Interest rate, FICA refund to nonprofit hospital center | KPMG | GLOBAL

Sixth Circuit: Interest rate, FICA refund to nonprofit hospital center

Interest rate, FICA refund to nonprofit hospital center

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.


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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 |

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