES, JAMES E. WILSEY, RUSSELL E. BOSLEY, DENVER E. BASHAM, ELMER HRICKO, CLAYTON HARTLEY, CHARLES WELCH, F. V. NORMAN, ROBERT HYSELL, ERNEST BAY, ROBERT F. FOLKINS, ARTHUR J. BALLUFF, JOHN J. MC CARTHY, JOHN HART, DEWEY PHILLIPS, NORMAN CHASTE, KENNETH HOUSER, WILLIAM J. RICHARDS, PAUL W. MUSHRUSH, ARTHUR A. WESTPHAL, G. W. DANCER, ROBERT E. LEE, STEPHEN H. HERRINGTON JR., J. F. JONES, HARRY F. GERDES JR., RICHARD C. KLEIN, FLOYD H. DODD, T. J. WEST, C. S. BOICE, F. C. SMITH, LEON W. FRIANT, EDMUND J. SUBBY, E. W. BOWMAN, JAMES L. COOPER, LEE E. WILLS, O. M. NEAR, JERRY J. ARNETTE, V. F. MINOR, J. P. KIERAN, WILLIAM H. EWAN, J. PAUL SEIFARTH, J. C. COX, J. F. NICHOLSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHER RETIRED WORKERS WHO RECEIVED SEVERANCE PAY FROM CONSOLIDATED RAIL CORPORATION (CONRAIL) AND WILLIAM J. DONNELLY, W. A. HARRIS, FRANK MEZZI, FRANKLIN SHINGLER, PAUL L. BISE, ROBERT F. HABERLAND, FRANK L. JACKSON, PAUL D. PREZZIA, DONALD M. BARLOW, STEPHEN M. BARLOW
v.
ROSCOE L. EGGER, JR., IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF INTERNAL REVENUE FOR THE UNITED STATES OF AMERICA, AND CONSOLIDATED RAIL CORPORATION UNITED STATES OF AMERICA, APPELLANT



On Appeal From the United States District Court for the Western District of Pennsylvania, D.C. Civil No. 83-1352.

Gibbons, Chief Judge, and Becker and Rosenn, Circuit Judges.

Author: Becker

Opinion OF THE COURT

BECKER, Circuit Judge.

The appeal in this tax refund case presents the question whether sums paid to former Conrail workers whose employment was terminated pursuant to a termination allowance provision enacted by Congress in 1981 as part of the railroad reorganization package are excluded from federal income taxation. Ruling on a motion for judgment on the pleadings, the district court found that the payments were excluded. We reverse.

I.

Plaintiffs/appellants ("taxpayers") are twelve former Conrail workers. In 1982, they were awarded lump sums of up to $25,000 from Conrail upon termination of their employment. The payments were pursuant to 45 U.S.C. § 797a(a) (1982), which provides:

§ 797a. Termination allowance

(a) General

Each taxpayer received less than the full amount of his gross benefit, however, because Conrail withheld income tax thereon which it in turn paid to the government. Taxpayers each filed a refund claim with the Internal Revenue Service seeking to recover the income tax withheld from his termination benefits. The claims were denied.

Taxpayers then instituted this suit in the district court for the Western District of Pennsylvania alleging that their termination benefits were specifically excluded from their gross income for tax purposes by 45 U.S.C. § 797(b), which provides:

(b) Treatment of benefits

Any benefits received by an employee under an agreement entered into pursuant to section 797 of this title and any termination allowance received under section 797a of this title shall be ...


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