Louis J. Balestra, Jr., Phyllis Balestra v. United States

United States Court of Appeals
for the Federal Circuit
______________________
LOUIS J. BALESTRA, JR., PHYLLIS BALESTRA,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2014-5127
______________________
Appeal from the United States Court of Federal
Claims in No. 1:09-cv-00283-VJW, Judge Victor J. Wolski.
______________________
Decided: October 13, 2015
______________________
MARY MONAHAN, Sutherland Asbill & Brennan LLP¸
Washington, DC, argued for plaintiffs-appellants. Also
represented by ADAM B. COHEN.
J ONATHAN S. C OHEN, Tax Division, United States De-
partment of Justice, Washington, DC, argued for defend-
ant-appellee. Also represented by J ENNIFER MARIE RUBIN,
CAROLINE D. CIRAOLO .
______________________
Before L OURIE, P LAGER, and D YK, Circuit Judges.

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BALESTRA v. US 2
P LAGER, Circuit Judge.
I NTRODUCTION
This is a tax refund case. The Balestras seek a refund
of $3,285.26 for Federal Insurance Contribution Act
(“FICA”) tax paid on certain deferred compensation—
retirement benefits in this case—that Mr. Balestra will
never receive due to his employer’s bankruptcy proceed-
ings.
The tax was based on a calculation of the “amount de-
ferred” under 26 U.S.C. § 3121(v)(2)(A) (2000). Congress
did not define the phrase “amount deferred.” Instead, the
Department of the Treasury (“Treasury”) promulgated a
regulation defining the “amount deferred” in terms of the
deferred compensation’s “present value.” This definition
prohibited any consideration of an employer’s financial
condition (e.g., bankruptcy) in calculating the amount
deferred. See 26 C.F.R. § 31.3121(v)(2)-1(c)(2)(ii).
The Balestras challenge this regulation as incon-
sistent with the statute, citing the analysis required by
Chevron, U.S.A., Inc. v. Natural Resources Defense Coun-
cil, Inc., 467 U.S. 837 (1984). They also contend that the
regulation is arbitrary and capricious under Motor Vehicle
Manufacturers Ass’n of the United States, Inc. v. State
Farm Mutual Automobile Insurance Co., 463 U.S. 29
(1983).
After exhausting their administrative remedies before
the Internal Revenue Service, they brought suit in the
U.S. Court of Federal Claims seeking a refund of the
taxes paid. When the trial court denied them a remedy,
they brought this appeal.
BACKGROUND
A.
FICA tax includes both the social security tax and the
hospital insurance tax. See 26 U.S.C. §§ 3101(a)–(b).

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BALESTRA v. US 3
This case concerns FICA tax and the hospital insurance
tax in particular. The hospital insurance tax is imposed
on every individual’s income. Id. § 3101(b). The tax is
collected by a withholding mechanism. Id. § 3102(a). The
taxpayer’s employer collects and remits the tax due by
deducting the amount of the tax from the employee’s
wages as and when paid. Id.
For the relevant 2004 tax year, the hospital insurance
tax was 1.45% of an individual’s “wages” received with
respect to employment. Id. § 3101(b)(6); 26 C.F.R.
§ 31.3101-2(c). “Wages” are defined in 26 U.S.C. § 3121(a)
and include the deferred compensation at issue. On
appeal, the parties do not dispute this fact.
A critical question is when the wages are received.
Generally, wages are received when they are paid by
the employer to the employee, and wages are paid by the
employer when they are actually or constructively paid.
26 C.F.R. § 31.3121(a)-2. The same rule is generally true
for FICA tax purposes. Id. § 31.3121(v)(2)-1(a)(1).
However, some wages—including the deferred com-
pensation at issue here—are treated differently under the
“special timing rule” for FICA tax purposes. Id.
§ 31.3121(v)(2)-1(a)(2). This special timing rule only
applies to wages under 26 U.S.C. § 3121(a) if those wages
are from a “nonqualified deferred compensation plan” as
described in 26 C.F.R. § 31.3121(v)(2)-1(b). Id. Both
Congress and Treasury define “nonqualified deferred
compensation plan.” See 26 U.S.C. § 3121(v)(2)(C) (Con-
gress’s definition); 26 C.F.R. § 31.3121(v)(2)-1(b) (Treas-
ury’s definition). The parties agree that the plan at issue
is such a plan.
With respect to nonqualified deferred compensation
plans, Congress provided that:
Any amount deferred under a nonqualified de-
ferred compensation plan shall be taken into ac-

