In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 16‐3300, ‐3303, ‐3304
WISCONSIN CENTRAL LTD., ILLINOIS CENTRAL R.R. CO., and
GRAND TRUNK WESTERN R.R. CO.,
Plaintiffs‐Appellants,
v.
UNITED STATES OF AMERICA,
Defendant‐Appellee.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 14 C 10243, 10246, 10244 — Gary Feinerman, Judge.
____________________
ARGUED MARCH 30, 2017 — DECIDED MAY 8, 2017
____________________
Before POSNER, MANION, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. Beginning in 1996, the plaintiff‐
appellants, subsidiaries of the Canadian National Railway
Company (to simplify we’ll refer to the subsidiaries as “the
railway”), began including stock options in the compensa‐
tion plans of a number of employees. In this suit against the
government, the railway argues that income from the exer‐
cise of stock options that a railroad gives its employees is not
2 Nos. 16‐3300, ‐3303, ‐3304
a form of “money remuneration” to them and is therefore
not taxable to the railway as compensation under the Rail‐
road Retirement Tax Act, 26 U.S.C. § 3231(e)(1), which de‐
fines “compensation” as “any form of money remuneration
paid to an individual for services rendered as an employee
to one or more employers.” See also BNSF Railway Co. v.
United States, 775 F.3d 743 (5th Cir. 2015).
As explained in Standard Office Building Corp. v. United
States, 819 F.2d 1371, 1373 (7th Cir. 1987), “the Railroad Re‐
tirement Tax Act, passed in 1937, is to the railroad industry
what the Social Security Act is to other industries: the impo‐
sition of an employment or payroll tax on both the employer
and the employee, with the proceeds used to pay pensions
and other benefits. … The Act requires the railroad to pay an
excise tax equal to a specified percentage of its employees’
wages, and also to withhold a specified percentage of its
employees’ wages as their share of the tax. The railroad re‐
tirement tax rates are much higher than the social security
tax rates.”
The question presented by this case is whether the excise
tax should be levied not only on employees’ wages but also
on the value of stock options exercised by employees who,
having received the options from their employer, exercise
them when the market price exceeds the “strike price” (the
price at which the employee has a right to buy the stock) and
thus obtain the stock at a favorable price. The Internal Reve‐
nue Service answers yes, see 26 C.F.R. § 31.3231(e)‐1, and the
district court agreed, precipitating this appeal.
The lawyer for the IRS told us at oral argument that any‐
thing that has a market value is a “form of money remunera‐
tion.” That goes too far; it would impose a tax liability on an
Nos. 16‐3300, ‐3303, ‐3304 3
employer who bought an employee a birthday cake, even
though the employee could do nothing with his cake except
eat it or give it away. But if instead he exercises a stock op‐
tion, he now owns stock, and stock has so well‐defined a
monetary value in our society that there is no significant
economic difference between receiving a $1000 salary bonus
and a share or shares of stock having a market value of
$1000.
By compensating an employee with stock options rather
than cash the employer encourages the employee to work
harder for the company, because the better the company
does the more valuable its stock is. The value of a company’s
stock is a function of the company’s profitability, whereas
the size of a cash bonus, once it is given, is unaffected by the
company’s future business successes or failures. Underscor‐
ing the point, we note that the railway’s stock‐option plans
are performance‐based: they can be exercised only if the
company achieves specified goals.
As the discussion in the preceding paragraphs implies,
the fact that cash and stock are not the same things doesn’t
make a stock‐option plan any less a “form of money remu‐
neration” than cash. Indeed the railway offers its employees
a choice to have an agent exercise an employee’s stock op‐
tion, sell the shares of stock obtained by that exercise of the
option, reserve part of the money received in the sale for
taxes and administrative costs, and deposit the balance in
the employee’s bank account. An employee who uses this
method will thus experience the stock option as a cash de‐
posit.
It’s true that the Railroad Retirement Tax Act, in which
the term “money remuneration” appears, dates back to 1935,
4 Nos. 16‐3300, ‐3303, ‐3304
when the nation was mired in the Great Depression of the
1930s which had driven down the value of corporate stock.
Maybe stock then wasn’t a form of money remuneration, but
there is no reason to think that the framers and ratifiers of
the Act meant money remuneration to be limited to cash
even if, as was eventually to happen, stock became its practi‐
cal equivalent, just as today 100 dimes is the exact monetary
equivalent of a $10 bill. A $10 bill is paper; so is a stock cer‐
tificate that can be sold for $10. The dictionary definition of
money may remain constant while the instruments that
comprise it change over time: sheep may have once been a
form of money; now stock is. The Internal Revenue Code of
1939 is of limited help here; it treats “money” and “stock” as
different concepts, but that’s not inconsistent with stock op‐
tions’ falling within “any form of money remuneration.”
