Maimonides Med. Ctr. v. United States
| Decision Date | 18 December 2015 |
| Docket Number | Docket No. 14–4279–cv. |
| Citation | 809 F.3d 85 |
| Parties | MAIMONIDES MEDICAL CENTER, Plaintiff–Appellant, v. UNITED STATES of America, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Thomas D. Sykes, Gould & Ratner LLP, Chicago, IL, for Plaintiff–Appellant.
Arthur T. Catterall (Richard Farber and Deborah K. Snyder, on the brief), Attorneys, Tax Division, Department of Justice, for Caroline D. Ciraolo, Acting Assistant Attorney General (Kelly T. Currie, United States Attorney, of counsel), Washington, District of Columbia, for Defendant–Appellee.
Before: LYNCH, LOHIER, and CARNEY, Circuit Judges.
When an ordinary taxpayer receives a refund for an overpayment of taxes, interest is applied to the overpayment amount at a rate equaling the Federal short-term rate ("FSTR") plus three percentage points. I.R.C. § 6621(a)(1)(B). If the taxpayer is a corporation, however, it is entitled only to a lower interest rate: the FSTR plus two percentage points on the first $10,000 for each taxable period, and the FSTR plus half a percentage point on the remainder. I.R.C. § 6621(a)(1). Plaintiff–Appellant Maimonides Medical Center ("MMC") and the government agree that MMC is entitled to an overpayment refund and further agree on the amount of that overpayment, but disagree on the interest rate to be applied. MMC argues that, despite being organized as a corporation under New York law, it should receive the benefit of the higher interest rate applicable to non-corporations, because it is a nonprofit corporation and the word "corporation" in § 6621(a)(1) should be construed to refer only to for-profit corporations. We disagree, and hold that § 6621(a)(1)'s lower interest rate applies equally to for-profit corporations and nonprofit corporations such as MMC. Accordingly, we AFFIRM the judgment of the district court.
MMC, a teaching hospital located in Brooklyn, is organized as a domestic not-for-profit corporation under New York law. Pursuant to § 501(a) of the Internal Revenue Code, it is exempt from federal income tax as a "[c]orporation [ ] ... organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes." I.R.C. § 501(c)(3). It is not exempt, however, from paying taxes under the Federal Insurance Contributions Act ("FICA"), I.R.C. §§ 3101 et seq., which requires employers and employees to pay a tax on "wages" from "employment," I.R.C. § 3111(a), (b), the proceeds of which fund Social Security and Medicare.
Services "performed by a student who is enrolled and regularly attending classes at [a] school, college, or university" are excluded from FICA's definition of "employment." I.R.C. § 3121(b)(10). For several years, teaching hospitals and the Internal Revenue Service ("IRS") clashed over whether services performed by medical residents fell under that exclusion. Eventually, the IRS promulgated a regulation providing that, effective April 1, 2005, "employee[s] whose normal work schedule is 40 hours or more per week"—a category that includes medical residents—are not within the student exclusion. Treas. Reg. § 31.3121(b)(10)–2(d)(3)(iii). MMC, which had been paying FICA taxes on its residents' wages since at least 1999, then brought this action in the Eastern District of New York, seeking a refund of the FICA taxes that it had paid before the effective date of the regulation. In 2010, the IRS agreed that FICA taxes paid on residents' wages for tax periods before April 1, 2005 were refundable, see IRS News Release IR–2010–25 (Mar. 2, 2010), and the parties agreed to discontinue this action.
On October 1, 2013, however, the case was reopened. The remaining point of contention between the parties is the interest rate to be applied to MMC's refund. The government seeks to apply the lower interest rate which § 6621(a)(1) provides for overpayments by "corporations," whereas MMC argues that that interest rate does not apply to nonprofit organizations that happen to be organized as corporations under state law, and thus that it is entitled to the higher standard interest rate. The parties cross-moved for summary judgment, and the district court (Vitaliano, J .) granted the government's motion and denied MMC's. MMC timely appealed.
