Mayo v. United States
Encyclopedia
Mayo Foundation v. United States, 562 U.S. ___ (2011), was a decision by the Supreme Court of the United States
involving the exemption of students and their educational employers from paying Social Security
taxes under the Federal Insurance Contributions Act (FICA). The Court upheld a regulation that made those working at least 40 hours a week categorically ineligible for the student exemption.
The United States Treasury Department issued the regulation in 2004, and gave medical residents as an example of the kind of student worker to which it applied. The Mayo Foundation filed suit to challenge the regulation and for a refund of the taxes it had paid on its medical residents
—recently graduated physicians who work more than full time hours providing patient care, but who often have only a limited license to practice medicine and are still considered students by the medical profession. The District Court ruled for the Mayo Foundation and struck the regulation, but was reversed by the Court of Appeals.
The Supreme Court ruled unanimously to uphold the regulation as within the Treasury Department's statutory authority to issue and as a reasonable construction of FICA. The Court clarified that the deferential standard of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.
(1984) applied, notwithstanding prior Court rulings that had adopted a more stringent standard to tax regulations. Applying Chevron, the Court first found that Congress had left the matter to the agency because the statute was silent on the definition of "student" and its applicability to medical residents specifically. Second, the Court found that the regulation was a reasonable interpretation of the statute, and that its clear line helped distinguish workers who study and students who work, simplified enforcement, and furthered the broad coverage of Social Security.
. While graduating from a medical school provides an individual with a medical degree, a state medical license
is required to practice medicine. All states require that an individual pass Step 3 of the USMLE or COMLEX exams and complete at least one year of residency training to obtain an unrestricted medical license; in practice, most practicing physicians complete their multiyear residency. While training, residents practice medicine with considerable autonomy under the supervision of an attending physician
.
Medical residencies traditionally require lengthy hours of their trainees
. Residents in the past had literally resided in hospitals for the duration of their training. By 2010, when the case was argued before the Supreme Court, regulations from the Accreditation Council for Graduate Medical Education
and the American Osteopathic Association
had limited work hours to about 80 hours per week, and a first-year resident at the Mayo Clinic
made $47,259 plus benefits.
In 1935, the United States Congress passed the Federal Insurance Contributions Act (FICA), which imposed a payroll tax
on workers. The revenues of the tax were meant to be used to finance Social Security
. An amendment to the Act, passed four years later, provided that a "service performed in the employ of... a school, college, or university... if such service is performed by a student enrolled in and regularly attending classes at such school, college, or university" would be exempt. First-year residents, or interns, were also specifically exempted. In 1965, Congress repealed the intern exemption but left the student exemption in place.
Until the 1990s, the Act and its application to medical residents were not an issue. Many hospitals assessed and paid FICA taxes on behalf of their employees. The University of Minnesota
's hospitals did not, however, and in the early 1990s, the Social Security Administration
sued to recover a small portion of those taxes. An initial administrative review ruled for the Social Security Administration, but the district court reversed. The Eighth Circuit
affirmed the district court's decision after granting a de novo
review, and the University recovered $40 million. A number of other residency programs quickly filed lawsuits, attempting to recoup the taxes they had paid. After some of those programs were successful in other circuit courts
, the Treasury agreed to repay the taxes it had collected. However, it also promulgated a new regulation to take effect in April 2005 that stated that any full time employee, which includes nearly all medical residents, were ineligible to receive the student exemption,The relevant section of the Treasury's regulation states: "The services of a full-time employee are not incident to and for the purpose of pursuing a course of study. The determination of whether an employee is a full-time employee is based on the employer’s standards and practices, except regardless of the employer’s classification of the employee, an employee whose normal work schedule is 40 hours or more per week is considered a full-time employee. An employee’s normal work schedule is not affected by increases in hours worked caused by work demands unforeseen at the start of an academic term. However, whether an employee is a full-time employee is reevaluated for the remainder of the academic term if the employee changes employment positions positions with the employer. An employee’s work schedule during academic breaks is not considered in determining whether the employee’s normal work schedule is 40 hours or more per week. The determination of an employee’s normal work schedule is not affected by the fact that the services performed by the employee may have an educational, instructional, or training aspect." 26 C.F.R
§31.3121(b)(10)– 2(d)(3)(iii) clearly stating that it was doing so to "overturn court rulings that had upheld the view that residents remained students".
to overturn those regulations. The district court
s agreed with them, but upon appeal, the Eighth Circuit
consolidated the two cases into one and reversed the judgments, remanding the cases for entry of judgments in favor of the United States. This decision was at odds with decisions from the Second
, Sixth
, Seventh
, and Eleventh
Circuits, which had all previously ruled that residents may count as students for the purpose of FICA taxes. The Eighth Circuit's ruling created a circuit split
, and on appeal, the Supreme Court agreed to hear the case.