The equivalence of stock to cash is actually signaled in
the statutory exception for qualified stock options, explicitly
divorced from “money remuneration” by 26 U.S.C.
§ 3231(e)(12). That exception, by virtue of its narrowness,
supports an inference that non‐qualified stock options, which
are the options at issue in this case, are covered by the term
“money remuneration” and are therefore taxable. There are
moreover other statutory exceptions for other forms of non‐
cash employee benefits, and their existence reinforces the
inference that non‐qualified stock options are “money re‐
muneration” and therefore taxable. See, e.g., § 3231(e)(1) (ex‐
cluding payments for health insurance or health care and
travel expenses); (e)(5) (excluding non‐cash employee
achievement awards); (e)(6) (excluding educational benefits);
(e)(9) (excluding value of meals and lodging provided to
employees); and (e)(10) & (11) (excluding contributions for
medical and health savings plans).
Nos. 16‐3300, ‐3303, ‐3304 5
The government’s position also makes good practical
sense by avoiding the creation of a tax incentive that might
distort the ways in which employers structure compensation
packages for their managers. And finally we are not alone in
equating non‐qualified stock options to money remuneration
in the Railroad Retirement Tax Act. See BNSF Railway Co. v.
United States, supra, 775 F.3d at 757; CSX Corp., et al. v. United
States, No. 3:15‐cv‐427‐BJD‐JRK (M.D. Fla. March 14, 2017).
AFFIRMED.
6 Nos. 16‐3300, ‐3303, ‐3304
MANION, Circuit Judge, dissenting. The railroad plaintiffs
have sought a tax refund on the ground that stock options
they provided to their employees aren’t taxable as “compen‐
sation” under the Railroad Retirement Tax Act. Compensa‐
tion under the Act is defined as “any form of money remuner‐
ation paid to an individual for services rendered as an em‐
ployee to one or more employers.” 26 U.S.C. § 3231(e)(1). The
railroads argue that stock options aren’t “money remunera‐
tion,” so they are not taxable as “compensation” under the
Act.
The court disagrees. Although it admits that “[m]aybe
stock … wasn’t a form of money remuneration” when the
RRTA was enacted, the court posits that “there is no reason to
think that the framers and ratifiers of the Act meant money
remuneration to be limited to cash” in the event of future eco‐
nomic changes. Maj. Op. at 4. Even if that were true, our job
is to interpret the Act as it would have been understood by
people at the time it was enacted, not to speculate about the
intent of Depression‐era legislators. Because the plain lan‐
guage of the statute’s definition of “compensation” does not
cover stock or stock options, I respectfully dissent.
“It is a ‘fundamental canon of statutory construction’ that,
‘unless otherwise defined, words will be interpreted as taking
their ordinary, contemporary, common meaning.’” Sandifer v.
U.S. Steel Corp., 134 S. Ct. 870, 876 (2014) (quoting Perrin v.
United States, 444 U.S. 37, 42 (1979)). “That means we look to
the meaning of the word at the time the statute was enacted,
often by referring to dictionaries.” Jackson v. Blitt & Gaines,
P.C., 833 F.3d 860, 863 (7th Cir. 2016) (citations omitted). There
are some “common law statutes” whose meaning may evolve
Nos. 16‐3300, ‐3303, ‐3304 7
over time, such as the Sherman Antitrust Act. See Leegin Cre‐
ative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 899 (2007).
But neither party has argued that the RRTA falls into that cat‐
egory, and the specific contrast Congress drew between it and
the Federal Insurance Contributions Act (FICA) belies this
contention. Thus, we must interpret the RRTA using normal
principles of statutory interpretation, giving effect to the
words Congress chose. If the stock options at issue wouldn’t
have been money remuneration in 1935, neither should they
be in 2017.
As the statute is written, it is clear that “money remunera‐
tion” does not include stock options. For one, as I alluded to
above, “it is well established that RRTA and FICA are parallel
statutes.” BNSF Ry. Co. v. United States, 775 F.3d 743, 754 (5th
Cir. 2015). But they are not identical; they contain different
definitions of what is taxable. The RRTA subjects to taxation
“compensation,” defined as “any form of money remuneration
paid to an individual for services rendered as an employee to
one or more employers.” 26 U.S.C. § 3231(e)(1) (emphasis
added). FICA, on the other hand, taxes “wages,” which are
“all remuneration for employment, including the cash value of
all remuneration (including benefits) paid in any medium
other than cash.” Id. § 3121(a) (emphasis added).
