      In the United States Court of Federal Claims
                                    No. 09-283T
                               (Filed May 31, 2014)
                          (Reissued December 30, 2014)†


* * * * * * * * * * * * * * * * * *
                                  *
                                  *
LOUIS J. BALESTRA, JR. and        *          Summary judgment; FICA taxes,
PHYLLIS M. BALESTRA,              *          26 U.S.C. § 3101; nonqualified
                                  *          deferred compensation; special
                 Plaintiffs,      *          timing rule, 26 U.S.C. § 3121(v)(2);
                                  *          benefits discharged in bankruptcy;
           v.                     *          26 C.F.R. § 31.3121(v)(2)-1(a), (c);
                                  *          substantial risk of forfeiture; risk of
THE UNITED STATES,                *          default; accrual accounting; plain
                                  *          meaning; rationality of present value
                 Defendant.       *          regulations; Chevron; Dominion
                                  *          Resources.
* * * * * * * * * * * * * * * * * *

      Mary E. Monahan, Sutherland Asbill & Brennan LLP, with whom were Troy
L. Olsen and Rich Sun, all of Washington, D.C., for plaintiff.

       Jason Bergmann, Tax Division, Department of Justice, with whom were
Kathryn Keneally, Assistant Attorney General, David I. Pincus, Chief, Court of
Federal Claims Section, and G. Robson Stewart, Assistant Chief, all of Washington,
D.C., for defendant.


                   MEMORANDUM OPINION AND ORDER

WOLSKI, Judge.

     This is a suit for a refund of $3285.26 of Federal Insurance Contribution Act
(FICA) taxes, imposed by 26 U.S.C. § 3101. At bottom, this case concerns a simple


† This memorandum opinion and order was originally issued as an unpublished
opinion. It is being published in response to defendant’s request for publication,
with some minor, non-substantive corrections. See Order (Dec. 30, 2014), ECF No.
92.
issue: whether the Balestras should have to pay FICA taxes on deferred
compensation to which Mr. Balestra had a vested right but, due to the bankruptcy
of his employer, he will never receive. Plaintiffs claim that the relevant statutes do
not allow the FICA taxation of amounts which are never paid out to an employee.
On the facts of this case, the Court disagrees. Therefore, as explained below,
Plaintiffs’ Cross-Motion for Summary Judgment is DENIED, and Defendant’s
Motion for Summary Judgment is GRANTED. 1

                                 I. BACKGROUND

       The plaintiffs in this case are Louis J. Balestra, Jr., and Phyllis M. Balestra,
a husband and wife who filed a joint tax return for tax year 2004. Compl. at 6.
Because this suit concerns Mr. Balestra’s retirement benefits, the plaintiffs will be
referred to singly as plaintiff or Mr. Balestra. Plaintiff was employed as a pilot by
United Airlines (United) from January 29, 1979, until his retirement on October 1,
2004. Def.’s Proposed Findings of Uncontroverted Fact (D.P.F.) ¶¶ 1, 20; Pls.’ Resp.
to Def.’s Proposed Findings of Uncontroverted Facts and Pls.’ Additional Proposed
Findings of Uncontroverted Fact (Pls.’ Resp. to D.P.F.) ¶¶ 1, 20. This case concerns
the FICA tax treatment of Mr. Balestra’s retirement benefits. Under 26 U.S.C.
§ 3121(v)(2) (Section 3121(v)(2)), and the regulations under that section, the full
present value of Mr. Balestra’s future retirement benefits was included in the FICA
tax base in the year of his retirement. 26 U.S.C. § 3121(v)(2); 26 C.F.R.
§ 31.3121(v)(2)-1(a)(2); D.P.F. ¶¶ 24–25; Pls.’ Resp. to D.P.F. ¶¶ 24–25.

