Earlier this week, the Supreme Court unanimously decided that medical residents are not “students” and are instead “workers” for purposes of determining whether the institutions they work for should pay Social Security and Medicare taxes.
Mayo Foundation for Medical Education & Research v. United States focused on the Federal Insurance Contributions Act (FICA) exemption for students who work for the educational institutions in which they are enrolled. In December of 2004, the U.S. Department of the Treasury declared that medical residents did not qualify for this exemption and should instead be treated as employees for FICA purposes due to the full-time nature of their job. The Mayo Clinic, along with other institutions who employ medical residents, began paying their share of FICA taxes in 2005, but later separately sued the federal government for a refund. They argued that medical residents are students because their employment is educational in nature. The institutions won on the district court level but the decision eventually was overturned on appeal.
Chief Justice John Roberts’ opinion declared that the Treasury Department did not err in concluding that medical residents who work long hours and resemble career employees in other ways are the types of employees that Congress planned to participate in the Social Security system. Residents in the Mayo Clinic’s residency program examine and diagnose patients, prescribe medication, recommend treatment plans, and perform certain procedures under the supervision of more senior residents and attending physicians. In 2005, the Clinic’s residents received annual stipends ranging between $40K and $56K, and were also given health insurance, malpractice insurance, and paid vacation. While residents are required to attend weekly lectures and take written exams, the bulk of their 50 to 80 hour work week is spent attending to patients. The Court rejected the Clinic’s contention that the IRS should apply a case-by-case inquiry into the activities that each resident undertakes each day in order to evaluate whether the exemption should apply.
While the Court’s decision has a large impact on the medical community, the decision also impacts the way accountants and other tax professionals read the Internal Revenue Code. For many years, Courts and practitioners were conflicted on the amount of deference to give tax regulations, revenue rulings, and other published agency guidance. The history of opinions coming out of the U.S. Tax Court even shows it often granted more weight to opinions of the district courts and the Court of Federal Claims rather than to treasury regulations. However, with the ruling in Mayo Foundation, the proper weight to give agency guidance is settled with the Court clearly holding that the Chevron doctrine applies to all statutes, including those found in the Internal Revenue Code.
In Chevron, U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984), the Courts set a two-step method for interpreting statutes subject to regulatory interpretation:
1. Is the statute ambiguous? If not, proceed no further and decide the case based solely on the statutory language.
2. If the statute is ambiguous, is the agency interpretation reasonable? If so, the courts should defer to the agency interpretation.
For some reason, many tax lawyers and even judges did not acknowledge that Chevron applied to tax regulations. However, the Court’s ruling could mean bad news for taxpayers; the history of Chevron shows that its citation almost always strengthens the administrative agency’s (here, the Internal Revenue Service) case.
While the long term effects of the implementation of the Chevron doctrine to tax may not be known, Mayo Foundation will most certainly have an immediate impact on medical students and the hospitals who employ them.
No comments:
Post a Comment