SCOTUS to hear tax case

The University petitioned the Court to review tax policies for medical residents.

by James Nord

The United States Supreme Court announced Tuesday it will hear a University of Minnesota case determining if Social Security taxes apply to medical residency programs. Oral arguments could begin in six to nine months. The Mayo Foundation for Medical Education and Research and the University of Minnesota filed a petition in January requesting that the court review the tax case. It is part of a string of litigation on the subject, including other unrelated cases, stretching back more than 20 years, according to a statement from University General Counsel Mark Rotenberg. âÄúIn agreeing to hear this case today, the Supreme Court has acknowledged the exceptional importance of this question for medical residency programs and medical residents across the United States,âÄù Rotenberg said in the statement. The Supreme Court hears about 1 percent of petitioned cases, and this is the second case involving the University to ever make it to the court. Yearly losses in the millions are at stake for medical residents. The âÄúcourtroom confrontationâÄù with the Internal Revenue Service revolves around Treasury Department guidelines altered in 2005 that specifically deny medical residents from receiving a general student tax exemption, Rotenberg said. Residents are doctors who pursue a specialty through additional training and work experience after graduating from medical school. Although a residentâÄôs main purpose is educational, the Treasury DepartmentâÄôs rules categorize them as full-time employees rather than students. The University sued to return the exemption to medical residents after the 2005 rule change. The University won in a lower court, but the ruling was reversed by U.S. Court of Appeals for the Eighth Circuit. It was the first loss for the University in a spate of lawsuits dating back to the early 1990s. A 1998 federal appeals court ruling returned $45 million in tax money to the University, about half of which was distributed to residents, Rotenberg said. The 2005 rule change followed. ResidentsâÄô stipends and the residency program are each taxed 7.5 percent, Rotenberg said. There are currently 980 residents and fellows at the University, according to a Medical School report. âÄúItâÄôs a lot of money every year out of our budget that weâÄôd be able to either put into the pockets of the residents themselves or save,âÄù Rotenberg said. The government collects as much as $700 million in Social Security taxes from medical residents yearly. If confirmed, President Barack ObamaâÄôs Supreme Court nominee Elena Kagan would not be a participant in the case because she is part of a brief supporting the federal governmentâÄôs stance. A number of universities and professional associations have put their weight behind the UniversityâÄôs case as well. âÄúWe believe that our case is highly meritorious,âÄù Rotenberg said. âÄúWeâÄôre very pleased that the Supreme Court justices will give this case a very close look now.âÄù