Daniel Hemel on Cuba Gooding Jr, the Railroad Retirement Tax Act, and the Meaning of "Money"

Argument preview: Show me the stock options?

When Cuba Gooding Jr.’s character shouts “Show me the money!” in “Jerry Maguire,” is he demanding compensation in cash? Or would he be satisfied with payment in stock options? That — more or less — is the central question in Wisconsin Central Ltd. v. United States: whether the word “money,” when used in the context of compensation, extends to remuneration in stock-option form. The Supreme Court’s answer to that question will determine whether the country’s largest railroads receive tax refunds worth many millions of dollars, and it could shed light on the justices’ approach to the interpretation of tax statutes going forward.

The key statutory provision at issue is 26 U.S.C. § 3231(e)(1), which defines “compensation” for purposes of the Railroad Retirement Tax Act. It says that “compensation” means “any form of money remuneration paid to an individual for services rendered as an employee.” That definition matters because railroads and their employees are subject to special taxes on “compensation.” Those taxes go toward funding a retirement program for railroad workers that is separate from — and on average more generous than — Social Security.

Wisconsin Central and the two other petitioners, all wholly owned subsidiaries of Canadian National Railway Co., have been issuing stock options to their employees since the mid-1990s. Each option allows an employee to buy one share of Canadian National stock over the next 10 years for a price equal to its value on the day the option was granted. So, for example, if an employee receives an option today (when Canadian National’s stock price is approximately $75), the employee can buy one share of Canadian National for $75 at any point between now and 2028.

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