Mayo Clinic Urges Court to Affirm Refund Decision

MAYO CLINIC, A MINNESOTA CORPORATION, ON ITS OWN BEHALF AND AS
SUCCESSOR IN INTEREST TO MAYO FOUNDATION,
Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.

In the
United States Court of Appeals for the Eighth Circuit

On Appeal from the United States District Court for the District of Minnesota
Civ. No. 16-cv-03113; Hon. Eric. C. Tostrud

RESPONSE BRIEF FOR PLAINTIFF-APPELLEE MAYO CLINIC

Mark P. Rotatori
Nicole C. Henning
JONES DAY
77 West Wacker, Suite 3500
Chicago, IL 60601-1692
Tel: (312) 782-3939
Fax: (312) 782-8585
mprotatori@jonesday.com
nhenning@jonesday.com

Andrew M. Luger
Annamarie A. Daley
Andrew P. Leiendecker
JONES DAY
90 South 7th Street, Suite 4950
Minneapolis, MN 55402
Tel: (612) 217-8800
Fax: (844) 345-3178
aluger@jonesday.com
adaley@jonesday.com
aleiendecker@jonesday.com

Counsel for Plaintiff-Appellee Mayo Clinic

SUMMARY OF THE CASE AND STATEMENT REGARDING ORAL ARGUMENT

Plaintiff-Appellee Mayo Clinic (“Mayo”) operates five world-renowned graduate medical schools. The schools offer M.D., PhD, and other degrees, as well as residencies, fellowships, and continuing medical education. Internal Revenue Code section 514(c)(9)(C) exempts certain income from tax by affording an exclusion from certain unrelated business income tax to “qualified organizations,” including an “educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” Although the USA conceded Mayo satisfies those faculty-curriculum-students-place requirements, it contended that Mayo was a healthcare organization, and therefore necessarily not an “educational organization” qualifying for the exemption. Mayo filed a refund suit seeking the approximately $11.5 million in taxes it was forced to pay because of that determination. The district court granted summary judgment for Mayo. That judgment should be affirmed.

Mayo agrees 20 minutes of oral argument per side may be beneficial to address the issues raised on appeal.

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TABLE OF CONTENTS

SUMMARY OF THE CASE AND STATEMENT REGARDING ORAL ARGUMENT

STATEMENT OF THE ISSUES

STATEMENT OF THE CASE

SUMMARY OF THE ARGUMENT

ARGUMENT

CONCLUSION

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF ELECTRONIC SUBMISSION

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

CASES

Adams v. Slonim, 924 F.2d 256 (D.C. Cir. 1991)

Am. Guidance Found., Inc. v. United States, 490 F. Supp. 304 (D.D.C. 1980)

Aremu v. Dep't of Homeland Sec., 450 F.3d 578 (4th Cir. 2006)

Bd. of Governors of Fed. Reserve Sys. v. Agnew, 329 U.S. 441 (1947)

Bd. of Governors of Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361 (1986)

Beecham v. United States, 511 U.S. 368 (1994)

Beef Neb., Inc. v. United States, 807 F.2d 712 (8th Cir. 1986)

Better Bus. Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945)

Brown v. Gardner, 513 U.S. 115 (1994)

Brundage v. C.I.R., 54 T.C. 1468 (1970)

C.I.R. v. Soliman, 506 U.S. 168 (1993)

Cedars of Lebanon Hosp. v. L.A. Cty., 221 P.2d 31 (Cal. 1950)

Ctr. for Family Med. v. United States, 614 F.3d 937 (8th Cir. 2010)

Chapman v. Comm'r, 48 T.C. 358 (1967)

Chesnut v. Montgomery, 307 F.3d 698 (8th Cir. 2002)

Chevron, U.S.A., Inc. v. Nat. Res. Defense Council, Inc., 467 U.S. 837 (1984)

Church of Visible Intelligence That Governs The Universe v. United States, 4 Cl. Ct. 55 (1983)

City of Arlington v. F.C.C., 569 U.S. 290 (2013)

City of Columbus v. Our Garage & Wrecker Services, Inc., 536 U.S. 424 (2002)

City of Jefferson City v. Cingular Wireless, LLC, 531 F.3d 595 (8th Cir. 2008)

Clark v. U.S. Dep't of Ag., 537 F.3d 934 (8th Cir. 2008)

Conn. Nat'l Bank v. Germain, 503 U.S. 249 (1992) Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102 (1980)

Davis v. Mich. Dep't of Treasury, 489 U.S. 803 (1989)

Dean v. United States, 137 S. Ct. 1170 (2017)

Dep't of Homeland Sec. v. MacLean, 135 S. Ct. 913 (2015)

Estate of Farnam v. C.I.R., 583 F.3d 581 (8th Cir. 2009)

Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)

Found. of Human Understanding v. United States, 88 Fed. Cl. 203 (2009)

Girouard v. United States, 328 U.S. 61 (1946)

Gordon v. United States, 757 F.2d 1157 (11th Cir. 1985)

Green v. United States, 880 F.3d 519 (10th Cir. 2018)

Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014)

Helvering v. Bliss, 293 U.S. 144 (1934)

In re Bellanca Aircraft Corp., 850 F.2d 1275 (8th Cir. 1988)

In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014)

K. Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988)

Kaffenberger v. United States, 314 F.3d 944 (8th Cir. 2003)

Kisor v. Wilkie, 139 S. Ct. 2400 (2019)

Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50 (2004)

Koshland v. Helvering, 298 U.S. 441 (1936)

Loughrin v. United States, 573 U.S. 351 (2014)

Lutheran Social Servs. of Minn. v. United States, 758 F.2d 1283 (8th Cir. 1985)

Mayburg v. Sec. of Health & Human Servs., 740 F.2d 100 (1st Cir. 1984)

Mayo Clinic v. United States, 412 F. Supp. 3d 1038 (D. Minn. 2019)

Mayo Found. for Med. Educ. & Research v. United States, 568 F.3d 675 (8th Cir. 2009)

Mayo Found. v. C.I.R., 236 N.W.2d 767 (Minn. 1975)

MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218 (1994)

Milwaukee Reg'l Med. Ctr., Inc. v. City of Wauwatosa, 735 N.W.2d 156 (Wis. 2007)

N. Nat. Gas Co. v. O'Malley, 277 F.2d 128 (8th Cir. 1960)

N. States Power Co. v. United States, 73 F.3d 764 (8th Cir. 1996)

Nat'l Ass'n of Home Builders v. Defs. of Wildlife, 551 U.S. 644 (2007)

