Internal Revenue Code's FICA Tax Exemption for "Students" is Not Inapplicable as a Matter of Law to Medical Residents
UNIV. OF CHICAGO HOSPITALS v. UNITED STATES (September 23, 2008)
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The University of Chicago Hospitals (“UCH”) is an Illinois not-for-profit corporation that administers graduate medical education programs. One such program is its residency program, in which medical school graduates perform services at the hospital as part of their medical training. In return for these services, UCH paid residents a salary and paid FICA taxes to the United States on their behalf. UCH applied for a refund of the FICA taxes paid in 1995 and 1996 on the grounds that the residents qualified for the “student exemption” to FICA in the Internal Revenue Code (“IRC”). In the district court, the United States moved for summary judgment, arguing that residents could not qualify as “students” as a matter of law under the IRC. The district court rejected the argument, denied summary judgment, and certified its order for appeal.
In their opinion, Judges Bauer, Cudahy, and Sykes affirmed. The Court started with the language of the student exemption itself, which excludes from the term “employment” any “service performed in the employ of . . . a school . . . if such service is performed by a student who is enrolled and regularly attending classes at such school . . . .” Then the Court addressed the government’s argument that residents did not qualify under the unambiguous, literal language of the statute. The government argued that a resident is not a “student” and a hospital is not a “school” in the common and natural meaning of those words. The Court disagreed with such a narrow reading of the words. In fact, it held that the unambiguous language of the clause did not exclude residents from qualifying.
Although it found the statute unambiguous, the Court nevertheless addressed the government’s arguments that it would have considered had it found ambiguity. The government relied on the legislative histories of the student exemption and the intern exemption, the later repeal of the intern exemption, and a post-1996 amendment to the student exemption that excluded students who worked in excess of forty hours per week. It concluded that, combined, these supported an interpretation that excluded residents from the definition of “student.” The Court did not agree. Instead, it found that, to the extent the statute was ambiguous, the relevant regulations called for a case specific approach to eligibility and that approach was a permissible and proper interpretation of the statute.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select