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BALESTRA v. US 4
count for purposes of this chapter as of the later
of—(i) when the services are performed, or (ii)
when there is no substantial risk of forfeiture of
the rights to such amount.
26 U.S.C. § 3121(v)(2)(A) (emphasis added).
Some nonqualified deferred compensation plans—
including the plan at issue—are also “nonaccount balance
plans” as described in 26 C.F.R. § 31.3121(v)(2)-1(c)(2).
For such plans, Treasury defined an “amount deferred” in
terms of the “present value” of the deferred compensation
(the future payments). 26 C.F.R. § 31.3121(v)(2)-1(c)(2)(i).
Treasury defined “present value” in this context:
For purposes of this section, present value means
the value as of a specified date of an amount or
series of amounts due thereafter, where each
amount is multiplied by the probability that the
condition or conditions on which payment of the
amount is contingent will be satisfied, and is dis-
counted according to an assumed rate of interest
to reflect the time value of money. For purposes
of this section, the present value must be deter-
mined as of the date the amount deferred is re-
quired to be taken into account as wages under
paragraph (e) of this section using actuarial as-
sumptions and methods that are reasonable as of
that date. For this purpose, a discount for the
probability that an employee will die before com-
mencement of benefit payments is permitted, but
only to the extent that benefits will be forfeited
upon death. In addition, the present value
cannot be discounted for the probability
that payments will not be made (or will be
reduced) because of the unfunded status of
the plan, the risk associated with any
deemed or actual investment of amounts de-
ferred under the plan, the risk that the em-

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BALESTRA v. US 5
ployer, the trustee, or another party will be
unwilling or unable to pay, the possibility of
future plan amendments, the possibility of a
future change in the law, or similar risks or
contingencies. Nor is the present value affected
by the possibility that some of the payments due
under the plan will be eligible for one of the exclu-
sions from wages in section 3121(a).
Id. § 31.3121(v)(2)-(1)(c)(2)(ii) (emphasis added).
B.
As a result of this statutory and regulatory back-
ground, the Balestras effectively paid FICA tax on wages
they will never receive.
Mr. Balestra was employed as a pilot by United Air-
lines (“United”) from January 29, 1979 until his retire-
ment on October 1, 2004. Upon retirement, Mr. Balestra
was eligible to receive retirement benefits through a non-
qualified deferred compensation plan that was also a
nonaccount balance plan. He was to receive, inter alia,
continuing payments for the rest of his life. He elected to
start his benefits effective the day of his retirement.
United, as his employer, therefore withheld hospital
insurance tax from Mr. Balestra in the 2004 tax year. Mr.
and Mrs. Balestra filed a joint return for that tax year.
The tax withheld by United was based on the then-
applicable 1.45% statutory tax rate applied to the present
value of the deferred compensation that Mr. Balestra was
to receive under the plan. In compliance with the statute
and regulation at issue, United calculated the present
value of the deferred compensation to be $289,601.18.
United therefore withheld 1.45% of this amount
($4,199.22) in hospital insurance tax from Mr. Balestra.
United was set to pay Mr. Balestra retirement bene-
fits for the duration of his life. However, United had
entered bankruptcy proceedings in 2002, and its obliga-