NRA Special Contribution Fund v. Bd. of Cty. Comm'rs, 591 P.2d 672 (N.M. Ct. App. 1978)

Russello v. United States, 464 U.S. 16 (1983)

Schumacher v. Cargill Meat Sols. Corp., 515 F.3d 867 (8th Cir. 2008)

Sierra Club v. Clark, 755 F.2d 608 (8th Cir. 1985)

Sierra Club v. Otter Tail Power Co., 615 F.3d 1008 (8th Cir. 2010)

Spiritual Outreach Society v. Comm'r, 927 F.2d 335 (8th Cir. 1991)

St. Luke's Hosp. of Kansas City v. United States, 494 F. Supp. 85 (W.D. Mo. 1980)

Stenberg v. Carhart, 530 U.S. 914 (2000)

Streiff v. C.I.R., 77 T.C.M. (CCH) 1565, 1999 WL 153738 (T.C. 1999)

Touche Ross & Co. v. S.E.C., 609 F.2d 570 (2d Cir. 1979)

Union Pac. R.R. Co. v. Surface Transp. Bd., 863 F.3d 816 (8th Cir. 2017)

UnitedHealth Grp. Inc. v. Exec. Risk Specialty Ins. Co., 870 F.3d 856 (8th Cir. 2017)

United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988)

United States v. Lamere, 980 F.2d 506 (8th Cir. 1992)

United States v. Mayo Found. for Med. Educ. & Research, 282 F. Supp. 2d 997 (D. Minn. 2003)

Utility Air Regulatory Grp. v. EPA, 573 U.S. 302 (2014)

Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067 (2018)

STATUTES

26 U.S.C. § 170

26 U.S.C. § 512

26 U.S.C. § 514

26 U.S.C. § 4041

26 U.S.C. § 4221

26 U.S.C. § 4253

26 U.S.C. § 6033

26 U.S.C. § 6110

26 U.S.C. § 6501

OTHER AUTHORITIES

1956-1 C.B. 131, 1956 WL 11061 (1956)

1958-2 C.B. 102, 1958 WL 10419 (1958)

American Heritage Dictionary of the English Language (5th ed. 2019)

Brief for Petitioners, Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44 (2011) (No. 09-837), 2010 WL 4111636

H.R. 2163

H.R. 5573

H.R. Rep. 83-1337 (1954)

H. Rep. No. 86-992 (1959)

Hearing before the Senate Finance Committee, 91st Cong. 5568 (Oct. 1969)

Hearing on P.L. 88-272 § 209(a)

IRS G.C.M. 39039, 1983 WL 197924 (Feb. 5, 1982)

IRS G.C.M. 39508, 1986 WL 372946 (May 28, 1986)

IRS G.C.M. 39757, 1988 WL 567331 (Oct. 11, 1988)

Merriam-Webster's Collegiate Dictionary (11th ed. 2006)

Oxford English Dictionary Online

Random House Dictionary (2d ed. 1987)

Rev. Rul. 56-262, 1956-1 C.B. 131, 1956 WL 11061 (1956)

Rev. Rul 58-433, 1958-2 C.B. 102, 1958 WL 10419 (1958)

Rev. Rul. 76-416, 1976-2 C.B. 57, 1976 WL 36646 (1976)

Rev. Rul. 78-95, 1978-1 C.B. 71, 1978 WL 42293 (1978)

Rev. Rul. 2004-51, 2004-1 C.B. 974, 2004 WL 1038122 (2004)

S. Rep. 83-1622 (1954)

S. Rep. No 86-878 (1959)

J. Comm. on Taxation, Description of Tax Bills before House Committee on Ways and Means (1982)

Treas. Reg. § 1.170A-9

Treas. Reg. § 1.501(c)(3)-1

Treas. Reg. § 1.509(a)-6

Treas. Reg. § 1.6662

Webster's Third New International Dictionary (1981)

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STATEMENT OF THE ISSUES

Issue 1: Was the district court correct to conclude Internal Revenue Code section 170(b)(1)(A)(ii) does not require an “educational organization” to have its “primary” or “principal purpose” be education so long as it “normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on”?

Most Apposite Authorities

Chevron, U.S.A., Inc. v. Nat'l Res. Defense Council, 467 U.S. 837 (1984)

Estate of Farnam v. C.I.R., 583 F.3d 581 (8th Cir. 2009) 26 U.S.C. § 170

Issue 2: Was the district court correct to invalidate a regulation that engrafts a “primary function” requirement onto section 170(b)(1)(A)(ii), when no such language appears in the statute and context shows Congress knew how to impose an explicit “primary function” requirement in the very next statutory subsection?

Most Apposite Authorities

Russello v. United States, 464 U.S. 16 (1983)
Kaffenberger v. United States, 314 F.3d 944 (8th Cir. 2003)
Chesnut v. Montgomery, 307 F.3d 698 (8th Cir. 2002)
26 U.S.C. § 170
Treas. Reg. § 1.170A-9

Issue 3: Was the district court correct to conclude that because Mayo Clinic “normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on,” there is no genuine issue of material fact that Mayo Clinic is an “educational organization” under section 170(b)(1)(A)(ii)?

Most Apposite Authorities

26 U.S.C. § 170

STATEMENT OF THE CASE

Plaintiff-Appellee Mayo Clinic (“Mayo”) brought this lawsuit against Defendant-Appellant United States of America (“USA”) to obtain tax refunds totaling $11,501,621 for tax years 2003, 2005-2007, and 2010-2012 (“Refund Years”). Mayo App. 4. The basis for the refund request is that Mayo — a nationwide leader in medical education — is an “educational organization” under section 170(b)(1)(A)(ii) of the Internal Revenue Code (“IRC” or “Code”), and thus its income from debt-financed property is excluded from unrelated business income tax (“UBIT”) under IRC section 514(c)(9)(C).

I. MAYO OPERATES A WORLD RENOWNED MEDICAL EDUCATION COLLEGE

Mayo is a Minnesota nonprofit corporation and tax-exempt organization under IRC section 501(c)(3).¹ Mayo App. 2. It operates an integrated world-class medical school — Mayo Clinic College of Medicine and Science (“College”) — that delivers the highest caliber of medical education. Id. at 2, 10, 44. The College is a private university that trains students, physicians, scientists, and allied health professionals via five medical schools:

• Mayo Clinic School of Graduate Medical Education (“School of Graduate Medical Education”)

• Mayo Clinic Graduate School of Biomedical Sciences (“Graduate School”)

• Mayo Clinic Alix School of Medicine (“Alix School of Medicine”)

• Mayo Clinic School of Health Sciences (“School of Health Sciences”)

• Mayo Clinic School of Continuing Professional Development (“School of Continuing Professional Development”)

Id. at 10-11.

