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Florida hospital wins round in IRS court battle

NEWS IN BRIEF — Posted June 25, 2007

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Mount Sinai Medical Center in Miami will be able to go to court to try to keep a $2.5 million IRS refund of medical resident Federal Insurance Contributions Act taxes. In May, the U.S. Court of Appeals for the 11th Circuit tossed out a ruling that said Mount Sinai had to return the money.

The case is tied to a 40-year-old debate over whether medical residents are employees or students. Traditionally, tax law has said medical residents are employees with FICA taxable income.

However, two medical institutions in 1998 and 2003 won court cases exempting their residents from paying FICA taxes. These decisions triggered a flood of tax refund requests seeking more than $1.135 billion in FICA refunds, according to court documents.

The IRS issued a regulation in December 2004, stating that residents are employees and do not qualify for the student exemption from paying FICA taxes.

Since then, the IRS has gone after refunds made to teaching hospitals prior to 2004. Mount Sinai is one of the first to go to court. The IRS has filed lawsuits seeking refunds from at least two other teaching institutions. The Dept. of Justice has declined to comment on how many institutions received FICA refunds.

Note: This item originally appeared at http://www.ama-assn.org/amednews/2007/06/25/prbf0625.htm.

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