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BALESTRA v. US 6
tions to pay these benefits were eventually discharged in
those proceedings. United ceased paying benefits to Mr.
Balestra in 2010.
As a result, Mr. Balestra actually received only
$63,032.09 in benefits, even though he effectively
(through his employer’s withholding) paid a hospital tax
based on $289,601.18 in benefits. Since the Balestras
filed a joint tax return in 2004, they seek a refund of
$3,285.26—the amount of tax paid on compensation they
will never receive.
In May 2007, the Balestras filed an administrative
claim before Treasury requesting a refund of the tax paid.
That claim was denied.
In May 2009, the Balestras filed the present action for
a refund in the United States Court of Federal Claims
(“trial court”). The trial court granted the Government’s
motion for summary judgment and denied the Balestras’
cross-motion for summary judgment. The trial court
determined, inter alia, that the regulation at issue, 37
C.F.R. § 3121(v)(2)-1(c)(2)(ii), satisfies Chevron and State
Farm. The trial court also denied as moot the Balestras’
motion to amend their complaint to add a defense.
The Balestras timely appealed. Before this court,
they argue that the regulation does not satisfy Chevron or
State Farm. They contend that under the terms of the
governing statute, the regulation is invalid or inapplicable
to their situation because United was in bankruptcy
proceedings when the deferred compensation’s present
value was calculated. They also contend that the regula-
tion is arbitrary and capricious because it departs from
the plain meaning of “present value” without a sufficient
explanation.
We have jurisdiction under 28 U.S.C. § 1295(a)(3).

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BALESTRA v. US 7
D ISCUSSION
We review the trial court’s grant of summary judg-
ment without deference. Consolidation Coal Co. v. United
States, 615 F.3d 1378, 1380 (Fed. Cir. 2010). The trial
court was bound by the Rules of the United States Court
of Federal Claims (“RCFC”). Under those rules, summary
judgment is proper “if the movant shows that there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” RCFC 56(a).
We review the court’s denial of a motion to amend a
complaint for abuse of discretion. Shinnecock Indian
Nation v. United States, 782 F.3d 1345, 1348 (Fed. Cir.
2015).
We agree with the Balestras that, regarding an agen-
cy with rulemaking authority such as Treasury, we re-
view the agency’s regulatory interpretation of a statute it
administers under the Supreme Court’s guidance in
Chevron. See Mayo Found. for Med. Educ. & Research v.
United States, 562 U.S. 44, 52–58 (2011); Dominion Res.,
Inc. v. United States, 681 F.3d 1313, 1317 (Fed. Cir.
2012).1 We evaluate the agency’s explanation for its
1 Congress delegated authority to Treasury to pre-
scribe the necessary rules and regulations for the statute
at issue because it is part of Title 26 of the U.S. Code. See
26 U.S.C. § 7805(a). Treasury determined that, with
regard to the regulation at issue here, it need not follow 5
U.S.C. § 553(b) and engage in formal rulemaking. Treas-
ury acted under § 7805(a) and promulgated the final rule
after publishing the proposed rule; soliciting and address-
ing public comments; and holding a public hearing. See
FICA Taxation of Amounts Under Employee Benefit
Plans, 61 Fed. Reg. 2194, 2195, 2199 (proposed Jan. 25,
1996); Federal Insurance Contributions Act (FICA) Taxa-
tion of Amounts Under Employee Benefit Plans, 64 Fed.
Reg. 4542, 4546 (Jan. 29, 1999); Federal Insurance Con-

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BALESTRA v. US 8
action under State Farm to determine if it is arbitrary or
capricious.2 Mayo, 562 U.S. at 52–58; Dominion, 681 F.3d
at 1317.
I.
Treasury’s Regulation Satisfies Chevron
Under the Chevron framework, we begin by using the
ordinary tools of statutory construction to determine
whether Congress’s intent is clear regarding the precise
question at issue. Chevron, 467 U.S. at 842–43, 843 n.9;
City of Arlington v. F.C.C., 133 S. Ct. 1863, 1868 (2013).
These tools include the statute’s text and structure,
canons of statutory construction, and legislative history.
Gilead Scis., Inc. v. Lee, 778 F.3d 1341, 1348 (Fed. Cir.
2015).3
tributions Act (FICA) Taxation of Amounts Under Em-
ployee Benefit Plans; Correction, 64 Fed. Reg. 15687 (Apr.
1, 1999).
2 This analysis often overlaps with the second step
of the Chevron framework. See, e.g., Nat’l Org. of Veter-
ans’ Advocates, Inc. v. Sec’y of Veterans Affairs, 669 F.3d
1340, 1348 (Fed. Cir. 2012). See also Richard J. Pierce,
Jr., Administrative Law Treatise § 3.6 (5th ed. 2010).
3 Some place the use of these tools within the sec-
ond step of Chevron. Compare Suprema, Inc. v. Int’l
Trade Comm’n, 796 F.3d 1338 (Fed. Cir. 2015) (en banc),
with Gilead Scis., 778 F.3d at 1346–49. Legislative
history in particular is sometimes placed in the second
step. See 4 Charles H. Koch, Jr. & Richard Murphy,
Administrative Law and Practice § 11:33 (3d ed. Supp.
2015) (footnote omitted) (“Scholars debate whether legis-
lative history may be used in Chevron step one to deter-
mine clear legislative intent or step two to interpret
ambiguous language. As a practical matter it makes no