The College offers M.D., PhD, and other degrees, as well as residencies, fellowships, and continuing medical education. Id. at 10. The basic features of each school are as follows:

School of Graduate Medical Education: Established in 1915, the School of Graduate Medical Education offers residency and fellowship training for physicians. Id. During the Refund Years and other years, the school had the most resident and fellowship programs in the country, and was in the top five nationally for total number of residents and fellows. Id. at 11-12. It grew from 700 residents in 37 specialties in 1969 to 1,483 residents in 129 accredited programs in 2010. Id. at 12, 47. Most of the resident and fellowship programs have a research requirement, and medical students have a research rotation as part of their curriculum. Id. at 12. Enrollment ranged from 1,330 to 1,507 students during the Refund Years, and none of those students paid tuition. Id. at 12-13. Tens of thousands of students have graduated from the school since its inception, and it remains one of the country's largest medical schools. Id. at 12-13, 85, 99.

Graduate School: Established in 1989, the Graduate School offers training for M.S. and PhD degrees in biomedical sciences for students planning research careers. Id. at 13. Enrollment ranged from 259 to 281 students during the Refund Years, and most students received full scholarships. Id.

Alix School of Medicine: Established in 1972, the Alix School of Medicine is a four-year M.D. program. Id. Enrollment ranged from 200 to 213 students during the Refund Years, and most students received full or partial scholarships. Id. at 14.

School of Health Sciences: Established in 1973, the School of Health Sciences offers training programs for physical therapists, nurse anesthetists, occupational therapists, and other allied health professionals. Id. Enrollment ranged from 782 to 1,591 students during the Refund Years, and approximately half of those students received full or partial scholarships. Id.

School of Continuing Professional Development: The School of Continuing Professional Development offers courses in continuing education for medical professionals. Id. at 15. Enrollment ranged from 26,500 to 100,572 students during the Refund Years. Id.

The schools were not incorporated separately from Mayo during the Refund Years. Id. at 11. Rather, Mayo operated and supervised the schools and “enabled physician faculty members to provide formal instruction by providing the educational, human, and financial resources necessary to support graduate medical education.” Id. at 16-17. Mayo organized a formal academic-governance structure, with education committees overseeing faculty operations, and it also oversaw and directed the selection and activities of faculty, including decisions regarding academic rank, compensation, programs and curriculum, and course and school assignments. Id. at 17. Faculty appointments were made by Mayo's Academic Appointments and Promotions Committee. Id. at 18. Each physician-faculty member received an annual salary and fringe benefits from Mayo, which paid faculty members' salaries, in part through its endowment. Id. at 18-19. It was, and remains, the expectation that all Mayo physicians hold an academic appointment. Id. Thus, Mayo's full-time physicians were generally faculty at one or more schools. Id.

During the Refund Years, each school maintained a regular curriculum, the contents of which were often dictated by accreditation agencies. Id. at 19. Mayo incorporated this curriculum into its unique history and culture of integrating education with patient care and cutting-edge research. Id. at 27-28. Hospital and clinical learning was critical to Mayo's educational mission, because patient care is necessary, inherent, and integral to medical education. Id. at 27-28, 80. The bedside of the patient — including the places in hospitals and clinics where patient care occurs — is Mayo's classroom. Students regularly attended educational activities at hospitals, clinics, laboratories, classrooms, computer labs, simulation centers, and conference rooms. Id. at 21, 89, 104. In fact, during these years Mayo indicated on its Form 990s that it was a section 170(b)(1)(A)(ii) “educational organization.” Id. at 24.²

Based on these facts and others, the USA has conceded the College met the Section 170(b)(1)(A)(ii) factors for an “educational organization” during the Refund Years. Id. at 23-24.

II. MAYO CLAIMS UBIT EXEMPTION AS “EDUCATIONAL ORGANIZATION”

The Internal Revenue Service (“IRS”) audited Mayo in 2005 and 2006. Mayo App. 3. As a result, in 2009 the IRS issued a Notice of Proposed Adjustment claiming Mayo owed unrelated business income tax on some income it derived from certain partnerships. Id. UBIT is imposed on nonprofit corporations' income generated with the use of “acquisition indebtedness,” but does not apply to “indebtedness incurred by a qualified organization in acquiring or improving any real property.” 26 U.S.C. § 514(c)(9)(A) (emphasis added). One “qualified organization” is “an organization described in section 170(b)(1)(A)(ii).” Id., subd. (c)(9)(C)(i). That subsection, in turn, defines “educational organization.” 26 U.S.C. § 170(b)(1)(A)(ii). The IRS concluded Mayo was not a section 170(b)(1)(A)(ii) “educational organization” under the statute or its related regulation. USA App. 225-27. The regulation requires that, in addition to satisfying the statute's requirements, an “educational organization” must (1) have its “primary function” be “the presentation of formal instruction,” and (2) not engage “in both educational and noneducational activities unless the latter are merely incidental to the educational activities.” Treas. Reg. § 1.170A-9(c)(1). The IRS determined Mayo was not entitled to the UBIT exemption under this framework. Mayo App. 3.

In 2013, the IRS issued a Technical Advice Memorandum reaffirming its conclusion that Mayo was not a section 170(b)(1)(A)(ii) “educational organization,” and therefore not a section 514(c)(9)(C) “qualified organization,” because its “primary function” was not formal instruction. Id. at 3-4; USA App. 227.

Mayo paid the disputed UBIT and brought this tax-refund lawsuit in September 2016. Mayo App. 4. Before the district court, the parties stipulated that Mayo is seeking a refund of $11,501,621, plus statutory interest. Id.

III. THE DISTRICT COURT CONCLUDES MAYO IS A SECTION 170(b)(1)(A)(ii) “EDUCATIONAL ORGANIZATION”

Mayo and the USA filed cross-motions for summary judgment. Mayo argued it was an “educational organization” under section 170(b)(1)(A)(ii), and thus a “qualified organization” entitled to UBIT. Section 170(b)(1)(A)(ii) authorizes deductions for charitable contributions to an “educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.”³ 26 U.S.C. § 170(b)(1)(A)(ii). Mayo argued it was an “educational organization” because it satisfied these faculty-curriculum-students-place requirements. Mayo App. 140-50. Further, Mayo argued section 170(b)(1)(A)(ii) unambiguously did not include any “primary function” requirement, and that to the extent the regulation added one, it was inconsistent with the statute. Id. at 150-52. Lastly, Mayo argued it was entitled to summary judgment if the regulation applied because the undisputed facts established that one of its primary functions was education. Id. at 152-60.

