IRS Will Not Acquiesce in Mayo Clinic Holding on UBIT

IRS Will Not Acquiesce in Mayo Clinic Holding on UBIT

Internal Revenue Service

In an action on decision (AOD 2021-04), the IRS has announced that it will not acquiesce in an Eighth Circuit decision invalidating the requirement in <a href="/research/federal/cfr26/1.170A-9#cxdk-0000005" resolve="/lr/resolve//cxdk#cxdk-0000005">reg. section 1.170A-9(c)(1)</a> that the primary function of an educational organization described in <a href="/research/federal/usc26/170#cpyg-0000012" resolve="/lr/resolve//cpyg#cpyg-0000012">section 170(b)(1)(A)(ii)</a> must be the presentation of formal instruction. In <a href="/lr/resolve//5s7mx">Mayo Clinic v. United States</a>, 997 F.3d 789 (8th Cir. 2021), the <a href="/lr/resolve//5s7mx">Eighth Circuit held</a> that a district court incorrectly invalidated a Treasury regulation defining an educational organization. The district court had said that Treasury exceeded its statutory authority by imposing primary-function and merely incidental requirements in <a href="/research/federal/cfr26/1.170A-9#cxdk-0000005" resolve="/lr/resolve//cxdk#cxdk-0000005">reg. section 1.170A-9(c)(1)</a> because those requirements aren’t in the statute. But the Eighth Circuit concluded that given the legislative history of the tax exemption for educational organizations, it was reasonable for Treasury to include those requirements to the regulation. However, the Eighth Circuit found that the portion of the regulation specifying that an organization’s primary function be “the presentation of formal instruction” exceeded statutory authority. In its action on decision, the IRS registered its disagreement with the circuit court’s invalidation of the formal instruction requirement. The agency objected to the court’s conclusion that the requirement has “no long history of congressional acceptance,” and failed to consider that the “faculty-curriculum-student-place requirement” provides a statutory basis for the formal instruction requirement in the regulations. Moreover, the IRS said the circuit court failed to consider its position, citing case law, that the purpose of the formal instruction requirement is to ensure that <a href="/research/federal/usc26/170#cpyg-0000012" resolve="/lr/resolve//cpyg#cpyg-0000012">section 170(b)(1)(A)(ii)</a> “could not reach very far, if at all, beyond schools, colleges, and universities in its coverage.” The IRS stated that it will continue to litigate the formal instruction requirement in cases in other circuits, applying the statutory faculty-curriculum-student-place requirement of <a href="/research/federal/usc26/170#cpyg-0000012" resolve="/lr/resolve//cpyg#cpyg-0000012">section 170(b)(1)(A)(ii)</a>.

AOD 2021-04 replaces a <a href="/lr/resolve//7cmfc">notification of the action on decision</a> that appeared in the November 22, 2021, issue of the Internal Revenue Bulletin.

In an action on decision (AOD 2021-04), the IRS has announced that it will not acquiesce in an Eighth Circuit decision invalidating the requirement in reg. section 1.170A-9(c)(1) that the primary function of an educational organization described in section 170(b)(1)(A)(ii) must be the presentation of formal instruction.

In an action on decision (AOD 2021-04), the IRS has announced that it will not acquiesce in an Eighth Circuit decision invalidating the requirement in reg. section 1.170A-9(c)(1) that the primary function of an educational organization described in section 170(b)(1)(A)(ii) must be the presentation of formal instruction. In Mayo Clinic v. United States, 997 F.3d 789 (8th Cir. 2021), the Eighth Circuit held that a district court incorrectly invalidated a Treasury regulation defining an educational organization. The district court had said that Treasury exceeded its statutory authority by imposing primary-function and merely incidental requirements in reg. section 1.170A-9(c)(1) because those requirements aren’t in the statute. But the Eighth Circuit concluded that given the legislative history of the tax exemption for educational organizations, it was reasonable for Treasury to include those requirements to the regulation. However, the Eighth Circuit found that the portion of the regulation specifying that an organization’s primary function be “the presentation of formal instruction” exceeded statutory authority. In its action on decision, the IRS registered its disagreement with the circuit court’s invalidation of the formal instruction requirement. The agency objected to the court’s conclusion that the requirement has “no long history of congressional acceptance,” and failed to consider that the “faculty-curriculum-student-place requirement” provides a statutory basis for the formal instruction requirement in the regulations. Moreover, the IRS said the circuit court failed to consider its position, citing case law, that the purpose of the formal instruction requirement is to ensure that section 170(b)(1)(A)(ii) “could not reach very far, if at all, beyond schools, colleges, and universities in its coverage.” The IRS stated that it will continue to litigate the formal instruction requirement in cases in other circuits, applying the statutory faculty-curriculum-student-place requirement of section 170(b)(1)(A)(ii).

Sec. 170 Charitable, etc., contributions and gifts

Sec. 501 Exemption from tax on corporations, certain trusts, etc.

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IRS Will Not Acquiesce in Mayo Clinic Holding on UBIT