Johnson City Medical Center v. U.S., 92-5499

• Citation: 999 F.2d 973
• Decision Date: 09 September 1993
• Docket Number: No. 92-5499,92-5499
• Parties: -5452, 62 USLW 2093, 84 Ed. Law Rep. 924, Unempl.Ins.Rep. (CCH) P 17435A JOHNSON CITY MEDICAL CENTER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 973

999 F.2d 973

72 A.F.T.R.2d 93-5452, 62 USLW 2093,

84 Ed. Law Rep. 924,

Unempl.Ins.Rep. (CCH) P 17435A

JOHNSON CITY MEDICAL CENTER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 92-5499.

United States Court of Appeals Sixth Circuit.

Argued March 1, 1993.

Decided July 23, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Sept. 9, 1993. ^*

D. Michael Swiney, Andrew R. Tillman (briefed), Paine, Swiney & Tarwater, Knoxville, TN, Mark A. Borreliz (argued and briefed), Heller, Borreliz & Katz, Jamie W. Katz (briefed), Heller, Borreliz & Katz, Boston, MA, for plaintiff-appellant.

Joseph F. Minni, Trial Atty., U.S. Dept. of Justice, Tax Div., Gary R. Allen, Acting Chief (briefed), Jonathan S. Cohen, Sara K. Knutson (argued), U.S. Dept. of Justice, Appellate Section Tax Div., Washington, DC, for defendant-appellee.

Before: KEITH and BATCHELDER, Circuit Judges; and CHURCHILL, Senior District Judge. ^**

KEITH, Circuit Judge.

Plaintiff-Appellant, Johnson City Medical Center ("the hospital"), appeals from the district court's judgment on behalf of the United States, dismissing all of the plaintiff's claims for recovery of FICA taxes. For the reasons stated below, we AFFIRM.

I.

This is a case of first impression regarding the interpretation of an exception for certain services performed "as a student nurse" from coverage under the Federal Insurance Contribution Act (FICA), I.R.C. §§ 3101-3128. On June 21, 1989, Johnson City Medical Center Hospital ("the hospital"), filed a complaint with the district court seeking to recover FICA taxes collected by the IRS for 18 student nurses employed from 1983 through 1986. They argued that the taxes were erroneously assessed, because the services of the student nurses were exempted under the student nurse exception in the Internal Revenue Code.

The hospital is a community non-profit health care institution in Johnson City, Tennessee. During 1985 and 1986, the hospital employed the 18 student nurses in this case, who were all attending a nurse training program at East Tennessee State University (ETSU). These employees worked in different capacities in the hospital, including nurse technician, nurse extern, administrative control center (ACC) secretary, nursing assistant and licensed practical nurse.

Nurse technicians were required to have completed the first semester of clinical instruction. The general duties of nurse technicians included direct patient care, giving baths, taking vital signs, and performing minor treatments. Nurse externs were all senior nursing students, whose general duties included giving baths, taking vital signs, walking and turning patients, and inserting feeding tubes, under supervision. The ACC secretary position required no previous experience and was open to high school graduates. The duties included answering patient call lights, checking x-ray orders, assisting in transcribing physician orders and securing medications from the pharmacy. Nurse assistants were not required to be enrolled in nursing school, and provided direct patient care. The licensed practical nurses (LPN's) were required to be graduates of nursing school and licensed to practice in Tennessee. The LPN's provided direct patient care, were responsible for the nursing care of the patients assigned to them, and supervised nurse assistants and nurse technicians.

The student nurses were all paid less than registered nurses (RN's), and worked no more than 40 hours per two week pay period. The student nurses did not receive credit toward their nursing degree with ETSU for their employment with the hospital. Although ETSU conducted a clinical program at the hospital, it was separate from the hospital's hiring of student nurses as employees.

From 1983 to 1986, the hospital made FICA payments on behalf of the nursing student employees in this case. The amounts at issue consist of wages earned during the time that the student nurses were employed at the hospital and enrolled as nursing students. By the time of trial, the total refund sought by the hospital was $3,496 for 1985 and 1986.

