The U.S. Court of Appeals for the Seventh Circuit today held that the rate of interest that applies on a refund of a tax overpayment made to a nonprofit corporation is the lower interest rate that applies for corporations under section 6621(a)(1).
The case is: Medical College of Wisconsin Affiliated Hospitals, Inc. v. United States, No. 16-3863 (7th Cir. April 25, 2017). Read the Seventh Circuit’s decision [PDF 139 KB]
The medical college, a nonprofit corporation, received a refund of FICA taxes after the IRS determined that medical residents were exempt from FICA until April 1, 2005. (A regulation governing later periods requires hospitals to pay FICA taxes on residents’ salaries.) The IRS included with the refund approximately $13 million in interest, but later demanded that the medical college return $6.7 million of the interest because the IRS had used too high a rate of interest. The medical college returned the money and filed suit asking to have the disputed amount of interest restored to it. The federal district court rejected this request, and an appeal was filed to the Seventh Circuit.
In today's decision, the Seventh Circuit stated that it agreed with other courts of appeals and cited prior decisions of the Second Circuit in Maimonides Medical Center v. United States, 809 F.3d 85 (2d Cir. 2015), and the Sixth Circuit in United States v. Detroit Medical Center, 833 F.3d 671 (6th Cir. 2016), that the rate of interest made to a nonprofit corporation was the lower interest rate for corporations.
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