Maimonides Medical Center v. United States
809 F.3d 85
2d Cir.2015Background
- Maimonides Medical Center (MMC) is a New York domestic nonprofit corporation and a §501(c)(3) tax-exempt hospital that paid FICA taxes on residents' wages prior to April 1, 2005.
- The IRS later promulgated a regulation (effective April 1, 2005) excluding many medical residents from the student exemption; IRS subsequently agreed pre-2005 FICA payments on residents were refundable.
- MMC and the government agree on refund liability and amount; they dispute only the statutory interest rate to apply to the overpayment refund under I.R.C. § 6621(a)(1).
- §6621(a)(1) sets the overpayment interest rate as FSTR + 3 percentage points generally but provides a lower rate for "corporations": FSTR + 2 percentage points (and 0.5% on amounts over $10,000).
- MMC argues "corporation" in §6621(a)(1) should be read to exclude nonprofit corporations (or to mean only C corporations), so MMC should get the higher FSTR + 3% rate; the government contends the statutory term "corporation" includes nonprofit corporations and the lower corporate rate applies.
- The district court granted the government's summary-judgment motion; the Second Circuit affirmed, holding §6621(a)(1)'s corporate rate applies to nonprofit corporations organized under state law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does "corporation" in I.R.C. §6621(a)(1) exclude nonprofit corporations (or mean only C corporations) so MMC gets FSTR + 3% on an overpayment? | MMC: "Corporation" should be read to mean for-profit (or C) corporations only; nonprofit corporations should get the higher overpayment rate (FSTR + 3%). | Government: §7701(a)(3) and ordinary usage include nonprofit entities in "corporation," so the lower corporate overpayment rate applies to nonprofit corporations like MMC. | The court held "corporation" in §6621(a)(1) includes nonprofit corporations under §7701(a)(3); MMC must receive the lower corporate interest rate. |
| Does the parenthetical cross-reference to subsection (c)(3) in §6621(a)(1) redefine "corporation" to mean "C corporation"? | MMC: The parenthetical reference to (c)(3) (and the related language) effectively limits "corporation" to C corporations. | Govt: The parenthetical naturally modifies "taxable period," not "corporation," and (c)(3) does not redefine "corporation"; statutory structure and placement show no congressional intent to limit "corporation" to C corporations. | The court held the parenthetical refers to "taxable period," not a redefinition of "corporation," so it does not convert "corporation" into "C corporation." |
Key Cases Cited
- Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819) (classic description of a corporation as an artificial legal person)
- McNamee v. Dep’t of Treasury, 488 F.3d 100 (2d Cir. 2007) (noting §7701(a)(3) language is not a full definitional specification but expands tax-law meaning)
- O’Neill v. United States, 410 F.2d 888 (6th Cir. 1969) (treating entities chartered under state law as corporations for federal tax purposes)
- United States v. Empey, 406 F.2d 157 (10th Cir. 1969) (administrative practice treats state-law corporations as corporations for tax purposes)
- Leocal v. Ashcroft, 543 U.S. 1 (2004) (instruction to give effect to every word of a statute where possible)
- Russello v. United States, 464 U.S. 16 (1983) (presumption against reading omitted language as included elsewhere)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) (in pari materia canon principles)
- Sidell v. Comm’r, 225 F.3d 103 (1st Cir. 2000) (discussion of C corporations as distinct subchapter C entities)