Nicholas Malfitano Mar. 2, 2016, 1:23pm


PHILADELPHIA – A Pittsburgh couple will not be refunded for tax funds withheld from one of their 401(k) plans in 2012, a federal appeals court said.

In a per curiam opinion issued Feb. 24, U.S. Court of Appeals for the Third Circuit judges Julio M. Fuentes, Patty Shwartz and Jane R. Roth ruled Lee and Barbara Jean Feldman of Pittsburgh failed to state a claim, in attempting to argue they should be refunded $147 in funds withheld from Barbara Jean’s 401(k) contributions in the 2012 tax year.

This opinion affirmed an earlier trial court verdict in the U.S. District Court for the Western District of Pennsylvania, where the Feldmans first brought suit against H.A. Berkheimer, Inc., Jordan Tax Service, Inc., Dormont Borough, Inc., Keystone Oaks School District and the law firm of Goehring Rutter & Boehm in December 2013.

The District Court dismissed the Feldmans’ complaint for failure to state a claim and disallowed further amendment in July 2014, leading them to appeal.

“As the District Court noted, all of the Feldmans’ claims (from their constitutional claims brought under 42 U.S.C. Section 1983 to their claims under state law) are predicated on the same basis,” the Third Circuit said. “Namely, they assert that Mrs. Feldman’s contributions to her 401(k) plan are not taxable by local authorities. But, as the District Court explained, they are taxable.”

The Third Circuit explained in Pennsylvania, the Local Tax Enabling Act permits a political subdivision (such as defendants Dormont Borough or Keystone Oaks School District) to tax the earned income or compensation of its residents, per statutory amendments made to the legislation in 2002 and 2004.

“Contributions to a retirement benefit plan made by an employee are not excludable from the definition of taxable compensation,” the Third Circuit stated. “Accordingly, Mrs. Feldman’s contributions to her 401(k) plan were taxable.”

On appeal, the Feldmans reiterated their claim from the District Court that a Magisterial Judge’s 1992 decision “precludes the collection of taxes on Mrs. Feldman’s contributions, or a ruling that those contributions constitute taxable income”, but the Third Circuit said this argument failed for the same reasons as those provided by the District Court.

“To sum up, the [1992] ruling could not serve as an interpretation of Pennsylvania law relevant to the 2012 tax year. The ruling predated the statutory amendments that provide the relevant definition of earned income. Despite their arguments to the contrary, the doctrines of res judicata and collateral estoppel do not apply,” the Third Circuit said.

“For these reasons, and as the District Court explained, the Feldmans failed to state a claim upon which relief can be granted. Accordingly, the District Court properly dismissed their complaint. We will affirm the District Court’s judgment,” the Third Circuit concluded.

The appellees are represented by David R. Gordon of H.A. Berkheimer, Inc. in Pen Argyl, plus Mandi L. Culhane and Michael G. McCabe of Goehring Rutter & Boehm, John H. Rushford of Dodaro Matta & Cambest and Christian D. Bareford of Weiss Burkardt Kramer, all in Pittsburgh.

U.S. Court of Appeals for the Third Circuit case 14-3537

U.S. District Court for the Western District of Pennsylvania case 2:13-cv-01711

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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