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Albany Medical Center v. United States

January 10, 2007

ALBANY MEDICAL CENTER, PLAINTIFF
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Scullin, Senior Judge

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiff filed its complaint in this action on December 6, 2004, seeking to recover a refund of certain employment taxes it paid for its resident doctors ("residents") for the tax years of 1995 through 1999. As discovery commenced, the parties reached an impasse concerning disclosure of personal information about the residents that might be considered confidential under the Family Educational Rights and Privacy Act ("FERPA") and/or the Health Insurance Portability and Accountability Act of 1996 ("HIPPA"). Therefore, Magistrate Judge Treece issued a Confidentiality Order on May 9, 2006.

Currently before the Court are (1) the Government's motion for summary judgment on Plaintiff's claim on the basis that the Internal Revenue Code's ("IRC") "student exception" does not cover medical residents as a matter of law and (2) the Government's objections to the Confidentiality Order that Magistrate Judge Treece issued on May 9, 2006.

II. BACKGROUND

Plaintiff Albany Medical Center is the administrative unit linking Albany Medical College and Albany Medical Center Hospital. Plaintiff has residency educational programs in approximately forty medical specialties in which resident doctors gain required medical training and experience under the supervision of full-time faculty, who are established medical professionals. Residents' activities include a substantial amount of clinical care for hospital patients, and Plaintiff provides them remuneration and benefits, ranging from approximately $32,000 to $35,000, depending on their progress within the program.

In all quarters during the period from 1995 to 1999, Plaintiff paid and withheld Federal Insurance Contribution Act ("FICA") taxes for its residents. In February 2002, Plaintiff filed Form 843, claiming a refund and abatement of these amounts, plus interest.*fn1 Since the Internal Revenue Service did not respond to its claim within six months, Plaintiff filed this action seeking a total refund of $7,321,279.52.

III. DISCUSSION

A. Applicability of the Student Exception

Under the Internal Revenue Code, wages earned for employment are subject to FICA taxes. See IRC §§ 3101(a)-(b), 3111(a)-(b). The Code defines "employment" as "any service, of whatever nature, performed . . . by an employee for the person employing him . . . ." IRC § 3121(b). However, services rendered for a "school, college, or university" by "a student who is enrolled and regularly attending classes at such school, college, or university" are not considered employment. IRC § 3121(b)(10). Therefore, services performed under the student exception and the money received therefrom are not subject to FICA taxes. Plaintiff bases its refund claim on this provision.

The Government asserts that medical residents are not included in the student exception as a matter of law. Its argument is based on the legislative history of the student exception and related provisions of the IRC. In response, Plaintiff contends that the Court should not consider legislative history because the student exception is unambiguous. Alternatively, Plaintiff argues that the legislative history shows that medical residents are eligible for the student exception and that case-by-case analysis is required.

Despite Plaintiff's arguments to the contrary, whether a medical resident qualifies as "a student who is enrolled and regularly attending classes at such school, college, or university" is not a question that is resolvable by resorting to the text of IRC § 3121 alone. Although it is clear that residencies have an educational component, it is equally clear that patient care in a hospital setting is a prominent concern. Therefore, it is appropriate to review the history behind the legislation. See United States v. Donruss Co., 393 U.S. 297, 303 (1969) ("Since the language of the statute does not provide an answer to the question before us, we have examined in detail the relevant legislative history." (footnote omitted)). This examination is particularly necessary because "'[t]he true meaning of a single section of a statute in a setting as complex as that of the revenue acts, however precise its language, cannot be ascertained if it be considered apart from related sections, or if the mind be isolated from the history of the income tax legislation of which it is an integral part.'" See Comm'r v. Engle, 464 U.S. 206, 223 (1984) (quoting Helvering v. Morgan's Inc., 293 U.S. 121, 126, 55 S.Ct. 60, 62, 79 L.Ed. 232 (1934)).

Moreover, in determining whether an employment relationship subject to FICA taxation exists, the court should abandon a limited construction of the statutory text in favor of an interpretation bearing in mind the purpose of the Social Security Act and its wide breadth of coverage. See United States v. Silk, 331 U.S. 704, 711-12 (1947) (footnotes omitted); Soc. Sec. Bd. v. Nierotko, 327 U.S. 358, 365 (1946). Courts are required to interpret federal social security legislation liberally, and they should resolve any doubts in favor of coverage rather than exclusion. See Herbst v. Finch, 473 F.2d 771, 775 (2d Cir. 1972) (quotation omitted). It is a "settled principle that exemptions from taxation are not to be implied; they must be unambiguously proved." United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988) (citations omitted).

The legislative history indicates that Congress never intended medical residents to qualify for the student exception. In 1935, the original Social Security Act was signed into law. See United States v. Mount Sinai Med. Ctr. of Fla., Inc., 353 F. Supp. 2d 1217, 1223 (S.D. Fla. 2005). As originally enacted, social security taxes were imposed on "wages," which were defined as "all remuneration for employment." Social Security Act of 1935, ch. 531, 49 Stat. 639, § 811(a). In turn, "employment" was defined as "any service, of whatever nature, performed within the United States by an employee for his employer . . . ." Id. § 811(b). However, the statute contained eight broad exceptions, including agricultural ...


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