ST. LUKE'S HOSPITAL ASS'N OF CLEVELAND, OHIO v. United States

• Citation: 212 F. Supp. 387
• Decision Date: 17 December 1962
• Docket Number: Civ. A. No. 36271.
• Parties: ST. LUKE'S HOSPITAL ASSOCIATION OF CLEVELAND, OHIO, OF the METHODIST CHURCH, a non-profit corporation, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Ohio

212 F. Supp. 387

ST. LUKE'S HOSPITAL ASSOCIATION OF CLEVELAND, OHIO, OF the METHODIST CHURCH, a non-profit corporation, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 36271.

United States District Court N. D. Ohio, E. D.

December 17, 1962.

Thompson, Hine & Flory, Timothy F. McMahon, William H. Wallace, Cleveland, Ohio, David A. Gaskill, Cleveland, Ohio, of counsel, for plaintiff.

Edward S. Smith, David A. Wilson, Jr., Jay E. Orlin, Department of Justice, Washington, D. C., and Merle McCurdy, U. S. Atty., Cleveland, Ohio, for defendant.

GREEN, District Judge.

This is an action instituted by St. Luke's Hospital of Cleveland, Ohio, against the United States of America brought under § 1346, Title 28 of the United States Code as amended, and is for the recovery of Federal Insurance Contributions Act employment taxes imposed by Sections 3101 and 3111 of the Internal Revenue Code of 1954 as amended, 26 U.S.C.A. §§ 3101 and 3111, and Sections 1400 and 1410 of the Internal Revenue Code of 1939.

Plaintiff operates a general hospital at 11311 Shaker Boulevard, Cleveland 4, Ohio, and is a non-profit corporation duly organized and existing under the laws of the State of Ohio.

Plaintiff for many years and during all of the period involved in this lawsuit has maintained and conducted a formal program of in-hospital education and training for graduates of accredited medical schools, designed to prepare such graduates for the practice of medicine in both general and special fields. Those participating in the in-hospital training program are paid varying sums of money, denominated as a subsistence allowance by the hospital.

Plaintiff filed with the District Director of Internal Revenue at Cleveland, Ohio, its F.I.C.A. employment tax returns for each taxable period from January 1, 1953 through June 30, 1958, and paid to said District Director the F.I.C.A. employment taxes therein determined to be due. In such returns plaintiff included none of the funds classed as subsistence allowances paid to the medical school graduates engaged in its training program.

No collection of the so-called "employees' tax" for such periods was made by the plaintiff from the medical school graduates and no remittance to the District Director of either the "employer's tax" or the "employees' tax" was made by the plaintiff.

Under date of July 30, 1958, the Internal Revenue Service notified plaintiff of a proposed assessment for additional F.I.C.A. employment taxes in the amount of $16,722.42. This sum represented taxes claimed to be due based on subsistence allowances paid by the plaintiff to medical school graduates engaged in their second or subsequent years of in-hospital training during the period of January 1, 1953 through June 30, 1958.

Under date of December 2, 1958, plaintiff paid to the District Director of Internal Revenue the sum of $16,722.42, and on March 25, 1959, paid interest thereon in the amount of $2,578.97. The total amount of taxes and interest paid to said District Director was $19,301.39.

On June 4, 1959, plaintiff filed with the District Director a claim for refund for the $19,301.39 additional F.I.C.A. employment taxes together with interest. Subsequently, plaintiff received from the District Director a notice of disallowance of its claim for refund.

Plaintiff thereafter filed this action, claiming that the F.I.C.A. employment taxes and interest covering the medical school graduates engaged in their second and subsequent years of in-hospital training were illegally assessed and collected.

Plaintiff alleged:

1. That under provision of Title 26 U.S.C.A. § 3121(b) (13), all of the medical school graduates who were in attendance in in-hospital training, whether in the first, second or subsequent years of their training at the hospital, were exempted from the Act.

2. That the modest subsistence allowance given to the medical school graduates were gifts or gratuities granted in order to aid their education and training and did not constitute wages within the meaning of Sections 3101 and 3111, Title 26 U. S.C.A.

