854 F.3d 930
7th Cir.2017Background
- Medical College of Wisconsin received an IRS refund of FICA taxes after the IRS ruled medical residents were exempt until April 1, 2005; IRS paid interest with the refund.
- IRS later recalculated interest, concluded it overpaid, demanded $6.7 million back (saying it had used too high a rate); Medical College returned the funds and sued for restoration under 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7422.
- Central statutory provision: 26 U.S.C. § 6621(a)(1) sets the overpayment interest rate as the federal short-term rate plus 3 percentage points (2 points for corporations), with a special reduction for corporate overpayments over $10,000.
- Medical College argued the term “corporation” in § 6621(a) should be read to exclude nonprofit corporations because subsection (c)(3)(A) defines “large corporate underpayment” by reference to “C corporation.”
- The district court denied recovery; Medical College appealed. The Seventh Circuit affirmed, agreeing with Second and Sixth Circuit decisions rejecting the nonprofit-based reading.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether “corporation” in § 6621(a) means only C (for‑profit) corporations, entitling nonprofits to the higher overpayment rate | “Corporation” should be read consistently with subsection (c)(3)(A); because c(3)(A) refers to “C corporation,” nonprofits are not C corporations and thus get the higher non‑corporate overpayment rate | The definition in subsection (c)(3)(A) defines “large corporate underpayment” for purposes of subsection (c) only and does not change the meaning of “corporation” in subsection (a) | Court held “corporation” in (a) covers corporations generally; (c)(3)(A) is limited to subsection (c) and does not redefine “corporation” throughout § 6621 |
Key Cases Cited
- Maimonides Medical Center v. United States, 809 F.3d 85 (2d Cir. 2015) (rejected nonprofit’s argument on § 6621 corporate meaning)
- United States v. Detroit Medical Center, 833 F.3d 671 (6th Cir. 2016) (same conclusion as Second Circuit)
- Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50 (2004) (statutory subdivision limits show definitions may be confined to particular subsections)
- Mayo Foundation for Medical Education & Research v. United States, 562 U.S. 44 (2011) (related IRS rule on residency and FICA taxes cited for background)