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BALESTRA v. US 9
If Congress’s intent is clear, then we give effect to
Congress’s unambiguously expressed intent. Chevron,
467 U.S. at 842–43. However, if that intent is not clear,
then we determine whether the agency’s interpretation of
the statute is a reasonable one. Id. at 842–44. “If Con-
gress has explicitly left a gap for the agency to fill, there
is an express delegation of authority to the agency to
elucidate a specific provision of the statute by regulation.”
Id. at 843–44. We afford such legislative regulations
“controlling weight unless they are arbitrary, capricious,
or manifestly contrary to the statute.” Id. at 844 (footnote
omitted). If the legislative delegation is implicit, then a
court “may not substitute its own construction of a statu-
tory provision for a reasonable interpretation made by the
administrator of an agency.” Id. (footnote omitted).
A.
In determining whether Chevron deference is owed in
this instance, we begin with the language of the statute
and the ordinary tools of statutory construction to deter-
mine whether Congress directly addressed the precise
question at issue. See, e.g., Gilead Scis., 778 F.3d at 1347.
The parties do not dispute the formulation of the
question. The question is how employers must calculate
the “amount deferred” under nonqualified deferred com-
pensation plans that are also nonaccount balance plans
for the purposes of FICA (hospital insurance) tax, and,
more pointedly, whether the “amount deferred” can be
defined as the compensation’s “present value” without
consideration of an employer’s financial condition.
The relevant statute provides that:
difference whether a court tests an agency’s use of legisla-
tive history under step one or two.”).

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BALESTRA v. US 10
Any amount deferred under a nonqualified de-
ferred compensation plan shall be taken into ac-
count for purposes of this chapter as of the later
of—(i) when the services are performed, or (ii)
when there is no substantial risk of forfeiture of
the rights to such amount.
26 U.S.C. § 3121(v)(2)(A) (emphasis added).4
Neither the statute nor the ordinary tools of statutory
construction reveal any clear, unambiguously expressed
congressional intent on the precise question at issue.
The statute does not contain a definition of the
“amount deferred” or reference any way to calculate such
an amount—including by determining its “present value,”
with or without considering an employer’s financial
condition.
The statute was enacted as part of the Social Security
Amendments of 1983, Pub. L. 98-21, 97 Stat. 65, 122
(1983) (“Act”). As a bill, it was considered and passed in
the House of Representatives before being considered,
amended, and passed in the Senate. See 97 Stat. at 172.
The House and Senate then agreed to a conference report.
Id.
One of the Senate amendments contained the provi-
sion that became the statute at issue in this case. See 129
Cong. Rec. S6133–35 (daily ed. Mar. 18, 1983); H.R. Conf.
Rep. No. 98-47, at 145-47 (1983) (comparing the House
and Senate versions of the bill and describing the confer-
ence agreement). The conference agreement “generally
follow[ed]” that amendment. H.R. Conf. Rep. No. 98-47,
at 147.
4 With regard to subsection (ii), the Balestras con-
cede in their brief that it is not applicable to their case.
See Appellants’ Br. at 13, 24.

