COMMITTEE ON WAYS AND MEANS AL ULLMAN, Oregon, Chairman DAN ROSTENKOWSKI, Illinois J. J. PICKLE, Texas CHARLES B. RANGEL, New York WILLIAM R. COTTER, Connecticut FORTNEY H. (PETE) STARK, California JAMES R. JONES, Oklahoma ANDY JACOBS, JR., Indiana KEN HOLLAND, South Carolina RICHARD A. GEPHARDT, Missouri RAYMOND F. LEDERER, Pennsylvania THOMAS J. DOWNEY, New York BARBER B. CONABLE, JR., New York JOHN J. DUNCAN, Tennessee BILL ARCHER, Texas GUY VANDER JAGT, Michigan PHILIP M. CRANE, Illinois BILL FRENZEL, Minnesota JAMES G. MARTIN, North Carolina JOHN H. ROUSSELOT, California KFDM Internal Revenue Service: Jerome Kurtz, Commissioner, N. Jerold Cohen, Chicago, Milwaukee, St. Paul & Pacific Railroad Co., Robert T. Malloy.. Railroad Retirement Board, William P. Adams, Charles J. Chamberlain, Railway Labor Executives' Association, Committee on Railroad Retire- ment, Maxton Allcox, J. R. Snyder, and Edward D. Friedman............ Page 19 4 19 34 Consolidated Rail Corporation (Conrail), statement.. Molloy, Robert T., Molloy, Simpson & Johnson, Washington, D.C., letters enclosing brief, actuarial study by the Wyatt Co., and miscellane- Staggers, Hon. Harley O., a Representative in Congress from the State of 2 (III) EMPLOYER LIABILITY FOR TAXES UNDER THE RAIL ROAD RETIREMENT TAX ACT TUESDAY, NOVEMBER 27, 1979 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT, Washington, D.C. The subcommittee met at 11 a.m., pursuant to notice, in room 1100 Longworth House Office Building, Hon. Sam M. Gibbons (chairman of the subcommittee) presiding. [Press release announcing hearing follows:] [Press release of November 21, 1979] OVERSIGHT PANEL ANNOUNCES HEARING ON RAILROAD EMPLOYER ISSUE FOR NOVEMBER 27, 1979 Sam M. Gibbons (D-Fla), Chairman of the Ways and Means Oversight Subcommittee, announced today that a hearing has been scheduled for Tuesday, November 27, 1979, on the issue of recent IRS determinations that certain types of employers are railroad employers for purposes of the Railroad Retirement Tax Act. The hearing will begin at 11:00 a.m. in the Ways and Means hearing room at 1100 Longworth House Office Building. "I am concerned about the effect that these IRS determinations may have on the Railroad Retirement Fund." Gibbons explained. "We all know that this Fund is in bad shape and as a matter of public policy I believe Congress should decide who is and is not a railroad employer for purposes of covering people under this Fund." The issue has arisen recently as a result of adult activities where the IRS has found certain subsidiary operations to be railroad employers under the Act. At stake are additional employment taxes on railroad service compensation earnings payable by employers at a 9.5 percent rate and, on the other side, larger pension benefits for the employees of the employers in question. Mr. GIBBONS. Good morning, the meeting of the subcommittee will come to order. Today we take up an issue which has been festering since the enactment of the Railroad Retirement Tax Act. One of the questions which we will discuss today is whether under the present law subsidiaries of railroad companies should contribute additional money to the Railroad Retirement Fund for the benefit of their employees. This issue turns on the question of whether these employers and their employees are covered under the Railroad Retirement Tax Act. On the basis of recent tax audits by the Internal Revenue Service, the IRS in several cases has answered this question in the affirmative. Numerous railroad companies take exactly the opposite position and are contesting the additional assessment proposed by the IRS. The result is that millions in employment tax assessments, going back at (1) least to 1973, have been levied against several of these railroad subsidiaries. The railroad subsidiaries which have been assessed by the IRS contend that their workers are not railroad employees covered by the act primarily because a major portion of their work is unrelated to railroading. The proper interpretation of a specific exception in the act for trucking service seems to be a major source of this disagreement. There seems to be little doubt that the law on these points could have been written more clearly. In light of the changing nature of the industry, more specific language may be needed. We are also faced with the fact that there are no regulations which would help to clarify the law and provide general guidance to the industry. So, in this vacuum, the IRS has moved in and made a determination that is evidently directly counter to the position taken by these subsidiaries which have been audited. In today's hearing, I hope we can get some important questions answered. For example, what is the legal basis for each of the opposing viewpoints that of the IRS and that of the railroads? What is the position of other parties in interest such as the Railroad Retirement Board and those groups representing employees? Can the issue be resolved best by legislation, by clarifying regulations, or by judicial decision? Has the creation of subsidiaries by the railroads been the natural result of changes in the industry or does it reflect a deliberate effort to evade their responsibility to give subsidiary employees the same kind of coverage as the employees of their railroad parents? Has the transfer or placement of workers in these subsidiary companies or the acquisition of subsidiaries tended to diminish the rights of these employees to what may be their full benefits from the Railroad Retirement Fund? What is the affect going to be on the Railroad Retirement Fund which is already in terrible financial condition and what should the public policy be in regard to placing more employees under this fund? There are other questions which I am sure will arise during the course of this hearing. What concerns me as a Member of Congress is that the machinery of Government seems to work so slowly that a question like this-which affects so many people and the treasuries of business as well as the Government-can drag on for years without an acceptable resolution. It's time we settled this issue once and for all. Congressman Staggers, chairman of the Interstate and Foreign Commerce Committee. is unable to testify here today. However, he has submitted his statement for the record. [The prepared statement follows:] STATEMENT OF HON. HARLEY O. STAGGERS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST VIRGINIA Mr. Chairman, I want to thank you for the opportunity to briefly testify before your subcommittee this morning on the matter of truck service exception contained in the Railroad Retirement Act and Railroad Retirement Tax Act. Before addressing the merits, I should like to observe that the Committee on Interstate and Foreign Commerce and the Committee on Ways and Means have worked closely on this legislation that affects both committees' jurisdictions and, Mr. Chairman, I pledge to continue that close working relationship with the members of your committee. |