Mayo Found. for Med. Educ. & Research v. United States, 09–837.

• Citation: 562 U.S. 44,131 S.Ct. 704,178 L.Ed.2d 588
• Decision Date: 11 January 2011
• Docket Number: No. 09–837.,09–837.
• Parties: MAYO FOUNDATION FOR MEDICAL EDUCATION AND RESEARCH et al., Petitioners, v. UNITED STATES.
• Court: United States Supreme Court

562 U.S. 44
131 S.Ct. 704
178 L.Ed.2d 588

MAYO FOUNDATION FOR MEDICAL EDUCATION AND RESEARCH et al., Petitioners,
v.
UNITED STATES.

No. 09–837.

Supreme Court of the United States

Argued Nov. 8, 2010.
Decided Jan. 11, 2011.

Theodore B. Olson, Washington, DC, for petitioners.

Matthew D. Roberts, Washington, DC, for respondent.

John W. Windhorst, Jr., Dorsey & Whitney LLP, Minneapolis, MN, Theodore B. Olson, Counsel of Record, Matthew D. McGill, Amir C. Tayrani, Gibson, Dunn & Crutcher LLP, Washington, DC, for Petitioners.

Edwin S. Kneedler, Deputy Solicitor General, Acting Solicitor General, Counsel of Record, John A. DiCicco, Acting Assistant Attorney General, Malcolm L. Stewart, Deputy Solicitor General, Matthew D. Roberts, Assistant to the Solicitor General, Teresa E. McLaughlin, Bridget M. Rowan, Department of Justice, Washington, DC, for U.S.

Chief Justice ROBERTS delivered the opinion of the Court.

562 U.S. 47

Nearly all Americans who work for wages pay taxes on those wages under the Federal Insurance Contributions Act (FICA), which Congress enacted to collect funds for Social Security. The question presented in this case is whether doctors who serve as medical residents are properly viewed as "student [s]" whose service Congress has exempted from FICA taxes under 26 U.S.C. § 3121(b)(10).

I

A

Most doctors who graduate from medical school in the United States pursue additional education in a specialty to become board certified to practice in that field. Petitioners Mayo Foundation for Medical Education and Research, Mayo Clinic, and the Regents of the University of Minnesota (collectively Mayo) offer medical residency programs that provide

562 U.S. 48

such instruction. Mayo's residency programs, which usually last three to five years, train doctors primarily through hands-on experience. Residents often spend between 50 and 80 hours a week caring for patients, typically examining and diagnosing them, prescribing medication, recommending plans of care, and performing certain procedures. Residents are generally supervised in this work by more senior residents and by faculty members known as attending physicians. In 2005, Mayo paid its residents annual "stipends" ranging between $41,000 and $56,000 and provided them with health insurance, malpractice insurance, and paid vacation time.

Mayo residents also take part in "a formal and structured educational program." Brief for Petitioners 5 (internal quotation marks omitted). Residents are assigned

131 S.Ct. 709

textbooks and journal articles to read and are expected to attend weekly lectures and other conferences. Residents also take written exams and are evaluated by the attending faculty physicians. But the parties do not dispute that the bulk of residents' time is spent caring for patients.

B

Through the Social Security Act and related legislation, Congress has created a comprehensive national insurance system that provides benefits for retired workers, disabled workers, unemployed workers, and their families. See United States v. Lee, 455 U.S. 252, 254, 258, and nn. 1, 7, 102 S.Ct. 1051, 71 L.Ed.2d 127 (1982). Congress funds Social Security by taxing both employers and employees under FICA on the wages employees earn. See 26 U.S.C. § 3101(a) (tax on employees); § 3111(a) (tax on employers). Congress has defined "wages" broadly, to encompass "all remuneration for employment." § 3121(a) (2006 ed. and Supp. III). The term "employment" has a similarly broad reach, extending to "any service, of whatever nature, performed ... by an employee for the person employing him." § 3121(b).

562 U.S. 49

Congress has, however, exempted certain categories of service and individuals from FICA's demands. As relevant here, Congress has excluded from taxation "service performed in the employ of ... a school, college, or university ... if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university." § 3121 (b)(10) (2006 ed.). The Social Security Act, which governs workers' eligibility for benefits, contains a corresponding student exception materially identical to § 3121(b)(10). 42 U.S.C. § 410(a)(10).

