Employees of Bankrupt UAL May Face Another Blow

August 25, 2005 (PLANSPONSOR.com) - The Internal Revenue Service is asking a bankruptcy court to determine that millions of dollars in securities and notes United Airlines plans to give workers after it's out of bankruptcy will be taxable compensation.

In return for wage, benefit, and job concessions employees made for the company, United made agreements with unions to repay workers with notes or securities, the Chicago Tribune reports.   The Aircraft Mechanics Fraternal Association alone is scheduled to receive $40 million in notes it could then sell and distribute to members.

“It’s unconscionable for the IRS to even think of taxing our people after what we’ve given to the company.   They took our pay, benefits. They’ve taken a lot from us,” said O.V. Delle-Femine, president of the mechanics union, in the newspaper report.

David Weisbach, a tax law professor at the University of Chicago, told the Tribune that though it may seem harsh to tax workers who have already given up so much, the IRS taxes individuals based on compensation received, even if that compensation is less than what they expected or deserved.

With the pilots union scheduled to receive $550 million in notes and the machinists union scheduled to receive $60 million, members could receive a large amount up front that they would then owe taxes on.   Weisbach believes that will be the employees’ real complaint.