The USA conceded that Mayo met the faculty-curriculum-student-place requirements. See Appellant's Separate Addendum (“Add.”) 7. However, it argued that Mayo did not fall within the plain meaning of “educational organization,” defining education to be the “single, distinct, or particular purpose” of the organization. Mayo App. 111-23. Mayo is an academic medical center, the USA argued, and therefore could not be an “educational organization.” Id. at 189. For similar reasons, the USA argued Mayo did not meet the regulation's requirements. Because Mayo provided health care, the USA argued, its “primary function” was not “formal instruction,” and its noneducational activities were not “merely incidental” to educational activities. Id. at 124-31.

The district court granted summary judgment for Mayo and denied the USA's cross-motion. See generally Add. 1-31.⁴ The court applied the “familiar two-step framework” from Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to determine whether the statute or regulation controlled its analysis. Add. 7. According to the court, because the only difference between the parties' positions was whether Mayo satisfied the regulation's additional requirements, “the precise question at issue” was “whether § 170(b)(1)(A)(ii) is silent or ambiguous with respect to the primary-function and merely-incidental requirements in the regulation.” Id. at 10.

The court concluded that “Congress unambiguously chose not to include a primary-function requirement in 26 U.S.C. § 170(b)(1)(A)(ii), and the Treasury Department exceeded the bounds of its statutory authority when it promulgated the primary-function requirement in [the regulation].” Id. This conclusion was based on the “settled rule[ ] of statutory construction” that “when Congress imposes a particular requirement in one subsection of a statute but not in another . . . the absence of the requirement is generally to be considered a deliberate omission that must be respected.” Id. at 11. Critically, section 170(b)(1)(A)(iii) — “the romanette immediately following the educational-organization romanette in § 170(b)(1)(A)(ii)” — includes a “principal purpose or functions” requirement. Id. at 13. The court noted the USA “identified no reason why the 'principal purpose or functions' phrase in § 170(b)(1)(A)(iii) could not have been deployed in similar fashion [in] § 170(b)(1)(A)(ii).” Id. at 14. The court concluded the terms “primary” and “principal,” as used in subsection (iii) of the statute, were interchangeable. Id. at 14-15. Thus, Congress including a “principal purpose or functions” requirement explicitly in subsection (iii) was strong evidence it did not intend to include the same requirement implicitly in subsection (ii). Id. at 15-16.

The court next concluded “[t]he corollary of determining that Congress unambiguously did not include a primary-function requirement in [the statute] is that Congress also must be understood to have decided not to include a merely-incidental test in th[e] statute.” Id. at 16. This is because “[r]equiring noneducational activities to be 'merely incidental to educational activities' to qualify as an educational organization seems another way of saying that an organization's educational activities must be its primary purpose or function.” Id. at 16-17.

Consequently, the court concluded “the Treasury Department exceeded the bounds of its statutory authority when it promulgated the primary-function requirement and merely-incidental test.” Id. at 20. Thus, the Court determined that the regulation failed under Chevron Step 1. Id. at 8, 20.

The court next considered the meaning of “educational organization.” It concluded “educational organization” was not defined by statute, and declined to adopt the USA's proffered definition. Id. at 20-25. The court rejected the USA's position that “a 'particular purpose' requirement should be read into the statute because it is inherent in the plain meaning of 'educational organization.'” Id. at 23-24. The court observed the USA's plain-meaning argument “appear[ed] more engineered than plain,” and noted the Supreme Court had declined to read a “predominance” requirement into a similar IRC provision. See id. (citing Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 53 (2011)). Although it did not define the precise contours of the term “educational organization,” the court concluded the term was broad. See id. at 25. The court analogized “educational organization” to “business league” — a “general” term, id. — and concluded that “Congress intended the statute's requirements around faculty, curriculum, students, and place to carry most of the weight in identifying an educational organization,” id. at 19 n.6.

Having concluded section 170(b)(1)(A)(ii) does not require an “educational organization” to satisfy a “primary” or “principal” purpose requirement, the court determined that Mayo was entitled to summary judgment. Critically, the USA conceded that “during the tax years at issue and today” Mayo satisfied the statute's faculty-curriculum-students-place requirements. Id. at 30. Accordingly, the court reasoned, the USA's argument was “premised entirely on Mayo's alleged inability to satisfy the primary-function and merely-incidental requirements in” the regulation. Id. Because the court concluded those requirements were invalid, there was “no genuine issue of material fact that Mayo qualifies as an 'educational organization' under § 170(b)(1)(A)(ii) and is entitled to summary judgment on its refund claims.” Id.

SUMMARY OF THE ARGUMENT

The district court correctly granted summary judgment for Mayo.

This case requires applying Chevron's two-step framework to determine whether a statute, 26 U.S.C. § 170(b)(1)(A)(ii), or regulation, Treas. Reg. § 1.170A-9(c)(1), is the controlling authority to assess whether an organization is an “educational organization,” and thus a “qualified organization” under IRC section 514(c)(9)(C).

Under Chevron, no deference is owed to a regulation if the statute speaks directly “to the precise question at issue.” Chevron, U.S.A., 467 U.S. at 842-43. To determine whether a statute has spoken directly to the precise question at issue, courts use traditional tools of statutory construction, including the well-recognized canon that “the court must read all parts of the statute together and give full effect to each part.” Estate of Farnam v. C.I.R., 583 F.3d 581, 584 (8th Cir. 2009). The precise question in this case is whether section 170(b)(1)(A)(ii) includes, or can be construed reasonably to include, a requirement that an “educational organization” have its “primary function” be the “presentation of formal instruction,” such that all noneducational activities are “merely incidental.” Treas. Reg. § 1.170A-9(c)(1).

Reading all parts of section 170(b)(1)(A) together demonstrates that “educational organization” does not include a “primary” requirement. “Primary function” does not appear in section 170(b)(1)(A)(ii), but “principal purpose or function” appears in section 170(b)(1)(A)(iii) — the very next subsection of the statute. Section 170(b)(1)(A)(ii) defines “educational organization” solely by the faculty-curriculum-students-place requirements. When Congress imposes a particular requirement in one section of a statute but omits it from another, that disparate inclusion and exclusion is considered deliberate. Thus, Congress's inclusion of a “principal purpose or function” requirement in subsection (iii) is clear evidence no such requirement was included in, or intended to be read into, subsection (ii).