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BALESTRA v. US 11
Senator Bentsen introduced the amendment, and he
made several statements concerning it. The Balestras
cite these statements as legislative history indicating
Congress’s intent to impose FICA tax on the compensa-
tion’s “present value” in its plain and ordinary sense as
used in other parts of the tax code. According to the
Balestras, Congress intended that the “present value” be
calculated according to the “fair market value” of the
compensation as understood from a “willing buyer-willing
seller” model.
However, Senator Bentsen’s statements do not sup-
port the Balestras’ conclusions. Senator Bentsen stated
that:
In most cases, under nonqualified deferred com-
pensation agreements it is a relatively simple
matter to determine when amounts are deferred
and the amount that is being deferred. Likewise,
as in many other areas of our tax law, simple
rules can be established to determine the present
value of amounts deferred in other cases.
129 Cong. Rec. S6134.
When read in light of the House Conference Report,
these statements indicate that Senator Bentsen, and
presumably the Senate and Congress, intended to define
the “amount deferred” in terms of the compensation’s
“present value.” Neither party argues that Treasury’s
defining “amount deferred” in terms of “present value”
itself was improper. Instead, they argue over the precise
and proper meaning of “present value.”
However, these statements do not evince an unam-
biguous congressional intent that the “present value”
calculation must consider an employer’s financial status.
Similarly, there is nothing to indicate that “present value”
is to be calculated specifically in terms of “fair market
value” or the “willing buyer-willing seller” standard.

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BALESTRA v. US 12
The senator’s statements merely suggest that simple
rules can be established. In other words, this legislative
history actually supports Treasury’s regulation—a rela-
tively simple rule that the Balestras simply dislike.
We find no other legislative history, canon of con-
struction, or salient feature of statutory structure that
points to any unambiguous congressional intent on the
issue. The parties, for their part, do not suggest any.
B.
Since there is no unambiguous expression of congres-
sional intent, we proceed to the second step of the Chev-
ron framework. We must determine whether Treasury’s
interpretation of the statute is a reasonable one. Chev-
ron, 467 U.S. at 842–44.
Treasury was faced with a statutory ambiguity—how
to define the “amount deferred.” Treasury devised the
regulation to be workable, simple, and flexible. See 61
Fed. Reg. at 2195; 64 Fed. Reg. at 4543. Agencies must
draw such lines and make such choices between alterna-
tives in drafting regulations. See Mayo, 562 U.S. at 58–
59.
Treasury chose to define the “amount deferred” in
terms of “present value.” 26 C.F.R. § 31.3121(v)(2)-
(1)(c)(2)(ii). Treasury further chose to define “present
value” by considering, inter alia, the time value of money
and reasonable actuarial assumptions and methods at the
time the amount deferred was taken into account as
wages. Id. The exact value of a future payment is inher-
ently unknowable. Treasury’s definition allowed for the
consideration of some contingencies but not others.
As a matter of law, was Treasury obligated to include
the contingency that if the employer became bankrupt, an
adjustment in the employee’s tax would be made? It
would seem reasonable for the rule drafters to have done

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BALESTRA v. US 13
so. But the question under Chevron is whether it was
unreasonable not to have done so.
The regulation as written would seem to comport with
the scant legislative history. Nothing in the statute or
congressional purpose, intent, or design precludes Treas-
ury’s definition. The definition is rational, reasonable,
and does not conflict with any law.
As noted, the regulation comports with the scant leg-
islative history relied upon by the Balestras. Senator
Bentsen noted that in “most cases” it was “relatively
simple” to determine the amount deferred. 129 Cong.
Rec. S6134. He spoke of the “simple rules [that] can be
established.” Id. Treasury promulgated a simple and
reasonable rule. We decline to substitute our own regula-
tion in place of the reasonable one that Treasury devised
in this instance.
The Balestras’ arguments on this point are unpersua-
sive. They admit that the statute is silent on the question
at issue. They admit that the regulation “may well be a
reasonable interpretation of the statute” when applied to
employers who are not in bankruptcy. Appellants’ Br. at
41. However, they argue that the regulation is unreason-
able as applied to employers in bankruptcy. They believe
that the legislative history and purpose of the statute
demonstrate Congress’s intent to tax the present value of
deferred compensation only in terms of its fair market
value—measured by a willing buyer-willing seller stand-
ard as in United States v. Cartwright, 411 U.S. 546
(1973). Based on Cartwright, the Balestras argue that
any Treasury regulation with a valuation method must
result in “a realistic value that does not vary significantly
from the willing buyer-willing seller standard.” Appel-
lants’ Br. at 47. Any regulation deviating from this
standard is—in their words—invalid.
This is not so. First, as previously discussed, the leg-
islative history and purpose of the statute do not indicate