Mayo and Minnesota, supported by amicus briefs from a number of residency programs and medical organizations, argued that a residency is primarily educational in nature. They asserted that a residency is generally chosen based on academic criteria and that a residency must be completed in order for a physician to be licensed to practice medicine. They also argued that residency training involves not only supervised work, but also an educational curriculum, conferences, and lectures, much like clinical years of medical school. Mayo's attorney, former Bush Administration
Solicitor General Theodore Olson
, also argued that the rule was "arbitrary", as the tax would apply to a resident working 40 hours per week but not to a resident working only 39 hours per week. The medical schools proposed that the IRS should base their determination on the primary purpose of a program—providing an education versus providing a livelihood.
In response, Assistant to the Solicitor General Matthew D. Roberts
argued on behalf of the United States that patient care and not educational curricula occupies the vast majority of residents' time. He also argued that although the 1939 FICA Amendment had originally specifically exempted interns, residents who had not yet obtained their unrestricted medical license, that exemption was removed in 1965 to allow doctors to begin paying into Social Security earlier so that they could be eligible for certain benefits.
During oral arguments, Chief Justice John Roberts
noted that the case was a "very familiar situation of an apprentice who is both an employee and a student," and that the only way that one could draw a line between the two "is to have somebody say: This is going to be the line." He was of the opinion that if anyone should draw the line, the Internal Revenue Service
should be the one. Associate Justice Sonia Sotomayor
, on the other hand, felt that residents were employees, as evidenced by her statement "You don't think receiving $50,000 or $60,000 a year is enough to make you an employee of someone?" According to The Wall Street Journal, Associate Justice Samuel Alito
appeared to be more favorable to the medical schools, asking the Justice Department's lawyer at one point "in general, why do medical students become residents? Are they enrolled in the program to make money...or do they want additional education?"
recusing herself because of her work as Solicitor General. Declining to review using a standard set out in National Muffler Dealers Assn., Inc. v. United States (1979), the Court instead used a standard set out in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.
(1984). Chevron, a landmark case regarding deference to government agencies, instituted a two-part test. The job of the reviewing court is to first establish whether Congress has unambiguously spoken about the matter. If so, the court is to follow Congress' intent. If not, it is the job of the court to determine whether the agency's statutory interpretation was a reasonable one. National Muffler, on the other hand, requires that reviewing courts take into account "whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose" and states that courts may examine a statutory interpretation made years after the passage of the original act on the merits. The Mayo Foundation had requested that the Court rule according to the National Muffler standard, while the United States argued that the Court should use the Chevron standard, arguing that National Muffler had been superseded. The Court had in fact cited both cases in opinions since 1984, but agreed with the Government's position, stating that it would not be wise to "carve out an approach to administrative review good for tax law only".
Despite the Mayo Foundation's arguments otherwise, the Court ruled that "student" was a sufficiently ambiguous term to state that Congress has specifically addressed the issue. The Court also noted that Congress in the past had specifically singled out medical residents when making exemptions available, which in the Court's eyes made the Mayo Foundation's arguments about unambiguity unreasonable. Therefore, according to Chevron, the role of the courts should solely be to determine whether the Treasury Department made a reasonable decision—and the Court concluded that the Treasury did just that. In writing for the Court, Roberts stated that "The [Treasury] department certainly did not act irrationally in concluding that these doctors – 'who work long hours, serve as high skilled professionals, and typically share some or all of the terms of employment of career employees' – are the kind of workers that Congress intended to both contribute and benefit from the Social Security system".
. In March 2010, while the case was pending before the Supreme Court, the Treasury announced that it would not contest refund claims for taxes paid prior to the April 2005 regulation. It would however assess taxes on salaries paid after that date, which would cost residency programs a total of approximately $700 million annually, or $3,100 a year for a resident earning $50,000 a year.