The USA cannot explain away Congress's disparate deployment of “principal purpose or function” in section 170(b)(1)(A), and instead relies on inapposite caselaw, legislative history, and agency statements to ask this Court to legislate a “primary” requirement into the statute. But all statutory interpretation begins with the text, and the USA offers no definition of “educational,” “organization,” or “educational organization” that requires an “educational organization” to have a primary focus on education to the exclusion of other activities. No such definition exists.

The aforementioned analysis is all that is required to affirm the district court, because the USA's “position that Mayo is not entitled to the refunds it seeks is premised entirely on Mayo's alleged inability to satisfy the primary-function and merely-incidental requirements.” Add. 30.

Alternatively, this Court can affirm summary judgment in Mayo's favor because Mayo meets the statutory definition of “educational organization.” The statute defines “educational organization” by the faculty-curriculum-students-place requirements. See 26 U.S.C. § 170(b)(1)(A)(ii). The USA conceded that Mayo satisfies those requirements.

If this Court concludes “educational organization” is not defined by statute, the term's plain meaning also supports summary judgment for Mayo. A survey of dictionary definitions shows the only reasonable plain-language definition of “educational organization” is “an association of or relating to education.” This definition is, at minimum, refined by section 170(b)(1)(A)(ii)'s faculty-curriculum-students-place requirements, as those requirements narrow the class of “educational organization” covered by the statute.

Because either definition of “educational organization” is unambiguous, no deference is owed to the regulation engrafting primary-function and merely-incidental requirements onto the statute. “[A]n agency's interpretation of a statute is not entitled to deference when it goes beyond the meaning that the statute can bear.” MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 229 (1994). The regulation's interpretation of “educational organization” goes beyond any meaning the term can bear because it reads a “primary function” requirement into the statute despite clear evidence Congress chose not to include that requirement.

Finally, the USA is wrong when it complains that the court somehow erred by not defining “educational organization.” Courts are not required to re-write deficient regulations. The USA did not articulate to this Court or the district court any alternative basis for prevailing if the statute did not contain a “primary” requirement. The faculty-curriculum-students-place requirements are the “definition” to which the USA argues it is entitled.

This Court should affirm the district court's grant of summary judgment for Mayo.

ARGUMENT

I. THE DISTRICT COURT CONCLUDED CORRECTLY THAT TREAS. REG. § 1.170A-9(C)(1) IS AN INVALID INTERPRETATION OF SECTION 170(b)(1)(A)(ii)

The USA's argument below and on appeal rests on a flawed premise: that for purposes of the IRC, an organization can be only medical or only educational; if it is both, it is “primarily” neither and thus must pay UBIT. The district court correctly applied Chevron's two-step framework to conclude this premise is false. To the extent Treas. Reg. § 1.170A-9(c)(1) imposes a false dichotomy between medical care and education, as the USA argues, it is not entitled to deference.

Under Chevron, “[f]irst, always, is the question whether Congress has directly spoken to the precise question at issue.” 467 U.S. at 842-43. If congressional intent is clear, the inquiry ends, “for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id.; see also Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937, 941 (8th Cir. 2014) (declining to defer to a regulation where the statutory text was unambiguous).

To determine whether Congress has spoken directly to the precise question at issue, courts use “traditional tools of statutory construction.” Hawkins, 761 F.3d at 940 (quoting N. Dakota v. E.P.A., 730 F.3d 750, 763 (8th Cir. 2013)). This includes the “text, structure, history, and purpose” of the statute. Kisor v. Wilkie, 139 S. Ct. 2400, 2423-24 (2019). Because statutory interpretation “is a holistic endeavor,” Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 60 (2004) (internal quotation marks omitted), Chevron step one requires a court to discern “the plain meaning of the whole statute, not of isolated sentences,” Beecham v. United States, 511 U.S. 368, 372 (1994).

If traditional tools of construction make the statutory text clear, the court should not defer to the regulation. See, e.g., Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2074 (2018) (“[I]n light of all the textual and structural clues before us . . . [there is] no ambiguity for the agency to fill.”).

By contrast, if the statute remains ambiguous after applying tools of construction, Chevron step two assesses “whether the agency's answer [to the precise question at issue] is based on a permissible construction of the statute.” 467 U.S. at 843; see also Utility Air Regulatory Grp. v. EPA, 573 U.S. 302, 321 (2014) (“Even under Chevron's deferential framework, agencies must operate 'within the bounds of reasonable interpretation.'” (citation omitted)).

Here, the “precise question” is whether section 170(b)(1)(A)(ii) is silent or ambiguous with regard to an “educational organization” needing to satisfy “primary function” and “merely incidental” requirements. See K. Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988) (stating Chevron focuses on whether “the statute is silent or ambiguous with respect to the specific issue addressed by the regulation”). The district court concluded correctly that section 170(b)(1)(A)(ii) is neither silent nor ambiguous — it does not contemplate any “primary function” or “merely incidental” requirement. USA App. 15-16. The USA is simply wrong when it argues that Congress intended to exclude Mayo from the statute's purview because, as part of its extensive educational activities, it provides medical care and conducts medical research.

A. Statutory Framework

This case concerns Mayo's claimed UBIT exemption under IRC section 514. UBIT taxes a nonprofit organization's debt-financed income derived from an unrelated trade or business. See 26 U.S.C. § 512(a)(1). Certain “indebtedness incurred by a qualified organization in acquiring or improving any real property” is exempt from UBIT. 26 U.S.C. § 514(c)(9)(A). One “qualified organization” is “an organization described in section 170(b)(1)(A)(ii).” Id., subd. (c)(9)(C)(i).

Section 170(b)(1)(A), in turn, concerns the deductibility of charitable contributions made to nine types of nonprofit organizations.⁵ The statute provides:

26 U.S.C. § 170(b)(1)(A).

Accordingly, if Mayo is an “educational organization” under section 170(b)(1)(A)(ii), it is also a “qualified organization” under section 514(c)(9)(C) and exempt from UBIT.

