Mayo Foundation v. United States

PETITIONER:Mayo Foundation for Medical Education and Research, et al.
RESPONDENT:United States
LOCATION: United States Department of the Treasury

DOCKET NO.: 09-837
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 562 US 44 (2011)
GRANTED: Jun 01, 2010
ARGUED: Nov 08, 2010
DECIDED: Jan 11, 2011

Matthew D. Roberts – Assistant to the Solicitor General, Department of Justice, for the respondent
Theodore B. Olson – for the petitioners

Facts of the case

The Mayo Foundation for Medical Education and Research (“Mayo”) and the University of Minnesota (“University”) sued the United States in a Minnesota federal district court seeking a refund for taxes paid under the Federal Insurance Contributions Act (“FICA”). They argued that payments made to doctors in their residency qualify for FICA’s student exemption. The district court agreed and awarded judgment in favor of Mayo and the University.

On appeal, the U.S. Court of Appeals for the Eighth Circuit reversed, holding that the residents in this case did not qualify for the FICA exemption. The court reasoned that Treasury Regulation 26 U.S.C. § 3121(b)(10) excludes “full-time employees” from the FICA student exemption. Here, the resident doctors were full-time employees and, therefore, were excluded from the FICA exemption.


Can the Treasury Department categorically exclude all medical residents who meet the FICA definition of student and who would be subject to the FICA student exemption?

Media for Mayo Foundation v. United States

Audio Transcription for Oral Argument – November 08, 2010 in Mayo Foundation v. United States

Audio Transcription for Opinion Announcement – January 11, 2011 in Mayo Foundation v. United States

John G. Roberts, Jr.:

Most of us who work for wages pay taxes on those wages under laws Congress has enacted to collect funds for Social Security.

Congress has however exempted from the Social Security taxes students who work for a school where they are enrolled and regularly taking classes.

The easiest example is the college student who buses tables in the dining hall to earn some extra money.

He doesn’t have to pay Social Security taxes out of his earnings.

This case however is not so easy.

It’s about medical residents.

These are doctors who have graduated from medical school but are pursuing additional medical training to become certified as a specialist in a particular field.

Most doctors in this country go through this process.

They largely learn by working a lot, 50 to 80 hours per week, caring for patients and performing procedures under the supervision of senior residents and faculty members known as attending physicians.

The residents get paid by their school or teaching hospital around $50,000 a year and the school also pays for things like malpractice insurance.

The question here more or less boils down to whether these residents are workers who study, so they have to pay employment taxes that other workers do or are they students who work so they fall within the student exemption.

Now, the language that Congress enacted doesn’t help very much.

It just says that you are exempt from the taxes if you work for a school where you are enrolled and regularly attending classes.

The generality of that provision is not surprising.

There are a lot of different scenarios that can come up and Congress can’t be expected to have addressed the nuances of everyone.

That’s where the Treasury Department comes in.

Congress delegated to that Department the authority to issue regulations implementing the tax code.

Now, the Department recently issued a regulation saying that if you work 40 hours or more a week, they are going to consider you a worker, subject to the taxes no matter how educational or part of a formal course of study your work might be.

And the Department helpfully gave an example of what it meant saying that for example, medical residents would not qualify for the student exemption.

The Mayo Teaching Hospital sued.

Mayo cared about this because if its residents had to pay the taxes, Mayo as the employer had to chip in as well.

Now, in a case like this, we just don’t decide what we think the right answer is.

First, we look at the law that Congress passed to see if it answers the particular question before us.

I’ve already explained that it doesn’t.

And if Congress has given an agency the power to issue rules implementing the statute, we let the agency do just that and uphold the agency’s view so long as it is reasonable even if it’s not the same answer we might have given in the first instance ourselves.

So the question is, is it reasonable for the Treasury Department to say that if you work in a job for more than 40 hours a week, we’re going to count you as a worker even if that work is part of a program of study.

And we think it is reasonable.

You have to draw the line according to some principle.

Treasury could have said we’re going to look at each program and see if you’re really mostly learning or mostly doing things you already know how to do.

But that would have taken the time of a lot of tax department employees with no real reason to think we’d be any closer to what Congress was trying to get at.

John G. Roberts, Jr.:

So to sum up, we have a difficult question under the tax code.

Congress gave general guidance but can’t be said to have answered the question itself in the statute.

Congress did however direct an expert agency to implement the law and that agency has given a direct answer to the question here.

And that answer is a reasonable one.

We therefore defer to the agency’s view that medical residents are workers who study not students who work.

And that means that we affirm the judgment of the United States Court of Appeals for the Eight Circuit.

All members of the Court joined the opinion to that effect, except Justice Kagan who did not participate in the consideration or decision of this case.