An article in the New England Journal of Medicine noted that "[r]esidents could find additional support in the Court's unambiguous holding for efforts to enforce other workplace rights, such as unemployment benefits (e.g., after hospital closure) or protection under the Family Medical Leave Act."
The Supreme Court's decision to use Chevron as its test for reviewing the Treasury Department's decision for marked a departure from previous practice; the Court had the courts have previously given less deference to the Internal Revenue Service's statutory interpretations.According to an article in the The Federal Circuit Bar Journal, the Court's application of the National Muffler standard to "tax regulations promulgated under " in the years following Chevron "created confusion among the lower courts". The Mayo Foundation decision settled the matter. , partially citing According to an article in the Florida Tax Review, the Court in doing so "unambiguously overruled" its previous decision in the National Muffler in favor of Chevron, finding that an agency should have leeway in interpreting the statue in question, no matter when or how long ago the statute was placed in effect, how consistent the agency was in interpreting the statute, the importance of the statute or how closely Congress has looked into the agency's decision.National Muffler indicated that the proper standard for judicial review should be the following: "In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner's interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent re-enactments of the statute." However, an article in the George Washington Law Review which advocates for the use of the National Muffler standard in reviewing retroactive tax regulations states that National Muffler may not have been entirely overruled, arguing that the Court implied that Chevron test is only to be used in "complex questions of statutory interpretation" and that the Court left open the possibility that a future scenario may warrant the use of the National Muffler test instead of the Chevron test.
The Court also overruled Rowan Cos. v. United States (1981), and United States v. Vogel Fertilizer Co. (1982), stating that the Chevron test does not depend on whether Congress intended to delegate out general authority over a matter or just specific authority.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
involving the exemption of students and their educational employers from paying Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
taxes under the Federal Insurance Contributions Act (FICA). The Court upheld a regulation that made those working at least 40 hours a week categorically ineligible for the student exemption.
The United States Treasury Department issued the regulation in 2004, and gave medical residents as an example of the kind of student worker to which it applied. The Mayo Foundation filed suit to challenge the regulation and for a refund of the taxes it had paid on its medical residents
Residency (medicine)
Residency is a stage of graduate medical training. A resident physician or resident is a person who has received a medical degree , Podiatric degree , Dental Degree and who practices...
—recently graduated physicians who work more than full time hours providing patient care, but who often have only a limited license to practice medicine and are still considered students by the medical profession. The District Court ruled for the Mayo Foundation and struck the regulation, but was reversed by the Court of Appeals.
The Supreme Court ruled unanimously to uphold the regulation as within the Treasury Department's statutory authority to issue and as a reasonable construction of FICA. The Court clarified that the deferential standard of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 , was a case in which the United States Supreme Court set forth the legal test for determining whether to grant deference to a government agency's interpretation of a statute which it administers...
(1984) applied, notwithstanding prior Court rulings that had adopted a more stringent standard to tax regulations. Applying Chevron, the Court first found that Congress had left the matter to the agency because the statute was silent on the definition of "student" and its applicability to medical residents specifically. Second, the Court found that the regulation was a reasonable interpretation of the statute, and that its clear line helped distinguish workers who study and students who work, simplified enforcement, and furthered the broad coverage of Social Security.
Background
In the first decade of the 21st century, the vast majority of medical residents in the United States were physicians who had recently graduated from a medical school in the United StatesMedical school in the United States
Medical school in the United States is a four year graduate institution with the purpose of educating physicians in the field of medicine. It provides a major part of the medical education in the United States.-History:...
. While graduating from a medical school provides an individual with a medical degree, a state medical license
Medical license
In most countries, only persons with a medical license bestowed either by a specified government-approved professional association or a government agency are authorized to practice medicine. Licenses are not granted automatically to all people with medical degrees...
is required to practice medicine. All states require that an individual pass Step 3 of the USMLE or COMLEX exams and complete at least one year of residency training to obtain an unrestricted medical license; in practice, most practicing physicians complete their multiyear residency. While training, residents practice medicine with considerable autonomy under the supervision of an attending physician
Attending physician
In the United States, an attending physician is a physician who has completed residency and practices medicine in a clinic or hospital, in the specialty learned during residency. An attending physician can supervise fellows, residents, and medical students...
.
Medical residencies traditionally require lengthy hours of their trainees
Medical resident work hours
Medical resident work hours is a term that refers to the often lengthy shifts worked by medical interns and residents during their medical residency. The issue has become a political football in the United States, where federal regulations do not limit the number of hours that can be assigned...