B. When Congress wanted to impose a “principal purpose” requirement on a section 170(b)(1)(A) entity, it did so expressly

The USA admits that Mayo meets section 170(b)(1)(A)(ii)'s faculty-curriculum-students-place requirements. Add. 7. Thus, the only way the USA could colorably argue that Mayo was not exempt from UBIT under section 514(c)(9) was to argue that section 170(b)(1)(A)(ii)'s plain language, and the associated regulation, required that any “educational organization” have its “single,” “distinct,” or “specific” purpose be education. Mayo. App. 114, 132. The USA focused its argument on the regulation's requirement that educational activities be “primary,” which the USA interpreted to mean “principal,” and that non-educational activities be “merely incidental” to educational activities, which the USA interpreted to mean an exempt organization could have only one chief function. See id. at 205-06.

To determine whether that interpretation was justified by the statute, the district court reviewed the subdivisions surrounding section 170(b)(1)(A)(ii). See, e.g., Nat'l Ass'n of Home Builders v. Defs. Of Wildlife, 551 U.S. 644, 666 (2007) (reviewing statutory context during Chevron step one). Section 170(b)(1)(A)(ii)'s context leaves no doubt that had Congress intended “educational organization” to include a “primary function” requirement in that subsection, it would have said so expressly.

1. Congress included an express “principal purpose or function” requirement in section 170(b)(1)(A)(iii), but omitted that requirement from section 170(b)(1)(A)(ii)

A court “should not confine itself to examining a particular statutory provision in isolation” when applying Chevron, because “[t]he meaning — or ambiguity — of certain words or phrases may only become evident when placed in context.” Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132 (2000). Applying that method of analysis, any ambiguity about whether section 170(b)(1)(A)(ii) contains a “primary function” requirement “fades in the light of the full text and context” of section 170(b)(1)(A). See Union Pac. R.R. Co. v. Surface Transp. Bd., 863 F.3d 816, 825 (8th Cir. 2017).

“Primary function” does not appear in section 170(b)(1)(A)(ii), but “principal purpose or function” appears in the very next subsection. Section 170(b)(1)(A)(iii) covers “an organization the principal purpose or functions of which are the providing of medical or hospital care.” 26 U.S.C. § 170(b)(1)(A)(iii) (emphasis added). As the court ruled below, and the USA does not contest on appeal, the terms “principal purpose or function” in the statute and “primary purpose” as used in the regulation are “interchangeable.”⁶ Add. 14.

When Congress imposes a particular requirement in one subsection of a statute but omits it from another subsection of that same statute, “it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983) (internal quotation marks omitted); see also Chesnut v. Montgomery, 307 F.3d 698, 701-02 (8th Cir. 2002) (same).

Congress including a “principal purpose or function” requirement in section 170(b)(1)(A)(iii) — the romanette immediately following the “educational organization” romanette — shows that it did not intend a similar requirement in section 170(b)(1)(A)(ii). See Loughrin v. United States, 573 U.S. 351, 358 (2014) (“[W]hen 'Congress includes particular language in one section of a statute but omits it in another' — let alone in the very next provision — this Court 'presume[s]' that Congress intended a different meaning.” (emphasis added) (citation omitted)); Chesnut, 307 F.3d at 702 (“The [Russello] presumption is much stronger when, as here, the comparison is between two subsections of the same section of a statute.”). This canon of construction has been invoked by this Court and the Supreme Court on innumerous occasions. See, e.g., Beecham, 511 U.S. at 372; United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988); Estate of Farnam, 583 F.3d at 854; Clark v. U.S. Dep't of Ag., 537 F.3d 934, 940 (8th Cir. 2008); City of Jefferson City v. Cingular Wireless, LLC, 531 F.3d 595, 606 (8th Cir. 2008); United States v. Lamere, 980 F.2d 506, 513 (8th Cir. 1992); Beef Neb., Inc. v. United States, 807 F.2d 712, 717 (8th Cir. 1986).

2. The district court applied the Russello presumption correctly to interpret section 170(b)(1)(A)(ii)

The USA argues that the district court should not have relied on the Russello presumption because it applies only where “the omitted language is the 'sole difference' in the two provisions being compared.” Appellant's Br. 60. But the case the USA cites in support of that argument, City of Columbus v. Our Garage & Wrecker Services, Inc., 536 U.S. 424 (2002), says nothing of the sort. City of Columbus states only that Russello is “more persuasive if the omission were the sole difference” between the provisions, and that the presumption “grows weaker with each difference in the formulation of the provisions under inspection.” Id. at 435-36.

The USA's argument fails because it ignores important similarities between 170(b)(1)(A)(ii) and (iii), as well as their close proximity to one another. See, e.g., Adams v. Slonim, 924 F.2d 256, 258 (D.C. Cir. 1991) (applying Russello where “two subsections are closely related and appear in the same statute”). The subsections operate in identical manners, imposing percentage limitations on charitable contributions to certain 501(c)(3) organizations. See 26 U.S.C. § 170(b). Both apply to certain “adjective-noun” organizations: “educational organizations” in subsection (ii) and “medical research organization[s]” in subsection (iii). 26 U.S.C. § 170(b)(1)(A)(ii)-(iii). Yet only subsection (iii) imposes a “principal purpose” requirement on its covered “organizations.” Id., subd. (b)(1)(A)(iii). That cannot be written off as mere oversight, as the USA postulates.

Even setting those similarities aside, this Court has applied Russello after City of Columbus where it was comparing subsections that were not worded identically. For example, in Kaffenberger v. United States, 314 F.3d 944 (8th Cir. 2003), this Court compared IRC sections 6501 and 6532(a)(2) to conclude section 6532 permitted the taxpayer and IRS to agree to “extend the period for bringing suit to recover a refund beyond the normal two-year statutory period,” even if that agreement was not made until after the two-year period expired. Id. at 952-53. Unlike section 6532, section 6501 “expressly require[d] the [extension] agreement to be made 'before the expiration of the time prescribed . . . for the assessment of any tax.'” Id. (citation omitted). Because “Congress did not include similar limiting language in § 6532(a)(2),” this Court was “compelled to conclude that Congress did not intend to prevent taxpayers and the IRS from agreeing, after the two-year statute of limitations has passed, to extend the time in which a taxpayer may bring suit for a refund.” Id. at 953. The Court did not hesitate to reach that conclusion even though the two statutes at issue were not worded similarly. Compare 26 U.S.C. § 6501(c)(4), with id. § 6532(a)(1). The Court found it more persuasive that the relevant provisions were “within a few pages of each other” in the IRC and covered a similar subject matter. Kaffenberger, 314 F.3d at 953.