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BALESTRA v. US 14
that Congress intended to define the “amount deferred” as
the compensation’s “present value” in terms of its “fair
market value” under a willing buyer-willing seller stand-
ard or by necessitating an evaluation of an employer’s
financial condition and its ability to make future pay-
ments. The Balestras’ argument hinges upon the state-
ments of Senator Bentsen. They reason that by
referencing simple rules in place in other sections of the
tax code, Senator Bentsen and all of Congress intended
that Treasury abide by the willing buyer-willing seller
standard. As we have already discussed, the record does
not support this reading.
Second, the Balestras read the import of Cartwright
too broadly. Cartwright was a pre-Chevron case that
dealt with fair market value and the willing buyer-willing
seller standard in the context of the particular statute
and regulation at issue in that case. Cartwright involved
a Treasury regulation relating to 26 U.S.C. § 2031. This
statute concerned the value of a decedent’s property for
estate tax purposes. The regulation required Treasury to
value mutual fund shares at their “fair market value”—
which Treasury defined as the public offering or asking
price of mutual fund shares—instead of the lower re-
demption price (the actual price for which someone could
have redeemed the shares). Cartwright, 411 U.S. at 549
n.5 (quoting the relevant portion of 26 C.F.R. § 20.2031-
8(b)).
Treasury promulgated that regulation despite having
previously stated—in the context of the same statute—
that the “fair market value” was the “‘price at which the
property would change hands between a willing buyer
and a willing seller, neither being under any compulsion
to buy or to sell and both having reasonable knowledge of
relevant facts.’” Id. at 551 (quoting 26 C.F.R. § 20.2031-
1(b)). In other words, fair market value was at issue
because of the particular statute and regulation in the
case. It is true that the Court stated the “willing buyer-

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BALESTRA v. US 15
willing seller test of fair market value is nearly as old as
the federal income, estate, and gift taxes themselves, and
is not challenged here.” Id. at 551, 551 n.7 (citing a
separate Treasury regulation specifically relating to the
test in the context of estate tax). However, this statement
does not compel the result sought by the Balestras in this
case.
The Court in Cartwright ultimately found that the
regulation was “manifestly inconsistent with the most
elementary provisions of the Investment Company Act of
1940 [which regulated the mutual funds] and operate[d]
without regard for the market in mutual fund shares that
the Act created and regulates.” Id. at 557. The Court
stated that Congress “surely could not have intended”
such a statutory interpretation. Id. Moreover, the Court
determined that the regulation imposed an “unreasonable
and unrealistic measure of value.” Id. Treasury treated
load and no-load mutual funds differently, and in seeking
the higher valuation, Treasury ignored its own definition
of “fair market value.” See id. at 556–57. This case
involves no such contravention of the statute or the Social
Security Amendments of 1983. As previously noted, this
case also involves no such congressional intent on the
question of “fair market value.”
The Balestras’ other arguments are similarly unper-
suasive. For instance, the Balestras cite several Treasury
regulations relating to other sections of the tax code and
numerous cases involving the willing buyer-willing seller
standard and the general meaning of present value.
However, without a clear indication of congressional
intent on this issue (that Congress intended to keep these
standards in this instance), their arguments are not
persuasive. Section 3121 simply does not concern these
other standards found in other areas of tax law. We may
not import those standards into the statute or the regula-
tion here.

