The U.S. Court of Appeals for the Sixth Circuit today affirmed the decision of a federal district court that a hospital—a nonprofit entity—was not entitled to a higher rate of interest on its refund of FICA paid on the stipends paid to its medical students. The Sixth Circuit agreed that the hospital was to be treated as a corporation and thus only entitled to the lower interest rate on the tax refund.
The case is: United States v. Detroit Medical Center, No. 15-1279 (6th Cir. August 17, 2016). Read the Sixth Circuit’s decision [PDF 90 KB]
The medical center, a collection of not-for-profit hospitals, overpaid its taxes (specifically, FICA on stipends paid to medical students) 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%). Other taxpayers, however, receive a higher rate of interest on refunds (the federal short-term interest rate plus 3%).
The medical center claimed that, as a not-for-profit, it was not to be treated as a corporation and was eligible for the higher interest rate—increasing its refund by $9.1 million. The IRS disagreed, and the federal district court granted the government’s motion for summary judgment in the ensuing refund litigation.
The Sixth Circuit today affirmed, finding that a nonprofit entity incorporated under state law amounts to a corporation. In its decision, the Sixth Circuit looked to a 2015 case from the Second Circuit that explained that the term “corporation” “ordinarily refers to both for-profit and nonprofit entities” and that the key feature is not whether the entity is a for profit operation but whether state law has conferred corporate status on the entity. Read TaxNewsFlash-Exempt Organizations
For more information, contact the Managing Director-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group:
D. Greg Goller | +1 (703) 286-8391 | email@example.com
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.