Nicole Occhuizzo (Ivins, Phillips & Barker, Washington, D.C) has published Taxing Tenure: An Examination of How the Federal Insurance Contribution Act (FICA) Has Been Applied to Tenure Buyouts, 62 Tax Law. 189 (2008).  Here is part of the Introduction:

In recent years, three federal courts of appeals have considered the question of whether early retirement payments made by educational institutions to tenured faculty in exchange for the relinquishment of their tenure rights constitute wages subject to taxation under the Federal Insurance Contribution Act (FICA)—and have reached different results. The Eighth Circuit held in North Dakota State University v. United States that such payments were not subject to FICA taxation because they were made for the faculty members’ property interests in their continued employment. Reaching the opposite conclusion, the Sixth Circuit in Appoloni v. United States and the Third Circuit in University of Pittsburgh v. United States subsequently held that such payments were subject to FICA because they were made for the faculty members’ service to their employers. Based on similar facts, these different outcomes arose in large measure from the courts’ different views of both the nature of the payments and of tenure itself.

While this issue was making its way through the courts, the Service also added to the analytical confusion surrounding tenure rights. Beginning in 1955, the Service held in a series of Revenue Rulings that payments to an employee for the relinquishment of his rights in an employment contract were not FICA wages. But in Revenue Ruling 2004-110, the Service reversed itself, holding that such payments generally do constitute FICA wages.

To make sense of how the FICA rules have been applied to “tenure buyout” payments, this Article does the following: in Part II, it discusses the concept of tenure; in Part III, it provides a general overview of the FICA rules; in Part IV, it examines the aforementioned Revenue Rulings; in Part V, it reviews the courts of appeals cases; in Part VI, it discusses the Service’s reaction to North Dakota State University (NDSU); and, in Part VII, it both concludes that much of the taxpayer-friendly precedent has been chipped away and identifies the limited circumstances in which educational institutions that seek a refund of FICA taxes paid with respect to tenure buyout payments may still find support for their position.