Opinion ID: 1262958
Heading Depth: 2
Heading Rank: 3

Heading: Memorial Sloan-Kettering Cancer Center v. United States

Text: The Cancer Center also filed a refund application with the IRS. The Cancer Center premised its request for a refund on two assertions. First, it claimed that the monies that it paid to residents were scholarships under the statute and therefore not subject to FICA. Second, it argued that residents were eligible for the student exception to FICA. The IRS granted the application and refunded FICA taxes that the Cancer Center had paid between 2001 and 2003. On January 3, 2006, the Government reversed its position and sued to recover the refunded FICA taxes. Ten months later, the Government moved for summary judgment, arguing that (1) the monies paid by the Cancer Center to residents were not scholarships, because residents are required to perform services in exchange for the funds, and (2) residents are ineligible for the student exception as a matter of law. With respect to the Cancer Center's scholarship claim, the Government argued that the Cancer Center's residency contracts require its residents to provide patient care services, and thus the monies paid by the Cancer Center to residents could not be considered scholarships. The district court (Hellerstein, J. ) issued an oral decision. At the start of the hearing, the court expressed some skepticism of the Cancer Center's assertion that it did not benefit from the patient care services provided by residents. The court noted that, during the early years of their careers, professionals often learn more from their employment positions than they contribute in those positions, but the court also told the Cancer Center's counsel that [y]ou can't say the hospital doesn't benefit from the residents. When counsel responded that the Cancer Center did not bill patients for care provided by residents, the district court asked whether the cost of the resident services might be built into the cost of other hospital fees and stated that the Cancer Center had no way to prove otherwise. Unlike scholarships, the court noted that to receive these monies, [t]here's no needs test or any other set of considerations that are customary for award of scholarships. After extensive questioning by the court and lengthy arguments by both sides, the district court held that the government is entitled to summary judgment and that FICA was payable on the compensation paid to residents and other fellows.... In so doing, the court first ruled that the monies paid to residents were not scholarships because residents were required to provide patient care services in return for the funds. Moving on to the student exception, the court held that residents were not students and could not invoke the student exception. Though it noted, in passing, that by reason of the contract drawn up with a resident, the residents are not students, it focused on the legislative history and found that Congress had intended FICA to apply to residents. The amounts paid to them for the purpose of the act are considered compensation. The fact that they have another motive as well is beside the point.... The court, therefore, granted summary judgment to the Government.