Hinck v. United States, 127 S.Ct. 2011 (2007) and United States v. Mount Sinai Medical Center of Florida, Inc., -- F.3d --- (11th Cir. 2007) - Lessons in statutory construction.

A week after Eileen O’Connor had addressed the ABA Tax Section and had reveled in the Government’s victories in the FICA wars over medical residents; the Eleventh Circuit cast a pall over the Government’s victory parade with its decision in United States v. Mount Sinai Medical Center of Florida, Inc., -- F.3d --- (11th Cir. 2007). The Eleventh Circuit’s message to the Government was clear – if the statute is clear there is no need to go any further. Since there is a split in authority, we can pretty much guess were this will end up. Hinck v. United States, 127 S.Ct. 2011 (2007) coupled with EC Term of Years Trust v. United States, - U.S. - (2007) may provide some clues as to how the Supreme Court “interprets” the Internal Revenue Code – can we say strict construction!

In Hinck v. United States, the Court analyzed I.R.C. § 6404. Just like in EC Term of Years Trust  v. United States, - U.S. - (2007), the Supreme Court relied on statutory analysis. The provisions at issue in Hinck were I.R.C. §§ 6404 (e) (1) and (h)(1). § 6404 (e) (1) provides as follows:

“In the case of any assessment of interest on ... any deficiency attributable in whole or in part to any error or delay by an officer or employee of the Internal Revenue Service (acting in his official capacity) in performing a ministerial act ... the Secretary may abate the assessment of all or any part of such interest for any period.”

§ 6404 (h) (1) provides as follows:

Review of denial of request for abatement of interest.-
(1)In general.-The Tax Court shall have jurisdiction over any action brought by a taxpayer who meets the requirements referred to in section 7430(c)(4)(A)(ii) to determine whether the Secretary's failure to abate interest under this section was an abuse of discretion, and may order an abatement, if such action is brought within 180 days after the date of the mailing of the Secretary's final determination not to abate such interest.” 26 U.S.C. § 6404(h)(1).

Relying on Beall v. United States, 336 F.3d 419 (5th Cir 2003), the taxpayers sought to contest the IRS’s denial of interest abatement in the Court of Claims and not in the Tax Court.

Observation: A reason the taxpayers may have sought relief in the Court of Claims is because the jurisdiction in the Tax Court is limited to than $2 million (for individuals) or $7 million (for businesses). Said argument was brought to the attention of the Supreme Court to which the Court noted that Congress must have determined that not all taxpayers are subject to relief. Compare United States v. Mount Sinai Medical Center of Florida, Inc. and its rationale as to teaching hospitals, supra.

Chief Justice Roberts quickly disposed of the taxpayer’s by relying on statutory construction. Chief Justice Roberts stated:

Our analysis is governed by the well-established principle that, in most contexts, “a precisely drawn, detailed statute pre-empts more general remedies.  EC Term of Years Trust v. United States, 550 U.S. ----, ----, 127 S.Ct. 1763, 1764, --- L.E.2d ---- (2007) . . . We are also guided by our past recognition that when Congress enacts a specific remedy when no remedy was previously recognized, or when previous remedies were “problematic,” the remedy provided is generally regarded as exclusive." (Citation Omitted).

The Court found that § 6404 was a detailed statue that provided a forum to a limited class of potential plaintiffs, a statute of limitations, a standard of review and authorization for judicial relief. More importantly, Congress had enacted the statute to remedy a situation were the Courts had “uniformly” rejected any review of the IRS determination. As in EC Term of Years Trust v. United States, the Supreme Court held that the governing statute was clear on its face. That is, the statute was in effect when the taxpayers brought their challenge. The Supreme Court was not going to facilitate forum shopping and allow the remedy prescribed by Congress to be passed over and, if the taxpayers did not qualify under § 6404, then so be it because that is what the statute, i.e. congress, provided.

The Supreme Court’s analysis provides a perfect segway into United States v. Mount Sinai Medical Center of Florida, Inc., -- F.3d --- (11th Cir. 2007). In Mount Sinai, the IRS claimed that it had erroneously a refund to the hospital because medical residents were employees of the hospital and not subject to any exceptions under I.R.C. § 3121. The hospital disagreed and stated that because the medical residents were participating in Mount Sinai's Graduate Medical Education Program ("GMEP"), the residents were not employees but students. As students, the residents were not subject to FICA taxes under I.R.C. § 3121(b)(10) which provides as follows:

(b) Employment.--For purposes of this chapter, the term "employment" means any service, of whatever nature, performed (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States, or (ii) on or in connection with an American vessel or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States, or (B) outside the United States by a citizen or resident of the United States as an employee for an American employer (as defined in subsection (h)), or (C) if it is service, regardless of where or by whom performed, which is designated as employment or recognized as equivalent to employment under an agreement entered into under section 233 of the Social Security Act; except that such term shall not include--

(10) service performed in the employ of--

(A) a school, college, or university, or
(B) an organization described in section 509(a)(3) if the organization is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of a school, college, or university and is operated, supervised, or controlled by or in connection with such school, college, or university, unless it is a school, college, or university of a State or a political subdivision thereof and the services performed in its employ by a student referred to in section 218(c)(5) of the Social Security Act are covered under the agreement between the Commissioner of Social Security and such State entered into pursuant to section 218 of such Act;

if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university;

The Eleventh Circuit just as the Supreme Court would do Hinck employed a strict construction analysis. The Government argued that the Court should look at the legislative history to see how Congress had removed language concerning interns. The Eleventh Circuit responded with the same response it had given the government in Coggin Automotive Corp. v. Commissioner, 292 F.3d 1326 (11th Cir.2002) – Why? The Eleventh Circuit found the § 3121(b)(10) was clear on its face and when a statute is clear on its face that one does not need to go to the legislative history, i.e. an accepted practice of statutory construction.

As to the government’s argument that certain hospitals would in effect have an advantage, the Court noted that Congress through its wording of the statute allowed schools, colleges, universities, i.e. teaching hospitals, to have this advantage. Compare with Hinck and it's rationale as to the limitiation concerning individuals and corporations.  Therefore, the only question that needed to be resolved was whether the hospital qualified as a school, college or university, if so the exception applies.

There is symmetry as to both decisions – strict construction. The Court did not seek to legislate by giving a definition to the statute that was not clear from the statute. If the IRS likes the result in Hinck then it cannot complain about the result in Mount Sinai. By the way I bet you my Alma matter is very happy with the result in Mount Sinai. It’s all about the “U”!!!!

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