       This tax treatment, where benefits are taxed although deferred, is referred to
as the “special timing rule.” This is to distinguish it from the “general timing rule”
for FICA taxation, which imposes tax in the year in which the wages are actually
paid. See 26 U.S.C. § 3101(b) (2000); 2 26 U.S.C. § 3121(v)(2). United had entered
bankruptcy proceedings in 2002, two years before plaintiff’s retirement. Pls.’ Resp.
to D.P.F. ¶ 28; Def.’s Resp. to Pls.’ Proposed Findings of Uncontroverted Fact ¶ 28
(Def.’s Resp. to P.P.F.). As a result of these proceedings, United’s obligation to pay
plaintiff’s deferred compensation was discharged, with the majority of the benefits
never having been paid. Pls.’ Resp. to D.P.F. ¶ 79; Def.’s Resp. to P.P.F. ¶ 79. In


1 Defendant also filed a motion to amend its answer to assert an equitable
recoupment defense. Def.’s Mot. for Leave to Am. Answer. Because that defense
would only have been relevant if the plaintiffs had prevailed, that motion is
DENIED as moot.
2 To avoid confusion, this opinion cites and quotes the provision in force at the time
Mr. Balestra’s benefits were taxed. Due to the subsequent enactment of tax
increases, this provision has been modified and the relevant language, although
substantively unchanged, is now found at 26 U.S.C. § 3101(b)(1) (2012).




                                         -2-
2010, United made the final payments required under its bankruptcy
reorganization plan; thus, Mr. Balestra will not receive any additional benefits from
this retirement plan. Pls.’ Ex. 40 at 3.

       Because United withheld FICA tax from Mr. Balestra based on a present
value calculation of his retirement benefits at the time of his retirement, Mr.
Balestra effectively paid Hospital Insurance (HI) wage tax on wages he will never
receive. In total, plaintiff paid HI tax on $289,601.18 worth of nonqualified deferred
compensation, of which he would only receive $63,032.09. He paid $4,199.22 of
FICA tax on these benefits, which reflects the 1.45% HI tax rate applied to the
$289.601.18 present value of the benefits. 3 Pls.’ Resp. to D.P.F. ¶ 25; Def.’s Resp. to
P.P.F. ¶ 25. Plaintiff’s dissatisfaction with this tax treatment produced this suit for
a refund of $3285.26. 4

       A bit of background on FICA taxes is necessary to contextualize this dispute.
FICA taxes consist of two components, the Social Security tax and the Medicare, or
HI, tax. 26 U.S.C. § 3101(a)–(b). Both taxes are collected through a withholding
mechanism. 26 U.S.C. § 3102(a). 5 The Social Security component of the tax is
limited to wages below a certain amount. The amount below this limit is referred to
as the “Social Security Wage Base.” See 26 U.S.C. § 3121(a)(1). Any compensation
in excess of this base generates no Social Security tax liability. By contrast, the HI
component is uncapped, and as such it is applied against the entirety of an
employee’s wages. The interaction of the Social Security Wage Base, the timing of
the tax liability, and the unlimited nature of the HI tax, are integral to
understanding this dispute. Plaintiff did not pay Social Security tax on his deferred
compensation, because his other compensation in the year of his retirement already
exceeded the Social Security Wage Base. See D.P.F. ¶ 26 (stipulating that Mr.
Balestra’s other compensation in the year in 2004 was $213,782.53); Office of the
Commissioner[:] Cost-of-Living Increase and Other Determinations for 2004, 68
Fed. Reg. 60,437 (October 22, 2003) (establishing $87,900 as the Social Security
Wage Base for 2004).



3 For reasons discussed below, plaintiff did not pay Social Security tax on his
deferred compensation.
4 This amount reflects the FICA tax attributable to the portion of the deferred
compensation Mr. Balestra did not receive.
5 The FICA regime also includes another set of essentially identical taxes that are
imposed on the employer, also determined as a fraction of the wages of their
employees. 26 U.S.C. § 3111(a)–(b). The employer component of FICA is not at
issue in this case.




                                          -3-
       Motions for summary judgment have been filed by both sides under Rule 56
of the Rules of the United States Court of Federal Claims (RCFC), and defendant
has moved for leave to amend its answer under RCFC 15(a). Defendant argues that
the special timing rule was properly applied to Mr. Balestra’s benefits, and, as
neither the statutes nor the regulations provide for a refund for FICA taxes imposed
on this sort of wages that are never received, the Court should grant summary
judgment in its favor. Def.’s Mot; Def.’s Reply in Supp. of Mot. Summ. J. & Resp. to
Pls.’ Cross-Mot. Summ. J. (Def.’s Reply). Defendant argues that an item need not
represent income if it is to be taxed under the special timing rule; that subsequent
events do not alter the FICA tax treatment of nonqualified deferred compensation;
and that the challenged regulations are, accordingly, valid. Def.’s Reply at 3–23.

