Delphi seeks return of $26.06 million in employment tax overpayments

By Caroline Salls

Pittsburgh, Jan. 18 - Delphi Corp. filed a complaint Friday asking the U.S. Bankruptcy Court for the Southern District of New York to order the United States of America to return $26.06 million in overpayments of Federal Insurance Contributions Act taxes to Delphi.

Delphi said the employment taxes relate to payments made to union members in connection with ratification of collective bargaining agreements in 1999 and 2003.

According to the complaint, $1,350 was paid to each eligible union employee following ratification of the 1999 collective bargaining agreement and $3,000 was paid to each union employee following ratification of the 2003 contract.

Under Revenue Ruling 58-145, Delphi said the only important criteria for payment of FICA taxes on the contract ratification payments was whether the payment was "predicated on continued employment."

If not, Delphi said the amount was not treated as wages and was therefore not subject to FICA withholding.

However, Delphi said that IRS "took the unprecedented position" that all amounts paid to employees are wages unless "the employee provides clear, separate and adequate consideration for the employer's payment that is not dependent upon the employer-employee relationship."

Delphi said the payments were not conditioned on continued employment with the company or the performance of future services, and ratification of the respective agreements was the only requirement for payment.

The IRS subsequently disallowed Delphi's refund claims for both the 1999 and 2003 payments, the complaint said.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005. Its Chapter 11 case number is 05-44481.

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