The parties' disagreement centers on the meaning of the word "corporation" in § 6621(a)(1), which specifies the interest rate to be applied to refunds for overpayments. As noted above, MMC concedes that it is a "corporation" both under New York law and for the purpose of obtaining an exemption from federal income tax under § 501(a) & (c)(3). It contends, however, that, as used in § 6621(a)(1), the word "corporation" does not include nonprofit corporations. For the following reasons, we disagree.
We begin with the fact that the word "corporation," standing alone, ordinarily refers to both for-profit and nonprofit entities without distinction. The dictionary definition of "corporation" is not restricted to entities that carry on activities for profit. See Webster's Third New International Dictionary 510 (1993) (defining "corporation" as "an entity recognized by law as constituted by one or more persons and as having various rights and duties together with the capacity of succession,"); Oxford English Dictionary (2d ed. online version 2015) (defining "corporation" as "an artificial person created by royal charter, prescription, or act of the legislature, and having authority to preserve certain rights in perpetual succession"). The famous definition given by Chief Justice Marshall in Trustees of Dartmouth College v. Woodward is to the same effect: 17 U.S. (4 Wheat.) 518, 636, 4 L.Ed. 629 (1819). A profit-seeking motive does not appear on the list of distinguishing characteristics of a corporation given in one leading treatise. See 1 William Meade Fletcher, Cyclopedia of the Law of Corporations § 5 ().1
MMC argues for a different starting point. It contends that, "in ordinary, everyday usage," the word "corporation" refers only to for-profit entities, as in the assertion that "corporations are a force for good in the world." That argument is unpersuasive. While it is true that, in the context of a bar- or dorm-room political discussion, "corporation" may refer exclusively to profit-seeking business entities, that is not, as we have seen, the "ordinary, everyday" definition supplied in the dictionary. Further, in the colloquial sense advocated by MMC, "corporation" typically refers to any profit-seeking legal entity, regardless of form, and includes entities like partnerships, which are not treated as corporations by the Internal Revenue Code. See I.R.C. § 7701(a)(2) (). While such loose use of the word "corporation" may be appropriate in the context of a casual debate about the role of the profit motive in contemporary society, it cannot be the meaning that controls in the Internal Revenue Code.
Next, we turn to § 7701(a) of the Internal Revenue Code, which provides definitions for certain words that apply throughout the Code, "where not otherwise distinctly expressed or manifestly incompatible with the intent thereof." The provision relating to the word "corporation" has not changed since 1918. It reads: "The term ‘corporation’ includes associations, joint-stock companies, and insurance companies." I.R.C. § 7701(a)(3).
As we have recognized, that language is not technically a definition: it does not "specif[y] the characteristics of the entity that it ‘defines.’ " McNamee v. Dep't of Treasury, 488 F.3d 100, 106 (2d Cir.2007) (alteration omitted). It does, however, serve to expand the federal tax law meaning of "corporation" beyond entities that would ordinarily fall under that term; it offers no hint that Congress intended to contract the ordinary meaning of the term in any way. The statutory definition thus strongly suggests that, at a minimum, all entities covered by the core definition of "corporation" are also included. Section 7701(a)(3) does not provide that core definition itself, but because the ordinary meaning of "corporation" includes nonprofit entities that take the corporate form, the same should be true of the core term as used in § 7701(a)(3). That core definition most plausibly encompasses any entity upon which state law has conferred the rights and duties characteristic of a "corporation" as defined in the sources quoted above. Judicial opinions have generally adopted that reading of § 7701(a)(3). See O'Neill v. United States, 22 Ohio Misc. 212, 410 F.2d 888, 899 (6th Cir.1969) (); United States v. Empey, 406 F.2d 157, 169 (10th Cir.1969) ().2
Several other Code provisions use the word "corporation" in a manner that plainly includes incorporated nonprofit organizations, ...
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