       Plaintiff, by contrast, argues that he is entitled to summary judgment
because the regulations enacted under Section 3121(v)(2) are arbitrary and
irrational in not providing for a “true-up” (i.e., refund) in the event of plan-failure,
nor allowing the risk of nonpayment to be included in the calculation of the present
value of deferred compensation subject to tax under the special timing rule. Pls.’
Mem. in Supp. of Cross-Mot. Summ. J. & Opp’n to Def.’s Mot. Summ. J. (Pls.’ Br.) at
28–39. For the reasons that follow, the Court finds plaintiff is not entitled to a
refund.

                                  II. DISCUSSION

A. Legal Standards for Motions for Summary Judgment

       Summary judgment is appropriate only if, based on materials in the record, a
“movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” RCFC 56(a), (c); see Celotex
Corp. v. Catrett, 477 U.S. 317, 322–23 (1986); Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247–48 (1986); Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d
1560, 1562–63 (Fed. Cir. 1987); Tecom, Inc. v. United States, 66 Fed. Cl. 736, 743
(2005). Material facts are those “that might affect the outcome of the suit under the
governing law.” Liberty Lobby, 477 U.S. at 248. A dispute over facts is genuine “if
the evidence is such that a reasonable [factfinder] could return a verdict for the
nonmoving party.” Id.

B. The Motions for Summary Judgment

       This case does not concern any constitutional limits on the taxing power of
the Congress. Rather, the issue is how Congress exercised this power. Plaintiff
maintains that when Congress mandated that certain nonqualified deferred
compensation “be taken into account” as wages for FICA purposes under the special
timing rule of Section 3121(v)(2), it did not intend that amounts that are never
received as income should be taxed. The government argues to the contrary. As we
shall see, defendant has the better of the argument.



                                          -4-
       Federal Insurance Contribution Act taxes are generally imposed on wages in
the year that they are actually or constructively paid by employers to employees.
See 26 U.S.C. § 3101; 26 C.F.R. § 31.3121(a)-2(a). Wages are defined as “all
remuneration for employment, including the cash value of all remuneration
(including benefits) paid in any medium other than cash,” with several exceptions
that are not relevant for our purposes. 26 U.S.C. § 3121(a). Employees are liable
for the FICA tax imposed on their wages. See id. § 3101. As explained below, the
special timing rule provides that certain wages can be taxed before they are
received by employees. The special timing rule does not itself impose any tax;
rather, it merely affects the timing of the FICA tax imposed by the relevant
operational provision. The operational provision of the employee portion of the
Social Security wage tax provides:

         [T]here is hereby imposed on the income of every individual a tax
      equal to the following percentages of the wages (as defined in section
      3121(a)) received by him with respect to employment (as defined in
      section 3121(b))—

      ....

               (6) with respect to wages received after December 31, 1985,
             the rate shall be 1.45 percent.

26 U.S.C. § 3101(b)(6) (2000) (emphasis added). 6

      The special timing rule displaces the normal rule, 26 U.S.C. § 3101(b), that
wages are taken into account when they are actually or constructively paid. The
special rule provides:

        (2) Treatment of certain nonqualified deferred
      compensation plans

             (A) In general

                Any amount deferred under a nonqualified deferred
             compensation plan shall be taken into account for purposes of
             this chapter as of the later of ---

                   (i) when the services are performed, or




6  The provision which imposes the Social Security tax uses identical operative
language, but a different tax rate. See 26 U.S.C. § 3101(a).




                                        -5-
                    (ii) when there is no substantial risk of forfeiture of the
                    rights to such amount.

26 U.S.C. § 3121(v)(2)(A) (2012). Thus, these provisions on their face appear to
permit amounts to be taxed before they are actually or constructively paid.

