Tax News

CCH (cch.taxgroup.com) reports:

  Medical residents were not categorically ineligible, as a matter of law, for the Federal Insurance Contribution Act (FICA) tax exemption for students under Code Sec. 3121. The courts were required to determine whether medical residents were students and employed by a "school, college or university" in order to qualify for the exemption. Those questions required separate factual inquires that would vary according to the nature of each residency program and the status of each employer. The medical centers were not precluded from attempting to prove that its residents met the requirements for the exemption.

  The government's argument that the repeal of the intern exception demonstrated a congressional determination that medical residents were ineligible for the student exception was rejected. The nature of medical residency changed over time, and medical residents evolved from members of the hospital staff into trainees engaged in a prolonged course of study. As a result, the residents became students and medical centers transformed into schools; therefore, Congress's failure to anticipate that development did not bar the medical centers from applying for such recognition. The hospitals also introduced evidence that residency programs were accredited, contained a strong educational component, and residency was a prerequisite for medical licensure.

  However, amounts paid by a cancer center to its medical residents were not scholarships under Code Sec. 117. The payments represented a quid pro quo for patient care services performed by the residents. The residents were required to provide the services as a condition to receiving the funds from the cancer center. The educational purpose of the service did not change the manner in which the requirement exacted a "substantial quid pro quo " from the residents.

  Affirming in part and remanding in part, an unreported DC N.Y. decision and 2007-1 USTC ¶50,168.

Memorial Sloan-Kettering Cancer Center, CA-2, 2009-1 USTC ¶50,319

Other References:

 
Code Sec. 117

  CCH Reference - 2009FED ¶7183.39

 
Code Sec. 3401

  CCH Reference - 2009FED ¶33,533.23

  CCH Reference - 2009FED ¶33,538.558

  Tax Research Consultant

  CCH Reference - TRC INDIV: 33,200
CCH Reference - TRC PAYROLL: 3,122
CCH Reference - TRC PAYROLL: 9,054