We must give effect to Congress’s distinction between
“money remuneration” and “all remuneration.” “After all, it
is axiomatic that such notable linguistic differences in two
otherwise similar statutes are normally presumed to convey
differences in meaning.” United States v. Smith, 756 F.3d 1179,
1186 (10th Cir. 2014) (Gorsuch, J.); see also N. Haven Bd. of
Educ. v. Bell, 456 U.S. 512, 530 (1982) (“[A]lthough two statutes
may be similar in language and objective, we must not fail to
8 Nos. 16‐3300, ‐3303, ‐3304
give effect to the differences between them.”). The court’s re‐
sult effectively reads this contrast out of the statutes, render‐
ing the words “money” and “all,” as well as the two refer‐
ences to “cash” in the FICA definition, mere surplusage. That
is “always a disfavored result in the business of statutory in‐
terpretation.” Smith, 756 F.3d at 1186. “While it is possible that
[these differences were] inadvertent, that possibility seems re‐
mote given the stark difference that was thereby introduced
into the otherwise similar texts.” United States v. Ressam, 553
U.S. 272, 277 (2008).
The difference in the statutes reveals that “money,” when
contrasted with “all,” is a word of limitation. Further, its orig‐
inal meaning would not have encompassed company stock or
stock options. The contemporary Webster’s Second Diction‐
ary defined “money” principally as “[m]etal, as gold, silver,
or copper, coined, or stamped, and issued by recognized au‐
thority as a medium of exchange.” Webster’s New Interna‐
tional Dictionary of the English Language 1583 (2d ed. 1934).
More generally, money was “[a]nything customarily used as
a medium of exchange and measure of value, as sheep, wam‐
pum, copper rings, quills of salt or of gold dust, shovel blades,
etc.” Id. Its synonyms were “cash,” “currency,” and “legal ten‐
der.” Id. In other words, media of exchange issued by a recog‐
nized authority. Simply put (and as the court somewhat
acknowledges), money remuneration meant remuneration in
cash or cash equivalents.1
1 The court concedes that “money” isn’t everything with a monetary
value. Maj. Op. at 2‐3. The value of this concession is limited. There is a
market for everything, even the birthday cake that the court points to as
the quintessential non‐money item. The only difference between the birth‐
day cake (and personal property, for that matter) and a share of stock is
Nos. 16‐3300, ‐3303, ‐3304 9
Furthermore, the Internal Revenue Code of 1939, which
included for the first time the definitions of “compensation”
and “wages” under the RRTA and FICA, consistently treated
money and stocks separately. One example is Section 115,
which governed distributions by corporations. It said that
when a distribution is payable “either (A) in its stock or in
rights to acquire its stock ... or (B) in money or any other prop‐
erty (including its stock or in rights to acquire its stock),” then
the distribution shall be considered a taxable dividend “re‐
gardless of the medium in which paid.” 1939 Code, § 115(f)(2).
Section 115(h)(1) said that such a distribution would not be
considered a “distribution of earnings or profits of any corpo‐
ration” if “no gain to such distributee from the receipt of such
stock or securities, property or money, was recognized by
law.” See also Helverling v. Credit Alliance Corp., 316 U.S. 107,
112 (1942) (Section 115(h) was inapplicable “because the dis‐
that the latter’s value is more easily discoverable (because it’s listed on a
public exchange). But what about stock in a closely‐held corporation, the
value of which is not so obvious to the public? The court’s result requires
drawing a distinction on this non‐textual basis. Interpreting the statute as
it was originally understood avoids this problem.
Moreover, although it’s true that the stock options are not taxed until
they are exercised (meaning that the employee purchases the stock at the
strike price), it seems strange to call a stock option “money remuneration”
when its value is so contingent on future performance. While a share of
stock in a publicly traded company has a well‐known value, a stock op‐
tion’s value isn’t quite the same thing. If an employee receives an option
to purchase one share of Canadian National stock at $50 per share, but the
stock plunges to $40 per share the next day and remains there during the
length of the option, the option would be worthless. Although it would
never be taxed in that instance, it would also not be of much value to the
employee, who would have preferred “money remuneration.”