        The regulations implementing Section 3121(v)(2) reflect this approach, as
they permit nonqualified deferred compensation benefits to be taxed before they are
paid. See 26 C.F.R. § 31.3121(v)(2)-1. They provide that deferred compensation
benefits taxed under the special timing rule are taxed at their “present value,”
which is computed with reference to actuarial projections concerning life expectancy
and a discount rate to account for the time value of money. 26 C.F.R.
§ 31.3121(v)(2)-1(c)(2)(ii) (2013). Critical to this case, however, the “present value”
of retirement benefits

        cannot be discounted for the probability that payments will not be
        made (or will be reduced) because of the unfunded status of the plan,
        the risk associated with any deemed or actual investment of amounts
        deferred under the plan, the risk that the employer, the trustee, or
        another party will be unwilling or unable to pay, the possibility of
        future plan amendments, the possibility of a future change in the law,
        or similar risks or contingencies.

Id. 7

       One of the two statutory factors setting the time for taxation of these
benefits, the absence of a “substantial risk of forfeiture,” 26 U.S.C.
§ 3121(v)(2)(A)(ii), is determined under the regulations “in accordance with the
principles of Section 83 and the regulations thereunder.” 26 C.F.R. § 31.3121(v)(2)-
1(e)(3). The referenced tax code provision, concerning the transfer of property,
provides: “The rights of a person in property are subject to a substantial risk of
forfeiture if such person’s rights to full enjoyment of such property are conditioned
upon the future performance of substantial services by any individual.” 26 U.S.C.
§ 83(c)(1). And the regulations add an additional, non-statutory factor that may
delay the imposition of FICA taxes, which is whether the deferred amount is
reasonably ascertainable. 26 C.F.R. § 31.3121(v)(2)-1(e)(4). Under this concept

        an amount deferred is considered reasonably ascertainable on the first
        date on which the amount, form, and commencement date of the
        benefit payments attributable to the amount deferred are known, and
        the only actuarial or other assumptions regarding future events or

7 These regulations apply only to so-called “nonaccount balance plans” which
include plaintiff’s nonqualified plan. 26 C.F.R. § 31.3121(v)(2)-1(c)(2)(i) (2013).




                                          -6-
      circumstances needed to determine the amount deferred are interest
      and mortality.

26 C.F.R. § 31.3121(v)(2)-1(e)(4)(i)(B) (2013).

       In sum, the regulations provide for the taxation of deferred compensation
based on a present value calculation that does not discount the promised benefits
for the risk of employer default. Nor do the regulations explicitly allow refunds in
the event of nonpayment due to plan failure, unlike other circumstances. Cf. 26
C.F.R. § 31.3121(v)(2)-1(e)(7), Ex. 12 (showing an employer refund when election to
pay taxes before amounts were reasonably ascertainable resulted in an
overpayment); id. § 31.3121(v)(2)-1(f)(2)(iii) (providing for employer refund when
amount deferred is overestimated and taxes are paid earlier than required).

       Plaintiff makes two principal arguments in support of his refund claim, both
focusing on the description of the relevant FICA taxes as being “imposed on the
income of every individual” in Section 3101(b). His first contention is that the FICA
tax base is limited to items that would be considered income, of which wages are
merely a subset. Thus, even if wages are defined to include deferred compensation,
they cannot be taxed before they could be considered income. See Pls.’ Br. at 12–28.
His second contention is that even if Section 3121(v)(2) would allow his deferred
benefits to be taxed before they were reduced to income, accrual accounting
principles must apply to defer the taxation when the realization of the benefits is
doubtful and to provide for an adjustment when amounts included in the FICA tax
base are never received. Id. at 28–39. Subsumed in this second contention is the
argument that the use of a risk-free discount rate to value future benefits promised
by an employer in bankruptcy is arbitrary and capricious. Id. at 33–35. These
contentions are pitched as questions of statutory interpretation, and do not rest on
any alleged constitutional infirmities or restrictions.

       The starting point for our analysis is the language of the provision that
imposes FICA taxes. That provision, Section 3101(b), provides: “In addition to other
taxes, there is hereby imposed on the income of every individual a tax equal to the
following percentages of the wages . . . received by him . . . .” 26 U.S.C. § 3101(b)
(2000) (emphasis added). As we have seen, Section 3121(v)(2)(A) states that “[a]ny
amount deferred under a nonqualified deferred compensation plan shall be taken
into account” when services are performed or there no longer exists a substantial
risk of forfeiture of the rights to the deferred amount, whichever occurs later. Id.
§ 3121(v)(2)(A).

