United States v. Detroit Medical Center
833 F.3d 671
6th Cir.2016Background
- Detroit Medical Center (DMC), a Michigan not-for-profit corporation, received IRS refunds of FICA (employer) taxes for multiple quarters after the IRS administratively exempted medical residents as "students."
- For each taxable quarter the IRS issued two checks: resident (employee) portion paid interest at the non‑corporate overpayment rate (short‑term rate + 3%); employer (DMC) portion paid at the corporate overpayment rate (short‑term rate + 2% up to $10,000, then +0.5% above $10,000).
- DMC moved to reinstate the case seeking $9.1 million additional interest, arguing that as a nonprofit it should not be treated as a "corporation" under 26 U.S.C. § 6621(a)(1) and thus should get the higher (non‑corporate) rate.
- The district court granted summary judgment for the United States; DMC appealed.
- Sixth Circuit affirmed, holding that the unadorned term "corporation" in § 6621 includes state‑incorporated nonprofit corporations and the cross‑reference in the statute defines "taxable period," not "corporation."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a state‑incorporated nonprofit is a "corporation" under 26 U.S.C. § 6621(a)(1) for determining overpayment interest rates | DMC: "Corporation" in (a)(1) should be read as limited to C corporations (for‑profit), so nonprofits are entitled to the higher non‑corporate rate | Gov't: "Corporation" includes any entity chartered as a corporation under state law, including nonprofits; cross‑reference defines "taxable period," not "corporation" | Court: Affirmed for Gov't — "corporation" includes nonprofit state corporations; DMC not entitled to higher rate |
| Whether the parenthetical cross‑reference in § 6621(a)(1) limits "corporation" to "C corporation" | DMC: The parenthetical points to § 6621(c)(3), which discusses C corporations, so (a)(1) should be read to mean C corporations | Gov't: The parenthetical naturally modifies "taxable period" (defined in (c)(3)); (c)(3) does not define "corporation" | Court: Held the parenthetical defines "taxable period," not "corporation," so (a)(1) does not mean only C corporations |
Key Cases Cited
- Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (affirming that chartered colleges are corporations and defining corporate attributes)
- O'Neil v. United States, 410 F.2d 888 (6th Cir. 1969) (state law incorporation establishes corporate status for federal tax purposes)
- Maimonides Med. Ctr. v. United States, 809 F.3d 85 (2d Cir. 2015) (holding "corporation" in § 6621 includes nonprofit state corporations)
- Morissette v. United States, 342 U.S. 246 (adopt customary meaning of statutory terms absent contrary definition)
- Lamie v. United States Trustee, 540 U.S. 526 (refusal to rewrite statutory text even if result seems harsh)
- Russello v. United States, 464 U.S. 16 (presumption that differing statutory language is purposeful)