Similarly, in Sierra Club v. Otter Tail Power Co., 615 F.3d 1008 (8th Cir. 2010), this Court contrasted the Clean Air Act's use of “construct” in sections 7475(a) and 7604(a)(3) with its use of “operate” in sections 7411(e) and 7661a(a) to conclude the former sections did not impose operational requirements. Id. at 1014-15. Again, the provisions the Court analyzed were not otherwise identically or even closely worded. The Court simply noted that when Congress intended to establish conditions for “operation,” it said as much, so “construction” must have a different meaning. Id.; see also Chesnut, 307 F.3d at 701-02 (concluding that because subsection (a)(1) of the statute “expressly provide[d] for written notice,” whereas subsection (a)(4) “only provide[d] that the administrator 'shall notify,'” that indicated oral notice was sufficient under subsection (a)(4)). In other words, this Court, like the district court, applies Russello when the substance of two statutory provisions sheds light on congressional intent, not just when two provisions have nearly identical phraseology.

The Supreme Court has done the same. See, e.g., Dean v. United States, 137 S. Ct. 1170, 1176-78 (2017) (concluding 18 U.S.C. § 924(c) did not prohibit considering a defendant's other sentences because 18 U.S.C. § 1028A, which expressly prohibits considering other sentences, confirmed “it would have been easy enough to make explicit what the Government argues is implicit in § 924(c)”); Dep't of Homeland Sec. v. MacLean, 135 S. Ct. 913, 918-19 (2015) (concluding a regulation prohibiting disclosure of security information was not “law” under the federal whistleblower act because although Congress used the phrase “law, rule, or regulation” throughout much of the act, the subsection addressing prohibited disclosures covered only disclosures “specifically prohibited by law,” not regulation).

The district court's application of Russello to interpret section 170(b)(1)(A)(ii) is consistent with Chevron, City of Columbus, and recent authority from this Court and the Supreme Court.

3. Subsections (i) and (iii) of section 170(b)(1)(A) do not support the USA's interpretation of “educational organization”

Next, the USA argues that section 170(b)(1)(A)(iii) supports its preferred reading of section 170(b)(1)(A)(ii). Put simply, the USA's argument seems to be that because subsection (iii) includes “medical education” organizations, and Mayo provides “medical education,” Mayo cannot qualify as an “educational organization” under subsection (ii). See Appellant's Br. 43. This argument rests entirely on the faulty premise that an organization cannot qualify under multiple subsections of section 170(b)(1)(A). On the contrary, it is well-recognized that organizations may satisfy multiple subsections of the statute. See, e.g., Treas. Reg. § 1.509(a)-6 (“For example, X is an organization which is described in section 170(b)(1)(A)(vi), but could also meet the description of section 170(b)(1)(A)(viii). . . .”); IRS G.C.M. 39508, 1986 WL 372946, at *13 (May 28, 1986) (stating an entity “could be seen as described in section 170(b)(1)(A)(ii) and section 170(b)(1)(A)(v)”); Rev. Rul. 78-95, 1978-1 C.B. 71, 1978 WL 42293 (1978) (concluding an organization qualified under subsections (i) and (vi)); Rev. Rul. 76-416, 1976-2 C.B. 57, 1976 WL 36646 (1976) (concluding an organization qualified under subsections (iii) and (vi)).

This is why Mayo characterized itself as qualifying under multiple subsections of section 170(b)(1)(A) on its tax returns during the Refund Years. See Mayo App. 50-51, 54-55, 58-59, 62-63, 66-67, 70-71, 74-75. Even the USA, through its client the IRS, recognized Mayo may qualify under multiple subsections of section 170(b)(1)(A) in the administrative proceedings that preceded the filing of this lawsuit. See USA App. 226 (stating Mayo is “an organization described in § 170(b)(1)(A)(vi), [but] may also be 'described in' § 170(b)(1)(A)(ii) if it meets the requirements of that section”).

The USA argues Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), supports its argument that an organization cannot qualify under multiple subsections of section 170(b)(1)(A). Appellant's Br. 43-45. Not so. In Better Business Bureau, the Bureau argued it qualified as a corporation “organized and operated exclusively for scientific or educational purposes” under section 811(b)(8) of the Social Security Act. 326 U.S. at 280 (emphasis added). The Supreme Court rejected this argument because the statute required the organization to be “devoted to educational purposes exclusively” and there was a “commercial hue permeating” the Bureau. Id. at 283. Even the USA does not argue that section 170(b)(1)(A)(ii) requires an organization to focus exclusively on education to qualify as an “educational organization.” Thus, in contrast to the statute under review in Better Business Bureau, it makes no difference whether Mayo satisfies subsection (iii) in addition to subsection (ii).⁷

The USA also points to subsection (i) of the statute, which covers “a church or a convention or association of churches.” Appellant's Br. 61. The USA argues that because this Court has “look[ed] to an organization's 'primary' activities to determine whether it qualifies as a church,” it is appropriate to read an unwritten “primary” requirement into section 170(b)(1)(A)(ii) as well.⁸ But the case the USA cites to support its argument, Lutheran Social Services of Minnesota v. United States, 758 F.2d 1283 (8th Cir. 1985), supports Mayo's position, not the USA's.

The issue in Lutheran Social Services was whether an organization was exempt from filing tax returns under IRC section 6033(a)(2)(A)(i), which was limited to “churches, their integrated auxiliaries, and conventions or associations of churches.” Id. at 1286. This Court applied a rather elaborate definition for what constitutes a “church” in the regulation governing section 6033, as well as a fourteen-factor framework developed by the IRS, to determine the organization at issue was not a “church” under section 6033. Id. at 1287. That holding is inapposite to the issues in this case. What is more relevant here is this Court's conclusion that a regulation defining churches' “integrated auxiliaries” was unreasonable because it read an “exclusively religious” requirement into statutory text that imposed no such requirement. Id. at 1289. Because Congress “required that religious orders be 'exclusively religious' to qualify for section 6033's mandatory exceptions, [and] did not mandate the same requirement with respect to integrated auxiliaries,” that omission could “only be viewed as an intentional and purposeful decision not to limit the group of integrated auxiliaries qualifying for the filing exception to those that are exclusively religious.” Id. The district court's conclusion in this case parallels that logic.