. Residents in the past had literally resided in hospitals for the duration of their training. By 2010, when the case was argued before the Supreme Court, regulations from the Accreditation Council for Graduate Medical Education
Accreditation Council for Graduate Medical Education
The Accreditation Council for Graduate Medical Education is the body responsible for the accreditation for graduate medical training programs for medical doctors in the United States. It is a non-profit private council that evaluates and accredits medical residency and internship programs...
and the American Osteopathic Association
American Osteopathic Association
The American Osteopathic Association is the representative member organization for the over 78,000 osteopathic medical physicians in the United States...
had limited work hours to about 80 hours per week, and a first-year resident at the Mayo Clinic
Mayo Clinic
Mayo Clinic is a not-for-profit medical practice and medical research group specializing in treating difficult patients . Patients are referred to Mayo Clinic from across the U.S. and the world, and it is known for innovative and effective treatments. Mayo Clinic is known for being at the top of...
made $47,259 plus benefits.
In 1935, the United States Congress passed the Federal Insurance Contributions Act (FICA), which imposed a payroll tax
Payroll tax
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...
on workers. The revenues of the tax were meant to be used to finance Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
. An amendment to the Act, passed four years later, provided that a "service performed in the employ of... a school, college, or university... if such service is performed by a student enrolled in and regularly attending classes at such school, college, or university" would be exempt. First-year residents, or interns, were also specifically exempted. In 1965, Congress repealed the intern exemption but left the student exemption in place.
Until the 1990s, the Act and its application to medical residents were not an issue. Many hospitals assessed and paid FICA taxes on behalf of their employees. The University of Minnesota
University of Minnesota
The University of Minnesota, Twin Cities is a public research university located in Minneapolis and St. Paul, Minnesota, United States. It is the oldest and largest part of the University of Minnesota system and has the fourth-largest main campus student body in the United States, with 52,557...
's hospitals did not, however, and in the early 1990s, the Social Security Administration
Social Security Administration
The United States Social Security Administration is an independent agency of the United States federal government that administers Social Security, a social insurance program consisting of retirement, disability, and survivors' benefits...
sued to recover a small portion of those taxes. An initial administrative review ruled for the Social Security Administration, but the district court reversed. The Eighth Circuit
United States Court of Appeals for the Eighth Circuit
The United States Court of Appeals for the Eighth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Arkansas* Western District of Arkansas...
affirmed the district court's decision after granting a de novo
De novo
In general usage, de novo is a Latin expression meaning "from the beginning," "afresh," "anew," "beginning again." It is used in:* De novo transcriptome assembly, the method of creating a transcriptome without a reference genome...
review, and the University recovered $40 million. A number of other residency programs quickly filed lawsuits, attempting to recoup the taxes they had paid. After some of those programs were successful in other circuit courts
United States courts of appeals
The United States courts of appeals are the intermediate appellate courts of the United States federal court system...
, the Treasury agreed to repay the taxes it had collected. However, it also promulgated a new regulation to take effect in April 2005 that stated that any full time employee, which includes nearly all medical residents, were ineligible to receive the student exemption,The relevant section of the Treasury's regulation states: "The services of a full-time employee are not incident to and for the purpose of pursuing a course of study. The determination of whether an employee is a full-time employee is based on the employer’s standards and practices, except regardless of the employer’s classification of the employee, an employee whose normal work schedule is 40 hours or more per week is considered a full-time employee. An employee’s normal work schedule is not affected by increases in hours worked caused by work demands unforeseen at the start of an academic term. However, whether an employee is a full-time employee is reevaluated for the remainder of the academic term if the employee changes employment positions positions with the employer. An employee’s work schedule during academic breaks is not considered in determining whether the employee’s normal work schedule is 40 hours or more per week. The determination of an employee’s normal work schedule is not affected by the fact that the services performed by the employee may have an educational, instructional, or training aspect." 26 C.F.R
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
§31.3121(b)(10)– 2(d)(3)(iii) clearly stating that it was doing so to "overturn court rulings that had upheld the view that residents remained students".