The district court held a one-day bench trial on April 25, 1991. On February 7, 1992 the court entered a final judgment on behalf of the United States dismissing all of the hospital's claims. 783 F.Supp. 1048. The district court based its decision on Revenue Ruling 85-74. The district court determined that the agency interpretation contained in Revenue Ruling 85-74 was not repugnant to the statute or its legislative history. Furthermore, the court found that the services of the student nurses were not exempted because they were not incidental to obtaining a degree. The student nurses did not receive academic credit for their work, the services were sporadic and unconnected to an educational plan, and their earnings were not nominal. On April 3, 1992, the hospital filed a timely notice of appeal.

II.

As both parties agree, the primary issue in this case is the interpretation of the following Internal Revenue Code provision regarding the exemption of student nurses as employees:

any service, of whatever nature, performed ... by an employee for the person employing him ... except that such term shall not include--

(13) service performed as a student nurse in the employ of a hospital or a nurses' training school by an individual who is enrolled and is regularly attending classes in a nurses' training school chartered or approved pursuant to State law.

I.R.C. § 3121(b)(13). In 1985, the IRS issued a Revenue Ruling explaining the student nurse exception and the applicable legislative history as follows:

In enacting the exception under section 3121-(b)(13) of the Code, Congress stated that "[t]he intent of the amendment is to exclude those persons and those organizations in which the employment is part-time or intermittent; and the total amount of earnings is only nominal, and the payment of the tax is inconsequential and a nuisance. The benefit rights built up are also inconsequential. Many of those affected, such as students ... will have other employment which will enable them to develop insurance benefits." H.R.Rep. No. 728, 76th Cong., 1st Sess. 18 (1939), 1939-2 C.B. 538, 543.

The language of the statute, including use of the phrase "student nurse," and the legislative history indicate Congress' intent to except services as a student nurse from the definition of employment only if the following three requirements are met:

(1) The employment is substantially less than full time,

(2) The total amount of earnings is nominal, and

(3) The only services performed by the student nurse for the employer are incidental parts of the student nurse's training toward a degree which will qualify him or her to practice as a nurse or in a specialized area of nursing.

Revenue Ruling 85-74, 1985-1 C.B. 331, 332.

The hospital interprets the language of § 3121(b)(13) to exclude from FICA coverage employees who are also nursing students. The government interprets the language as excluding only nursing students who are working in the hospital as part of their training for a degree. In its decision, the district court concluded that, pursuant to Revenue Ruling 85-74, the services of the student nurses were not exempted from employment under § 3121(b)(13). Because this case is one of statutory construction, this Court's scope of review is de novo. United States v. Buckley, 934 F.2d 84, 87-88 (6th Cir.1991).

When an agency is charged with the interpretation of a statute this Court must follow the dictates of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The Chevron court set forth the following standard:

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather if the statute is silent or ambiguous with respect to the specific issues, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

Id. at 842-43, 104 S.Ct. at 2781-82 (emphasis added).

The reviewing " 'court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.' " CenTra, Inc. v. United States, 953 F.2d 1051, 1055-56 (quoting Chevron U.S.A., 467 U.S. at 843 n. 11, 104 S.Ct. at 2782 n. 11) (1992). Instead, "a Revenue Ruling is entitled to some deference unless 'it conflicts with the statute it supposedly interprets or with that statute's legislative history or if it is otherwise unreasonable.' " CenTra, Inc., 953 F.2d at 1056; See also Threlkeld v. Commissioner 848 F.2d 81, 84 (6th Cir.1988) (citing Brook, Inc. v. Commissioner, 799 F.2d 833, 836 n. 4 (2d Cir.1986)).

In our analysis, this Court must first determine whether Congress' intent as to § 3121(b)(13) is clear and unambiguous. A brief historical overview of the origination of the exception is necessary in order to make that determination.

FICA involves the contributory aspect of a system of old age insurance which was passed by Congress under the Social Security Act of 1935. An employee's eligibility for FICA benefits depends upon the total wages received, the periods during which wages were paid, and a minimum work requirement. Helvering v. Davis, 301 U.S. 619, 635, 57...