      Plaintiff asserts that the use of the words “income of every individual” means
that FICA taxes are a type of income tax which is computed with reference to
“wages received.” Pls.’ Br. at 14. Plaintiff contends that “wages” are a subset of
“income” in the formulation of Section 3101(b), and thus if an item is not “income” it
must, by definition, also not be “wages” subject to tax under FICA. Id. at 16.


                                          -7-
Mister Balestra contends that the use of the words “wages received” was a
deliberate choice on the part of Congress to defer taxation until actual receipt. Id.
at 15. 8 Defendant disputes this contention, arguing that something can be taxed as
wages when it is not income and that Section 3121(v)(2) would be meaningless if
plaintiff’s position were to prevail. Def.’s Reply at 9–14.

       The tax code makes plain that, whatever the case might have been in the
past, remuneration for employment can be “wages” for FICA purposes although not
“income” for income tax purposes. See, e.g., 26 U.S.C. § 3121(a) (“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 this chapter.”). Thus, the use of the phrase “imposed on
the income” does not appear to limit wages to items that would also be considered
income, but at most places a limit on the extent of taxes collected from an employee
--- these cannot be greater than income. Moreover, the tax code is the creation of
Congress, which can define its own terms. Congress can define “income” or “wages”
however it likes, and can label a tax as falling on “income” even if the tax would not
be authorized under the Sixteenth Amendment, provided it is otherwise lawful (for
instance, as an excise tax under Article I, Section 8). See Murphy v. IRS, 493 F.3d
170, 173 (D.C. Cir. 2007). The Court agrees with the government that Section
3121(v)(2) must impose taxes on wages before they are considered income, otherwise
it would be emptied of meaning. Readings that render a statute meaningless, in
whole or in part, are to be avoided. See Beck v. Prupis, 529 U.S. 494, 506 (2000).

       The plain meaning of Section 3121(v)(2) is to treat certain benefits as taxable
FICA wages before they have become part of an employee’s income. 9 Plaintiff’s
secondary argument is that Congress, by imposing this portion of FICA taxes on a
non-cash basis, must have meant to employ an accrual accounting basis. Thus,
while the provision would allow benefits to be taxed prior to receipt, to give proper
homage to the term “income” it must implicitly require that some sort of deduction
or adjustment must be allowed when it can be determined that the benefits will
never be received. Plaintiff faults the regulations for lacking such features, and

8It is evident that by treating certain deferred compensation as wages as of a
particular point in time, the effect of Section 3121(v)(2) is to deem these “wages” to
be received as of that date. Thus, Mr. Balestra’s deferred benefits were “received”
within the meaning of Section 3101(b) the day he retired, even though he never
actually received a substantial fraction of said “wages.”
9 For what it is worth, the author of the amendment which became Section
3121(v)(2) clearly believed it would subject benefits to tax before they were paid.
See 129 CONG. REC. 6134 (1983) (statement of Senator Bentsen).




                                         -8-
also for not deferring recognition of the wages while their ultimate receipt remains
doubtful. Pls.’ Br. at 28–33, 36–39.

       While it is true that Congress accelerated the taxation of deferred benefits
such as those promised Mr. Balestra, the trigger it selected --- “when there is no
substantial risk of forfeiture of the rights to such amount,” 26 U.S.C.
§ 3121(v)(2)(A)(ii) --- employs a term of art from another statute which essentially
means the employee has satisfied all of the requirements under his employment
contract to earn the right to the deferred compensation. See id. § 83(c)(1). 10 While
this choice may seem odd, as the statute concerned property received and the
regulations issued under it expressly exclude “an unfunded and unsecured promise
to pay money” from its ambit, 26 C.F.R. § 1.83-3(e), the borrowed concept does not
concern any risks of nonpayment. Congress chose to incorporate this statutory
provision, rather than accrual concepts developed under common law.