The Government contends that the exclusion under § 3121(b) (13) applied only to medical school graduates who were in their first year of in-hospital training and did not apply to any such medical school graduates who were in their second and subsequent years of training; that only medical school graduates in their first year of in-hospital training are "interns" and that those in second and subsequent years were known as "residents"; that the two classes are separate and distinct, and that therefore the exemption to "interns" in § 3121(b) (13) did not apply to graduates in their second or subsequent years of in-hospital training.

The Social Security Act Amendments of 1939, 26 U.S.C.A. § 1426(b) (14), first introduced into the social security law the exclusion from coverage for services performed by "interns". That Section now appears as 26 U.S.C.A. § 3121(b) (13), I.R.C., 1954, and reads as follows:

"(b) Employment. — For purposes of this chapter, the term `employment' means any service performed after 1936 and prior to 1955 which was employment * * * under the law applicable to the period in which such service was performed, and any service, of whatever nature, performed after 1954 * * * except that, in the case of service performed after 1954, 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; and service preformed as an intern in the employ of a hospital by an individual who has completed a 4 years' course in a medical school chartered or approved pursuant to State law" (Emphasis added).

The issue before the Court is the meaning and scope of the word "intern" as it is used in 26 U.S.C.A. § 3121(b) (13).¹

As previously stated, this provision was first enacted into law by the 1939 Amendments, and has not been materially altered by subsequent amendments to the Internal Revenue Code.

The interpretation of the words of a statute must be taken in the sense in which they were understood at the time when the statute was enacted. 50 Am.Jur., Statutes § 236, p. 224. Amendments of a statute by the Legislature will not affect the meaning of portions of the statute which are readopted by the Legislature without change. 50 Am.Jur., Statutes § 441, p. 461. Therefore, the question for determination by the Court is the meaning of the word "intern" as used by Congress in the year 1939 in 26 U.S.C.A. § 1426(b) (14).

Plaintiff's claim is that in the year 1939 the natural, ordinary and everyday use of the term "intern" included any medical school graduate whether in his first, second or subsequent year of in-hospital training, and that under provisions of Title 26 U.S.C.A. § 3121(b) (13) medical school graduates who were in attendance for their second or subsequent years of in-hospital training were exempted from the act the same as medical school graduates in their first year of training.

The Government claim is that in the year 1939 there was in use in medical circles the words "intern" and "resident". An "intern" being a medical school graduate in his first year of in-hospital training and a "resident" being a medical school graduate in his second or subsequent year of in-hospital training. That in the year 1939 and at all times relevant to the lawsuit there was a well recognized distinction in the medical profession between residents and interns and that Congress in providing a specific exemption from the social security laws for "interns" did not thereby provide for an exemption for "residents".

Plaintiff's principal witnesses were men of the medical profession. They testified that at or around the year 1939 the ordinary and accepted meaning of the word "intern" was the same as the ordinary and accepted meaning of the word "resident", or "resident-in-training", and that they were both understood to be graduates of a medical school who were in residence in the hospital for additional education and training without regard as to whether it was the first or subsequent years of such training; that the generally accepted meaning of the word "intern" included a "resident" or "resident-in-training". These doctors admitted that within the medical profession a distinction was made between an intern and a resident,² but stated that the public failed to have, or understand, that delineation.

The defense called as its expert witness, Dr. Herman G. Weiskotten, an eminent medical administrator and educator, who testified that in the medical profession at or around the year 1939 there was a distinction between "interns" and "residents". He defined the term "internship" as follows:

"That is, the internship was an approved educational and experience program to better prepare a man to initiate the practice of medicine following his four years as a student in a medical college."

And he defined the word "resident" when used in the context of the medical field as follows:

"A resident was a man who took special hospital training of varying periods of time following an internship, to prepare him as a specialist in a particular field of medicine."

However, on cross-examination, he admitted that the distinction was drawn principally within the medical profession.

There was also brought into evidence several dictionaries published around the year 1939, in order to present definitions of the words "intern" and "resident". Some of the dictionaries gave a definition for each of these words, making a distinction between them, where as other dictionaries of the same era made no distinction. A few gave no definition of the word "resident" as used in the medical sense.

It is the Court's conclusion that in 1939 the common and ordinary meaning of the word "intern" encompassed any medical school...