United States v. Detroit Med. Ctr.
| Decision Date | 17 August 2016 |
| Docket Number | No. 15-1279,15-1279 |
| Citation | 833 F.3d 671 |
| Parties | United States of America, Plaintiff–Appellee, v. Detroit Medical Center, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: Thomas D. Sykes, Gould & Ratner LLP, Chicago, Illinois, for Appellant. Deborah K. Snyder, United States Department of Justice, Washington, D.C., for Appellee. ON BRIEF: Thomas D. Sykes, Gould & Ratner LLP, Chicago, Illinois, for Appellant. Deborah K. Snyder, Gilbert S. Rothenberg, Richard Farber, United States Department of Justice, Washington, D.C., for Appellee.
BEFORE: BATCHELDER, GIBBONS, and SUTTON, Circuit Judges.
SUTTON
, Circuit Judge.
Detroit Medical Center is made up of a collection of not-for-profit hospitals incorporated under Michigan law. The Center overpaid its taxes, entitling it to a refund plus interest. Under the Internal Revenue Code, “corporations” receive lower interest rates on such refunds (the federal short-term interest rate plus as little as 0.5%) than other taxpayers (the federal short-term interest rate plus 3%). 26 U.S.C. § 6621(a)(1)
. The Center claims that, as a not-for-profit corporation, it should not be treated as a corporation and thus should be eligible for the higher interest rate—increasing its refund by $9.1 million. The Internal Revenue Service disagreed. And so did the district court. Because a nonprofit entity incorporated under state law amounts to a corporation, see
Trs. of Dartmouth Coll. v. Woodward , 17 U.S. (4 Wheat.) 518, 636, 4 L.Ed. 629 (1819), and because the Code contains no indication to the contrary, we must affirm the district court.
The parties have been here before. In the first round, the Detroit Medical Center disclaimed any duty to pay FICA taxes (short for Federal Insurance Contributions Act taxes, which fund Social Security and Medicare benefits) on the stipends paid to its medical residents. We remanded the case to the district court to determine whether the residents amounted to “students” under the Center's residency program, making them eligible for the student exemption from the FICA tax obligation. United States v. Detroit Med. Ctr. , 557 F.3d 412 (6th Cir. 2009)
. In 2010, before the district court had a chance to resolve the issue, the IRS issued an administrative ruling that medical residents were students, exempting them (and their employers) from FICA taxes for tax periods prior to April 1, 2005. In the aftermath of this ruling, the Center and the IRS settled the dispute. Or so it seemed.
The IRS agreed to issue refunds to the Center for 1995–1997, 2001–2004, and the first quarter of 2005. For each of those twenty-nine taxable quarters, the IRS sent two checks to the Center: one for the employer portion of the FICA tax, the other for the employee portion of the FICA tax. The checks consisted of tax refunds and interest set by § 6621(a)(1)
. The IRS paid interest on the employee (the resident) portion of the FICA refunds at the rate for non-corporations: the federal short-term interest rate plus 3%. The IRS paid interest on the employer (the Medical Center) portion of the FICA refunds at the rate set for corporations: the federal short-term interest rate plus 2% for the first $10,000, then the short-term rate plus 0.5% on the portion of each refund above $10,000.
After it received the refund checks, the Center filed a motion to reinstate the case, seeking $9.1 million in additional interest on the employer portion refunds. Even though it was incorporated under Michigan law, it maintained that it should not be regarded as a “corporation” under § 6621(a)(1)
. The district court granted the United States' motion for summary judgment, concluding that the lower corporate interest rate on overpayment in § 6621(a)(1)(B) applied to tax refunds owed to for-profit and not-for-profit corporations. The Center appeals.
In construing legislation, courts begin with the language of the statute. That approach, quite rightly, confirms the centrality of text to statutory interpretation. But it also explains why some statutory-interpretation opinions have difficulty holding the interest (and the comprehension) of the reader. To respect the first imperative sometimes creates tension with the second.
Consider our task today. The question at hand sounds simple enough: Should a nonprofit corporation be treated like a for-profit corporation when it comes to the interest it receives on overpaid taxes? Now consider the question in the context of the Internal Revenue Code:
26 U.S.C. § 6621
.
What starts as a basic question gets less basic the more one reads. Yes, this is a tax case. Some complexities—different rules for overpayments and underpayments, different interest rates for different taxpayers, some exceptions to some rules—come with the territory. But the first sign that the author of this provision was not thinking of his readers appears in the parenthetical of the flush paragraph: “To the extent that an overpayment of tax by a corporation for any taxable period (as defined in subsection (c)(3), applied by substituting ‘overpayment’ for ‘underpayment’) exceeds $10,000, subparagraph (B) shall be applied by substituting ‘0.5 percentage point’ for ‘2 percentage points.’ ” The meaning of this exception turns on a cross reference to another subsection that applies to the opposite form of payment mentioned in the first subsection but only for “C corporation[s],” not “corporations” in general. 26 U.S.C. § 6621(c)(3)(A)
.
At the risk of creating undue suspense, we'll start by ignoring the exception. In other words, we'll consider how the tax overpayment rules in general apply to Detroit Medical Center, and after that we'll consider whether the exception alters that conclusion.
Here, to repeat, is the general rule from § 6621
:
The statute creates a dichotomy between overpayments by “a corporation” and by all other taxpayers, with corporations receiving a lower interest rate on their overpayments than everyone else. Incorporated under Michigan law, the Detroit Medical Center is by every relevant measure a corporation, meaning it receives the lower interest rate.
The first way of measuring this conclusion is not as helpful as one might hope. Since 1918, the Code has included a definition of “corporation.” 26 U.S.C. § 7701(a)(3)
. But that definition offers a false peak. It says only that the term “includes associations, joint-stock companies, and insurance companies.” The Center of course is not an association, joint-stock company, or insurance company. But because the word “includes” is a term of inclusion, not exclusion, that does not prevent the Center from being a corporation under the Code in general or under § 6621 in particular. See 26 U.S.C. § 7701(c).
In the absence of any statutory definition to the contrary, courts assume that Congress adopts the customary meaning of the terms it uses. Morissette v. United States , 342 U.S. 246, 263, 72 S.Ct. 240, 96 L.Ed. 288 (1952)
. For centuries, courts have permitted charitable organizations to be treated as corporations. See Edmund Seymour, The Historical Development of the Common Law Conception of the Corporation , 51 Am. L. Reg. 529 (1903). So firm is the foundation on which this principle rests that Chief Justice Marshall's invocation of it in Dartmouth College —permitting a college to be treated as a corporation—might have been called cliché in 1819. Two centuries earlier, in 1612, Sir Edward Coke wrote that a charitable hospital and school founded at the London Charterhouse was as valid a corporation as any other because it possessed all the characteristics that are of the essence of a corporation. The Case of Sutton's Hospital , 77 Eng. Rep. 937 (1612), in 1 Selected Writings of Sir Edward Coke , vol. 1, 347, 363, 377 (Steve Sheppard ed., Liberty Fund 2003). In 1753, William Blackstone described charitable or “eleemosynary” corporations as one of the three basic kinds of corporations (the others he called “ecclesiastical” and “civil”) and explained that “[e]leemosynary corporations are chiefly hospitals, or colleges in the universities.” 1 William Blackstone, Commentaries *482.
By 1819, no one...
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