      Moreover, there is no reason to believe that by taxing deferred compensation
under a provision that references “income,” Congress intended to silently
incorporate the features of accrual accounting. Congress knows how to incorporate
these principles when it desires, and it has not done so here. See 26 U.S.C.
§ 446(c)(2) (indicating that accrual accounting is a permissible accounting system).

        In addition, Congress also knows how to provide relief when an early
inclusion leads to the taxation of an item which is never paid. It has provided such
relief by offering deductions for previously taxed, but never received, business
income. See 26 U.S.C. § 166. Congress also knows how to expressly disallow such
relief. See id. § 83(b) (expressly disallowing a deduction for property transferred in
connection with employment which the taxpayer elected to have taxed while still
subject to a substantial risk of forfeiture and which was subsequently forfeited).

      To be sure, in enacting Section 3121(v)(2), Congress did expressly consider
some future consequences that would follow from having already “taken into
account” the deferred compensation in question. But this provision concerns the
actual receipt of these benefits by the employee, as they “shall not thereafter be
treated as wages for purposes of this chapter.” 26 U.S.C. § 3121(v)(2)(B). On the
question of the treatment of benefits that are not ultimately received, the statute is


10  While legislative history is often of dubious value in construing acts of Congress,
it has its greatest claim to legitimacy when it concerns a legislative term of art or
when it is found in a conference report --- which is often the document actually
adopted by each house to pass the concerned legislation. Both of these factors are
present regarding “substantial risk of forfeiture,” which the Conference Report
explained to be “within the meaning of sec. 83.” H.R. REP. NO. 98-47, at 147 (1983)
(Conf. Rep.).




                                          -9-
silent. Given the detailed machinery that would need to be employed to accomplish
such relief, including such matters as how it is determined that the benefits will not
be received and the limitations period that would apply, the Court can hardly fault
the Department of the Treasury for not inferring from congressional silence that
such a regime was desired. While the creation of such a regime might be allowed,
see id. §§ 6402, 7805, whether it is required is another matter.

       The adopted regulations permit the taxation of benefits which are deferred
but never paid, a matter on which the statute is at best (from the perspective of the
plaintiff) silent. These regulations must be upheld if they are within the zone of
reasonableness. See Mayo Found. for Med. Educ. & Research v. United States, 131
S. Ct. 704, 713 (2011) (concluding that IRS regulations are entitled to deference
under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984), which requires courts to defer to the reasonable interpretation of ambiguous
statutes made by the agencies charged with implementing them). 11 As we have
seen, the statute requires FICA taxation of deferred compensation before it can be
known whether the promised benefits will ever be paid out to an employee. It might
have been wiser to have selected as a trigger something other than there being “no
substantial risk of forfeiture” --- and instead to have considered the financial
solvency of the employer or to have deferred taxation while an employer is in
bankruptcy, rather than merely until promised benefits are “reasonably
ascertainable.”

        But these are matters for law makers, not judges --- suboptimal tax laws are
still valid tax laws. (Title 26 of the United States Code would be a good deal shorter
if the unwise tax laws could be purged by the judiciary.) The Treasury Department
recognized the taxing of nonqualified deferred compensation “often requires difficult
valuation of future benefits” and “the practical administrative problems that can be
encountered by taxpayers in this area,” and opted for an approach it believed “to be
workable, to minimize complexity, and to provide appropriate flexibility for
taxpayers.” FICA Taxation of Amounts Under Employee Benefit Plans, 61 Fed.
Reg. 2194, 2195 (Jan. 25, 1996). In so doing, it elected not to provide a mechanism
for refunding taxes that were based on deferred benefits that were promised, but
not received. Under Chevron, the Court cannot conclude that this approach was
unreasonable. 12


11 Plaintiff does not dispute that the regulations are entitled to Chevron deference.
See Pl.’s Mot. at 29 (arguing that the regulations under Section 3121(v)(2) are
invalid under Chevron “step two” because they are “arbitrary and capricious” and
thus not “a reasonable” interpretation of the statute).
12 The Court notes one advantage of the Section 3121(v)(2) regime, roughly
offsetting the detriment of the HI tax falling on amounts never received, is that



