Medical College of Wisconsin Affiliated Hospitals, Inc., Plaintiff-Appellant,
United States of America, Defendant-Appellee.
April 10, 2017
from the United States District Court for the Eastern
District of Wisconsin. No. 14-C-1477 - C.N. Clevert, Jr.,
Easterbrook, Rovner, and Sykes, Circuit Judges.
Easterbrook, Circuit Judge.
College of Wisconsin, a nonprofit corporation, received a
refund of Social Security (FICA) taxes after the Internal
Revenue Service ruled that medical residents were exempt from
them until April 1, 2005. (A regulation governing later
periods requires hospitals to pay FICA taxes on
residents' salaries. See Mayo Foundation for Medical
Education & Research v. United States, 562 U.S. 44
(2011).) The IRS added to the refund approximately $13
million in interest but later demanded $6.7 million back,
informing Medical College that it had used too high a rate.
Medical College returned the money and filed this suit under
28 U.S.C. §1346(a)(1), asking to have the disputed sum
restored. See also 26 U.S.C. §7422. The district court
rejected its request, 2016-2 U.S. Tax Cas. (CCH) ¶50,
409 (E.D. Wis. Sept. 14, 2016), precipitating this appeal.
parties' dispute arises from 26 U.S.C. §6621, which
(a) General rule.
(1) Overpayment rate. The overpayment rate established under
this section shall be the sum of-
(A) the Federal short-term rate determined under subsection
(B)3 percentage points (2 percentage points in the case of a
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".
initially paid Medical College interest at the federal
short-term rate plus 3 percentage points under
§6621(a)(1)(B) but then decided that interest should be
paid at the short-term rate plus 2 percentage points for the
first $10, 000 and 0.5 percentage points for the rest.
Medical College contends that the IRS got it right the first
time, because, in light of subsection (c), a nonprofit is not
the sort of corporation to which paragraph (a)(1)(B) refers.
(c) Increase in underpayment rate for large corporate