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BALESTRA v. US 16
A similar point can be made with respect to McDonald
v. Commissioner, 764 F.2d 322 (5th Cir. 1985) and Estate
of Gresham v. Commissioner, 752 F.2d 518 (10th Cir.
1985). The Balestras rely on both cases, but these out-of-
circuit cases are neither binding nor persuasive. Both
cases involve the invalidation of a Treasury regulation
when the related statute explicitly required consideration
of fair market value. The statute in this case never
references “fair market value.” Moreover, in this in-
stance, there is no unambiguous intent or purpose requir-
ing such a valuation.
The Balestras also heavily rely on Dominion Re-
sources, Inc. v. United States, 681 F.3d 1313 (Fed. Cir.
2012). In that case, this court found that a Treasury
regulation did not satisfy Chevron or State Farm. Contra-
ry to the regulation in this case, the regulation in Domin-
ion made “no sense” in light of the statute and was
“removed from reality.” Dominion, 681 F.3d at 1318.
Dominion demonstrates that we follow the Supreme
Court’s directive in Mayo to apply Chevron deference to
Treasury regulations, and that we evaluate Treasury
regulations under State Farm. Dominion also demon-
strates that those regulations do not always pass muster.
However, in this instance, that is where the case’s in-
structiveness ends.
Finally, by means of a supplemental letter, the Ba-
lestras cite Altera Corp. v. Comm’r, 145 T.C. No. 3 (2015)
to support their position—both under State Farm and
Chevron. The court in Altera invalidated a Treasury
regulation because the agency failed to provide an ade-
quate explanation for the final rule and failed to address
comments and other evidence indicating the regulation
was inconsistent with the statute at issue. As the Gov-
ernment notes, the regulation in this case does not con-
flict with the statute. Altera does not help the Balestras’
position.

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BALESTRA v. US 17
II
Treasury’s Regulation Satisfies State Farm
Having established that the regulation satisfies Chev-
ron, we turn to the Balestras’ arguments regarding State
Farm.
Under State Farm, we determine whether Treasury
“articulate[d] a satisfactory explanation for its action,
including a ‘rational connection between the facts found
and the choice made.’” State Farm, 463 U.S. at 43 (cita-
tion omitted). Treasury’s rule is arbitrary and capricious
if it “entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implau-
sible that it could not be ascribed to a difference in view or
the product of agency expertise.” Id. We cannot supply a
basis for agency action that the agency has not itself
provided. Id. However, we will “‘uphold a[n agency]
decision of less than ideal clarity if the agency’s path may
reasonably be discerned.’” Id. (quoting Bowman Transp.
Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 286
(1974)); F.C.C. v. Fox Television Stations, Inc., 556 U.S.
502, 513–14 (2009) (same).
In this instance, Treasury’s regulation satisfies State
Farm. Treasury recognized that the compensation is not
subject to FICA tax when paid, but at an earlier point
(when the compensation is deferred). See 61 Fed. Reg. at
2195. Treasury recognized that “[a]pplying these statuto-
ry rules often requires difficult valuations of future bene-
fits.” Id. Treasury therefore focused on providing
workable, simple, flexible rules for taxpayers. Id. As
Treasury stated in its notice of proposed rulemaking:
Recognizing practical administrative problems
that can be encountered by taxpayers in this area,
the proposed regulations are designed to be work-

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BALESTRA v. US 18
able, to minimize complexity, and to provide ap-
propriate flexibility for taxpayers.
Id.
Similarly, in its notice of final rulemaking after a
public hearing, Treasury incorporated and addressed
public comments, but emphasized its overarching goals:
The final regulations retain the distinction be-
tween the method of calculating the amount de-
ferred (and the income on that amount) for
account balance plans and the method for nonac-
count balance plans, but provide additional guid-
ance simplifying those calculations.
64 Fed. Reg. at 4543.
Treasury’s path to calculating the “amount deferred”
in terms of the compensation’s “present value” without
consideration of an employer’s financial condition is
reasonably discernable. Treasury explained that it
sought simple, workable, and flexible rules when valuing
future benefits. It devised a regulation that satisfied
these goals while comporting with the governing statute.
This is neither arbitrary nor capricious. It may seem
unfair in a specific instance such as this, but in balancing
the desire for simplicity against the ideal of ultimate
comprehensiveness, the agency must be allowed a reason-
able degree of discretion. We cannot say that this one
example of consequent unfairness by the agency results in
invalidating the rule-making.
The parties raise other arguments, including that the
Balestras’ claims are barred by the substantial variance
rule as described in Computervision Corp. v. United
States, 445 F.3d 1355 (Fed. Cir. 2006). However, these
arguments are unpersuasive.
With regard to the trial court’s denial of the Balestras’
motion to amend their complaint, we agree with the trial

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BALESTRA v. US 19
court that, in light of the disposition of their case, the
motion is moot.
CONCLUSION
For the foregoing reasons, the judgment of the United
States Court of Federal Claims is affirmed.
AFFIRMED

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