                                        - 10 -
       Plaintiff’s final, and perhaps strongest, argument concerns the regulatory
definition of present value. He argues that it was entirely unreasonable for the
Treasury to forbid a bankrupt employer from discounting its unsecured promises for
the risk of non-payment when calculating the present value of those promises. Pls.’
Br. at 29. As noted above, the regulations clearly disallow any such discount. 26
C.F.R. § 31.3121(v)(2)-1(c)(2)(ii). Plaintiff explains that courts generally treat the
concept of present value as including both a credit risk discount and a time value of
money adjustment. Pls.’ Br. at 33–36 (citing Estate of Ridgely v. United States, 180
Ct. Cl. 1220, 1235–36 (1967), Navajo Tribe of Indians v. United States, 176 Ct. Cl.
320, 344 (1966), and Energy Capital Corp. v. United States, 302 F.3d 1314, 1333
(Fed. Cir. 2002)). Mister Balestra contends that this regulation is arbitrary and
invalid under Chevron step two, relying on the Federal Circuit’s decision in
Dominion Resources, Inc. v. United States, 681 F.3d 1313 (Fed. Cir. 2012). See Pls.’
Supp’l Br., ECF No. 79, at 1–3; Pls.’ Responsive Supp’l Br., ECF No. 85, at 10–12.

       Unlike Dominion Resources, in which a Treasury regulation contradicted the
rule prescribed by Congress, see Dominion Res., 681 F.3d at 1317–19, the statute
interpreted in our case says nothing about how any “amount deferred” is to be
calculated. See 26 U.S.C. § 3121(v)(2)(A). Given that amounts “deferred” are, by
definition, to be received in the future, were the Treasury to require these amounts
to be calculated based on the nominal value of the future payment stream with no
discount whatsoever, this would seemingly contradict the statute’s purpose. But
with no guidance from Congress on how to calculate present value, no rule is
violated by the Treasury’s choice of a present value method. 13

      Plaintiff’s argument would have more force if he could identify some off-the-
rack rule regarding present value that the Treasury typically employs and from
which it deviated, without explanation, in crafting the regulations under Section
3121(v)(2). But absent any such uniform practice, and considering the clear,
contemporaneous explanation of the rationale for this valuation method --- namely
minimizing administrative costs and complexities, see 61 Fed. Reg. at 2195 --- the
Court cannot say the choice of this method was irrational. The decision of the
Treasury Department to avoid the complicated and strategic-behavior-enabling use



deferred compensation is deemed received while an employee is still working and
may have income exceeding the Social Security Wage base. Plaintiff, for instance,
paid $4,199.22 in FICA taxes on $63,032.09 in deferred compensation actually
received. This corresponds to roughly a 6.7% tax rate, as compared to a combined
Social Security and HI rate of 7.65%. See 26 U.S.C. § 3101(a)–(b) (2000).
13The Court notes that even a risk-free rate could underestimate benefits in an
employee’s favor when, for example, the inflation premium proves to be excessive.




                                        - 11 -
of risk-adjusted discount rates cannot be said to be unreasonable. Under the
deference due the regulations per Chevron, as applied to plaintiff they must stand. 14

       Thus, the statute was properly applied to the benefits promised Mr. Balestra
under United’s nonqualified deferred compensation plan. Sections 3101(b) and
3121(v)(2) required these benefits to be calculated and taxed when he retired, but do
not require the use of a risk-adjusted discount rate nor a refund corresponding to
the benefits plaintiff never received.

                               III. CONCLUSION

       For the reasons stated above, defendant’s motion for summary judgment is
GRANTED, plaintiff’s cross-motion for summary judgment is DENIED, and
defendant’s motion to amend its complaint is DENIED. The Clerk is directed to
enter judgment accordingly.


IT IS SO ORDERED.

                                       s/ Victor J. Wolski
                                       VICTOR J. WOLSKI
                                       Judge




14 The present value regulation would also be rational under the test from Motor
Vehicle Manufacturers Association of United States, Inc. v. State Farm Mutual
Automobile Insurance Company, 463 U.S. 29, 43 (1983). Not only was the
contemporaneous explanation sufficient, but the Treasury had not “entirely failed to
consider” the issue of discounting for credit risk, and instead expressly rejected the
option. Id.




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