Since 1951, the Treasury Department has applied the student exception to exempt from taxation students who work for their schools "as an incident to and for the purpose of pursuing a course of study" there. 16 Fed.Reg. 12474 (adopting Treas. Regs. 127, § 408.219(c)); see Treas. Reg. § 31.3121(b)(10)–2(d), 26 CFR § 31.3121(b)(10)–2(d) (2010). Until 2005, the Department determined whether an individual's work was "incident to" his studies by performing a case-by-case analysis. The primary considerations in that analysis were the number of hours worked and the course load taken. See, e.g., Rev. Rul. 78–17, 1978–1 Cum. Bull. 307 (services of individual "employed on a full-time basis" with a part-time course load are "not incident to and for the purpose of pursuing a course of study").

For its part, the Social Security Administration (SSA) also articulated in its regulations a case-by-case approach to the corresponding student exception in the Social Security Act. See 20 CFR § 404.1028(c) (1998). The SSA has, however, "always held that resident physicians are not students." SSR 78–3, Cum. Bull. 1978, pp. 55–56. In 1998, the Court of Appeals for the Eighth Circuit held that the SSA could not categorically exclude residents from student status, given that its regulations provided for a case-by-case approach. See Minnesota v. Apfel, 151 F.3d 742, 747–748. Following that decision, the Internal Revenue Service received more than 7,000 claims seeking FICA tax refunds on

562 U.S. 50

the ground that medical residents qualified as students under § 3121(b)(10) of the Internal Revenue Code. 568 F.3d 675, 677 (C.A.8 2009).

Facing that flood of claims, the Treasury Department "determined that it [wa]s necessary to provide additional clarification of the ter[m]" "student" as used in § 3121(b)(10), particularly with respect to individuals who perform "services that are in the nature of on the job training."

131 S.Ct. 710

69 Fed.Reg. 8605 (2004). The Department proposed an amended rule for comment and held a public hearing on it. See id., at 76405.

On December 21, 2004, the Department adopted an amended rule prescribing that an employee's service is "incident" to his studies only when "[t]he educational aspect of the relationship between the employer and the employee, as compared to the service aspect of the relationship, [is] predominant." Id., at 76408; Treas. Reg. § 31.3121(b)(10)–2(d)(3)(i), 26 CFR § 31.3121(b)(10)–2(d)(3)(i) (2005). The rule categorically provides that "[t]he services of a full-time employee"—as defined by the employer's policies, but in any event including any employee normally scheduled to work 40 hours or more per week—"are not incident to and for the purpose of pursuing a course of study." 69 Fed.Reg. 76408 ; Treas. Reg. § 31.3121(b)(10)–2(d)(3)(iii), 26 CFR § 31.3121(b)(10)–2(d)(3)(iii) (the full-time employee rule). The amended provision clarifies that the Department's analysis "is not affected by the fact that the services performed ... may have an educational, instructional, or training aspect." Ibid. The rule also includes as an example the case of "Employee E," who is employed by "University V" as a medical resident. 69 Fed.Reg. 76409 ; Treas. Reg. § 31.3121(b)(10)–2(e), 26 CFR § 31.3121(b)(10)–2(e) (Example 4). Because Employee E's "normal work schedule calls for [him] to perform services 40 or more hours per week," the rule provides that his service is "not incident to and for the purpose of pursuing a course of study," and he accordingly is not an exempt "student" under § 3121(b)(10).

562 U.S. 51

69 Fed.Reg. 76409, 76410 ; Treas. Reg. § 31.3121(b)(10)–2(e), 26 CFR § 31.3121(b)(10)–2(e) (Example 4).

C

After the Department promulgated the full-time employee rule, Mayo filed suit seeking a refund of the money it had withheld and paid on its residents' stipends during the second quarter of 2005. 503 F.Supp.2d 1164, 1166–1167 (Minn.2007) ; Regents of Univ. of Minn. v. United States, No. 06–5084, 2008 WL 906799 (D.Minn., Apr. 1, 2008), App. to Pet. for Cert. Civ. 47a. Mayo asserted that its residents were exempt under § 3121(b)(10) and that the Treasury Department's full-time employee rule was invalid.

The District Court granted Mayo's motion for summary judgment. The court held that the full-time employee rule is inconsistent with the unambiguous text of § 3121, which the court understood to dictate that "an employee is a ‘student’ so long as the educational aspect of his service predominates over the service aspect of the relationship with his employer." 503 F.Supp.2d, at 1175. The court also determined that the factors governing this Court's analysis of regulations set forth in National Muffler Dealers Assn., Inc. v. United States, 440 U.S. 472, 99 S.Ct. 1304, 59 L.Ed.2d 519 (1979), "indicate that the full-time...