10 Nos. 16‐3300, ‐3303, ‐3304
tribution here was in property and money and not in stock or se‐
curities” (emphases added)). And Section 1857 defined a safe
deposit box as “any vault, safe, box, or other receptacle, of not
more than 40 cubic feet capacity, used for the safe‐ keeping or
storage of jewelry, plate, money, specie, bullion, stocks, bonds,
securities, valuable papers of any kind, or other valuable per‐
sonal property.” (emphases added). Examples are plentiful
throughout the Code. This supports the conclusion that the
original meaning of “money” did not encompass either stocks
or stock options.2
The court relies on later‐enacted statutory exceptions—
principally a 2004 exception for qualified stock options added
to both the RRTA and FICA—to draw an inference that
“money remuneration” is broader than its original meaning
suggests. However, “absent a clearly established congres‐
sional intention, repeals by implication are not favored.”
Branch v. Smith, 538 U.S. 254, 273 (2003) (plurality opinion) (ci‐
tations and internal quotation marks omitted). Implied repeal
can occur only: “(1) [w]here provisions in the two acts are in
irreconcilable conflict;” and “(2) if the later act covers the
whole of the subject of the earlier one and is clearly intended
as a substitute.” Posadas v. National City Bank of N.Y., 296 U.S.
497, 503 (1936).
Neither exception to the presumption against implied re‐
peal is applicable. First, there is no conflict between a general
2 Furthermore, the RRTA was enacted during the Great Depression,
when corporate stock would not have been understood to be as liquid as
it is today. Employees in the 1930s would not have taken it kindly had
they been asked to accept company stock options in lieu of money remu‐
neration. That lends credence to the conclusion that stock and stock op‐
tions were not money remuneration.
Nos. 16‐3300, ‐3303, ‐3304 11
definition and an exception that might cover things the gen‐
eral definition doesn’t cover. In United States v. Quality Stores,
Inc., 134 S. Ct. 1395, 1402 (2014), the Supreme Court explained
that, under the broad FICA “wages” definition, a statutory
“command that all severance payments be treated ‘as if’ they
were wages for income‐tax withholding is in all respects con‐
sistent with the proposition that at least some severance pay‐
ments are wages.” After all, “the statement that ‘all men shall
be treated as if they were six feet tall does not imply that no
men are six feet tall.’” Id. (quoting CSX Corp. v. United States,
518 F.3d 1328, 1342 (Fed. Cir. 2008)). The converse of this is
that an exception might exclude, for whatever reason, some‐
thing the general definition already omits. There might be any
number of explanations for this. Congress might have wanted
to fill a potential gap without revisiting the general definition.
In any event, there is no conflict between the general provi‐
sions and the exceptions, as both are consistent with the ex‐
cepted forms of remuneration not being “money remunera‐
tion.” Moreover, there can be no serious contention that an
exception to a definitional statute “covers the whole subject”
of the original definition, so the second exception to the pre‐
sumption against implied repeal is also inapplicable.
To be sure, “the implication of a later enactment … will
often change the meaning that would otherwise be given to
an earlier provision that is ambiguous.” Antonin Scalia & Bryan
A. Garner, Reading Law: The Interpretation of Legal Texts 330
(2012) (emphasis added). However, the definition of “com‐
pensation” in the RRTA is not ambiguous with respect to the
question presented here. As I have demonstrated, the original
meaning of “money remuneration” was limited to cash and
cash equivalents and did not include stock or stock options.
12 Nos. 16‐3300, ‐3303, ‐3304
Because the definitional statute is unambiguous, the later‐en‐
acted exceptions cannot alter its meaning.
In sum, Congress has long treated railroads differently
than other industries. See, e.g., Federal Employers Liability
Act, 45 U.S.C. § 51 et seq.; Railway Labor Act, 45 U.S.C. § 151
et seq. In the labor relations context, the Supreme Court has
cautioned that “parallels between the [National Labor Rela‐
tions Act] and the [Railway Labor Act] … should be drawn
with the utmost care and with full awareness of the differ‐
ences between the statutory schemes.” Chic. & N. W. Ry. Co. v.
United Transp. Union, 402 U.S. 570, 579 n.11 (1971). For what‐
ever reason, the RRTA is another example of this. Given the
increased liquidity of corporate stock, it may be long past time
to remove the word “money” from the definition of compen‐
sation under the RRTA, but we lack the power to do so where
Congress has declined.3 Therefore, I would hold that the non‐
qualified stock options provided to employees of these rail‐
roads are not taxable as compensation under the RRTA.
I respectfully dissent.
3 I must point out that, although I would hold the non‐qualified stock
options non‐taxable under the RRTA, the proceeds from the sale of stock
are of course taxable under generally applicable laws when the employee
makes a profit. From the railroads’ perspective, of course, they would
avoid paying the tax on their end of the transaction.