Charleston Area Medical Center, Inc. v. United States, No. 18-2226 (Fed. Cir. 2019)Annotate this Case
The Taxpayers, West Virginia non-stock, not-for-profit, 26 U.S.C. 501(c)(3) organizations, are generally exempt from federal income tax but are not exempt from taxes on “wages” from “employment” under the Federal Insurance Contributions Act (FICA). “Employment” under FICA has a broad definition but excepts service performed in the employ of a school by a student who is regularly enrolled and attending classes at the same school, 26 U.S.C. 3121(b)(10). In 2010, the IRS determined that medical residents fall within that exception, applied the determination retroactively, and issued tax refunds to the Taxpayers. The IRS paid interest on these tax refunds, applying the interest rate for corporations under 26 U.S.C. 6621(a)(1). If the IRS had used the interest rate for noncorporations, the Taxpayers would have received approximately $1.9 million in additional statutory interest. The Claims Court affirmed, reasoning that the Taxpayers are corporations under section 6621(a)(1) notwithstanding their nonprofit status. The Federal Circuit affirmed, agreeing with other circuits that an entity incorporated under state law is a corporation within the meaning of the Code. The Code addresses three basic types of corporations: nonprofit corporations covered by subchapter F; certain for-profit corporations covered by subchapter C; and certain for-profit corporations covered by subchapter S. In section 6621, Congress used the generic definition of “corporation,” which includes both for-profit and nonprofit entities.