Lower court proceedings
The Mayo Clinic and the University of Minnesota sued in federal courtUnited States federal courts
The United States federal courts make up the judiciary branch of federal government of the United States organized under the United States Constitution and laws of the federal government.-Categories:...
to overturn those regulations. The district court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
s agreed with them, but upon appeal, the Eighth Circuit
United States Court of Appeals for the Eighth Circuit
The United States Court of Appeals for the Eighth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Arkansas* Western District of Arkansas...
consolidated the two cases into one and reversed the judgments, remanding the cases for entry of judgments in favor of the United States. This decision was at odds with decisions from the Second
United States Court of Appeals for the Second Circuit
The United States Court of Appeals for the Second Circuit is one of the thirteen United States Courts of Appeals...
, Sixth
United States Court of Appeals for the Sixth Circuit
The United States Court of Appeals for the Sixth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Kentucky* Western District of Kentucky...
, Seventh
United States Court of Appeals for the Seventh Circuit
The United States Court of Appeals for the Seventh Circuit is a federal court with appellate jurisdiction over the courts in the following districts:* Central District of Illinois* Northern District of Illinois...
, and Eleventh
United States Court of Appeals for the Eleventh Circuit
The United States Court of Appeals for the Eleventh Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Middle District of Alabama...
Circuits, which had all previously ruled that residents may count as students for the purpose of FICA taxes. The Eighth Circuit's ruling created a circuit split
Circuit split
In the context of United States federal courts, a circuit split exists when two or more circuits in the United States court of appeals system have different interpretations of federal law....
, and on appeal, the Supreme Court agreed to hear the case.
Mayo and Minnesota, supported by amicus briefs from a number of residency programs and medical organizations, argued that a residency is primarily educational in nature. They asserted that a residency is generally chosen based on academic criteria and that a residency must be completed in order for a physician to be licensed to practice medicine. They also argued that residency training involves not only supervised work, but also an educational curriculum, conferences, and lectures, much like clinical years of medical school. Mayo's attorney, former Bush Administration
George W. Bush administration
The presidency of George W. Bush began on January 20, 2001, when he was inaugurated as the 43rd President of the United States of America. The oldest son of former president George H. W. Bush, George W...
Solicitor General Theodore Olson
Theodore Olson
Theodore Bevry Olson is a former United States Solicitor General, serving from June 2001 to July 2004 under President George W. Bush.- Early life :...
, also argued that the rule was "arbitrary", as the tax would apply to a resident working 40 hours per week but not to a resident working only 39 hours per week. The medical schools proposed that the IRS should base their determination on the primary purpose of a program—providing an education versus providing a livelihood.
In response, Assistant to the Solicitor General Matthew D. Roberts
Matthew D. Roberts
Matthew D. Roberts is an American lawyer who is an Assistant to the Solicitor General of the United States.-Schooling:He graduated from Harvard College magna cum laude in 1984 and graduated first in his class from Harvard Law School in 1989.-Career:...
argued on behalf of the United States that patient care and not educational curricula occupies the vast majority of residents' time. He also argued that although the 1939 FICA Amendment had originally specifically exempted interns, residents who had not yet obtained their unrestricted medical license, that exemption was removed in 1965 to allow doctors to begin paying into Social Security earlier so that they could be eligible for certain benefits.
During oral arguments, Chief Justice John Roberts
John Roberts
John Glover Roberts, Jr. is the 17th and current Chief Justice of the United States. He has served since 2005, having been nominated by President George W. Bush after the death of Chief Justice William Rehnquist...
noted that the case was a "very familiar situation of an apprentice who is both an employee and a student," and that the only way that one could draw a line between the two "is to have somebody say: This is going to be the line." He was of the opinion that if anyone should draw the line, the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
should be the one. Associate Justice Sonia Sotomayor
Sonia Sotomayor
Sonia Maria Sotomayor is an Associate Justice of the Supreme Court of the United States, serving since August 2009. Sotomayor is the Court's 111th justice, its first Hispanic justice, and its third female justice....
, on the other hand, felt that residents were employees, as evidenced by her statement "You don't think receiving $50,000 or $60,000 a year is enough to make you an employee of someone?" According to The Wall Street Journal, Associate Justice Samuel Alito
Samuel Alito
Samuel Anthony Alito, Jr. is an Associate Justice of the U.S. Supreme Court. He was nominated by President George W. Bush and has served on the court since January 31, 2006....
appeared to be more favorable to the medical schools, asking the Justice Department's lawyer at one point "in general, why do medical students become residents? Are they enrolled in the program to make money...or do they want additional education?"
