Today the US Supreme Court decided Quality Stores by an 8-0 vote in favor of the IRS. The IRS argued that when Quality Stores gave severance pay to its workers, the company and workers had to pay FICA (social security/medicare) tax on that pay. The Supreme Court agreed, and rightly so. Severance pay is just as much pay as regular wages, so this makes sense in terms of economics, and the Supreme Court agreed with the basic principle that all forms of labor compensation that required income tax withholding should required FICA in Rowan Cos. v. United States, 452 U. S. 247 (1981).
So how could Quality Stores have won in the lower courts? —Because the IRS issued regulations in 1990 that contradict Rowan.