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U of M, Mayo will get U.S. Supreme Court hearing on tax status of medical residents

Are medical residents still students when they receive stipends for their training? The case has broad implications for medical colleges.

Are medical residents still students when they receive stipends during their graduate medical education? The University of Minnesota and the Mayo Clinic say yes. But the Internal Revenue Service says no — fork over the FICA dough.

An answer is expected from the U.S. Supreme Court. The high court said Tuesday that it will hear a long-running case involving the U, Mayo and the IRS. The case, Mayo Foundation et al. v. United States, has broad implications for medical colleges across the country. (Here’s the petition [pdf].)

“What’s at stake is as much as $700 million that medical colleges pay annually in taxes to the federal government on behalf of their residents,” according to the Chronicle of Higher Education“If the residents are considered employees, the institutions must pay half of the amount of Social Security and Medicare taxes for the residents. If they are considered students, they and the institutions are exempted from those levies, called FICA taxes, after the federal law that authorizes their collection.”

20-year-plus legal battle
U of M General Counsel Mark Rotenberg said Tuesday that the hearing is “good news” in a more than 20-year battle over the issue in federal and appeals courts.

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“We are very pleased that the Supreme Court Justices will now give this case very careful consideration,” Rotenberg said in a press release. “The government itself has acknowledged that the question in this case involves billions of dollars in pending tax refund claims, and hundreds of millions of dollars per year in FICA taxes that must come from increasingly scarce medical education funds.”

Given the federal budget deficit, Minnesota’s budget crisis, and the potential impact of federal health-care reform, a lot of folks have skin in this game. Residents who train at area hospitals receive about $50,000 a year, according to my notes from an interview a couple of months ago. The IRS thinks Uncle Sam deserves a share of it.

Heated comments
An Associated Press story on the Star Tribune’s website is drawing some heated commentary from docs and non-docs:

From “riverthyme”: “According to reports, medical training/school is the most expensive profession yet it takes the least amount of time for the students to pay-off their student loans. Trained doctors then ‘auction’ themselves off to the highest bidders — thus — increasing the astronomical rates for their services. … No — they do not deserve anymore break than someone learning how to be a better street sweeper.”

“Drdadr” responds: “You are incorrect about ceasing to be a student after getting the MD degree, on many levels. … You really cannot practice clinical medicine in any form without a residency certificate (which looks suspiciously like a University diploma, to continue the education parallel). The above are also reasons why residency cannot be simply equated with other trade apprenticeships. Oh, and to the commented [sic] who remarked how quickly doctors pay off their loans, me and my 6 figure debt, and my 12 years of med school + residency + fellowship, would love to see your source.”

MinnPost readers: What’s your take?