Opinion of the Court
In a decision written by Chief Justice Roberts, the Supreme Court unanimously upheld the Eighth Circuit's decision, with Associate Justice Elena KaganElena Kagan
Elena Kagan is an Associate Justice of the Supreme Court of the United States, serving since August 7, 2010. Kagan is the Court's 112th justice and fourth female justice....
recusing herself because of her work as Solicitor General. Declining to review using a standard set out in National Muffler Dealers Assn., Inc. v. United States (1979), the Court instead used a standard set out in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 , was a case in which the United States Supreme Court set forth the legal test for determining whether to grant deference to a government agency's interpretation of a statute which it administers...
(1984). Chevron, a landmark case regarding deference to government agencies, instituted a two-part test. The job of the reviewing court is to first establish whether Congress has unambiguously spoken about the matter. If so, the court is to follow Congress' intent. If not, it is the job of the court to determine whether the agency's statutory interpretation was a reasonable one. National Muffler, on the other hand, requires that reviewing courts take into account "whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose" and states that courts may examine a statutory interpretation made years after the passage of the original act on the merits. The Mayo Foundation had requested that the Court rule according to the National Muffler standard, while the United States argued that the Court should use the Chevron standard, arguing that National Muffler had been superseded. The Court had in fact cited both cases in opinions since 1984, but agreed with the Government's position, stating that it would not be wise to "carve out an approach to administrative review good for tax law only".
Despite the Mayo Foundation's arguments otherwise, the Court ruled that "student" was a sufficiently ambiguous term to state that Congress has specifically addressed the issue. The Court also noted that Congress in the past had specifically singled out medical residents when making exemptions available, which in the Court's eyes made the Mayo Foundation's arguments about unambiguity unreasonable. Therefore, according to Chevron, the role of the courts should solely be to determine whether the Treasury Department made a reasonable decision—and the Court concluded that the Treasury did just that. In writing for the Court, Roberts stated that "The [Treasury] department certainly did not act irrationally in concluding that these doctors – 'who work long hours, serve as high skilled professionals, and typically share some or all of the terms of employment of career employees' – are the kind of workers that Congress intended to both contribute and benefit from the Social Security system".
Impact
The Mayo Clinic noted that it had been paying the taxes while the case was pending in the courts, so the 15-page opinion would not force them to pay back taxesBack taxes
Back taxes is a term for taxes that were not paid when due. They are typically taxes that are owed from a prior year....
. In March 2010, while the case was pending before the Supreme Court, the Treasury announced that it would not contest refund claims for taxes paid prior to the April 2005 regulation. It would however assess taxes on salaries paid after that date, which would cost residency programs a total of approximately $700 million annually, or $3,100 a year for a resident earning $50,000 a year.
An article in the New England Journal of Medicine noted that "[r]esidents could find additional support in the Court's unambiguous holding for efforts to enforce other workplace rights, such as unemployment benefits (e.g., after hospital closure) or protection under the Family Medical Leave Act."
The Supreme Court's decision to use Chevron as its test for reviewing the Treasury Department's decision for marked a departure from previous practice; the Court had the courts have previously given less deference to the Internal Revenue Service's statutory interpretations.According to an article in the The Federal Circuit Bar Journal, the Court's application of the National Muffler standard to "tax regulations promulgated under " in the years following Chevron "created confusion among the lower courts". The Mayo Foundation decision settled the matter. , partially citing According to an article in the Florida Tax Review, the Court in doing so "unambiguously overruled" its previous decision in the National Muffler in favor of Chevron, finding that an agency should have leeway in interpreting the statue in question, no matter when or how long ago the statute was placed in effect, how consistent the agency was in interpreting the statute, the importance of the statute or how closely Congress has looked into the agency's decision.National Muffler indicated that the proper standard for judicial review should be the following: "In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner's interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent re-enactments of the statute." However, an article in the George Washington Law Review which advocates for the use of the National Muffler standard in reviewing retroactive tax regulations states that National Muffler may not have been entirely overruled, arguing that the Court implied that Chevron test is only to be used in "complex questions of statutory interpretation" and that the Court left open the possibility that a future scenario may warrant the use of the National Muffler test instead of the Chevron test.
The Court also overruled Rowan Cos. v. United States (1981), and United States v. Vogel Fertilizer Co. (1982), stating that the Chevron test does not depend on whether Congress intended to delegate out general authority over a matter or just specific authority.