The USA also attempts to argue that the fourteen-factor framework for defining a “church” for federal tax purposes upheld in Spiritual Outreach Society v. Commissioner, 927 F.2d 335 (8th Cir. 1991), helps it here, because one of those non-binding factors was whether the organization holds “regular” religious services. See Appellant's Br. 67. This Court applied the full fourteen-factor framework (including the “regular services” factor) to interpret Section 170(b)(1)(A)(i), which does not expressly require any “regularity.” Yet romanette (ii) expressly requires “regularly” conducted educational activities. The USA therefore argues it is proper for a regulation to insert a “principal purpose” requirement into subsection (ii) that is not included there, but is included in subsection (iii). Id.

The analogy is inapposite. First, Spiritual Outreach did not engraft a “regular” services requirement onto the statute; it merely considered that as one of many relevant, non-binding factors to interpret “church” — a notoriously ambiguous term, see Am. Guidance Found., Inc. v. United States, 490 F. Supp. 304, 306 (D.D.C. 1980) — as used throughout the IRC (not just in section 170). See 927 F.2d at 339. As important, nothing in section 170 indicates that considering the regularity of services in addition to thirteen other flexible factors would be somehow contrary to Congressional intent. Indeed, implicit in the Court's ruling is that the framework as a whole did not violate the statutory text. See id. at 339 n.4 (“Our use of the criteria reflects our need to grant considerable deference to an interpretation of a statute by the administering agency, subject to our need to honor the clear meaning of the statute.” (emphasis added)). It is hardly surprising that the Court deferred to an agency interpretation that did not conflict with the statute, especially considering the statute itself lists no factors giving meaning to the term “church,” unlike “educational organization.”⁹

4. The USA's focus on other sections of the IRC is a distraction

Perhaps recognizing section 170(b)(1)(A) cuts against its preferred reading of “educational organization,” the USA instead invites the Court to consider four other IRC sections purportedly showing that Congress intended “educational organization” to be defined narrowly. Appellant's Br. 40-44, 47-49. This Court should decline the USA's invitation.

The first and most relevant context for interpreting section 170(b)(1)(A)(ii) is the surrounding language in section 170(b)(1)(A). This case requires the court to interpret section 170(b)(1)(A)(ii), not section 514 or any other IRC provision. As the district court explained, “[t]he considerations around enacting favored tax treatment for [UBIT] seem likely to be different from . . . those that might inform creating [section 4041's] exemption from taxes payable on the sale of diesel fuel.” Add. 28. Nevertheless, the USA points to section 514(c)(9)(C) and argues it provides “strong proof that Congress deliberately chose not to extend the [UBIT] exception to organizations . . . that engage in some education but are primarily medical, and not educational, organizations.” Appellant's Br. 43. But that argument only works if the Court accepts the USA's false dichotomy between medical organizations and educational organizations. Congress “deliberately chose” to include all section 170(b)(1)(A)(ii) organizations within the scope of section 514(c)(9)(C), and the statute does not exclude organizations providing medical education from that subsection.

The USA also argues that because section 514(c)(9)(C) provides a tax exception, it should be construed narrowly. Id. at 40-41. But again, this Court is not interpreting section 514(c)(9)(C). And even if section 514(c)(9)(C) were at issue, the traditional presumption that tax exemptions are construed narrowly would not apply because the UBIT exemption concerns nonprofit organizations. Tax exemptions favoring nonprofits are construed broadly. See, e.g., Helvering v. Bliss, 293 U.S. 144, 150-51 (1934) (“The exemption of income devoted to charity . . . w[as] [a] liberalization[ ] of the law in the taxpayer's favor, w[as] begotten from motives of public policy, and [is] not to be narrowly construed.”); Green v. United States, 880 F.3d 519, 529 (10th Cir. 2018) (“[T]ax provisions allowing for charitable deductions are an expression of 'public policy' rather than legislative grace, and consequently should be liberally construed in favor of the taxpayer.”); St. Luke's Hosp. of Kansas City v. United States, 494 F. Supp. 85, 89 (W.D. Mo. 1980) (stating, in exempting a hospital's laboratory income from UBIT, that “[s]tatutory provisions which grant tax exemptions to organizations designed to benefit the public good through charitable, religious, scientific, or educational purposes are construed liberally against taxation”).

Additionally, the USA cites three far-afield IRC provisions — sections 4041(g), 4221(d)(5), and 4253(j). These IRC provisions provide certain excise-tax exemptions to (1) “an educational organization described in section 170(b)(1)(A)(ii)” and (2) “a school operated as an activity of an organization described in section 501(c)(3)” that satisfies the faculty-curriculum-students-place requirements. 26 U.S.C. §§ 4041(g), 4221(d)(5), 4253(j). Those provisions arise from Congress's 1959 amendment of section 4221(d)(5) to ensure manufacturers did not pay excise tax for goods sold to schools for their exclusive use. The amendment's legislative history shows that Congress added the “school operated as an activity” language to codify the “clear intent” of Congress that the statutory definition of “educational organization” now found in section 170(b)(1)(A)(ii) included “parochial schools which are merely an activity of a church and not separate entities.” S. Rep. No 86-878, at 3 (1959); H. Rep. No. 86-992, at 5 (1959). The “school operated as an activity” language was added to “clearly reflect” Congress's determination that an “educational organization” includes such entities that have a school as an activity. Id. If anything, these excise-tax statutes support Mayo's statutory interpretation, not the USA's.

5. That the regulation is old and section 170(b)(1)(A)(ii) has not been amended cannot erase the statutory text

The USA also asks this Court to read a “primary function” requirement into section 170(b)(1)(A)(ii) because a regulation imposing such a requirement “has provided settled guidance for over 60 years.” Appellant's Br. 26. This argument fails for three reasons.

First, because the statute is unambiguous when viewed in context, the regulation's history is not relevant. See, e.g., Davis v. Mich. Dep't of Treasury, 489 U.S. 803, 808 n.3 (1989) (“Legislative history is irrelevant to the interpretation of an unambiguous statute.”); Koshland v. Helvering, 298 U.S. 441, 446-47 (1936) (“[W]here . . . the provisions of [an] act are unambiguous, and its directions specific, there is no power to amend it by regulation.”).

Second, as other courts have recognized, “the mere fact that [a regulation] is of long standing does not relieve [the court of the] responsibility to determine its validity.” Touche Ross & Co. v. S.E.C., 609 F.2d 570, 578 (2d Cir. 1979).

Third, congressional silence in the face of a regulation is not a useful indicator of a statute's meaning. See Brown v. Gardner, 513 U.S. 115, 121 (1994) (“[C]ongressional silence 'lacks persuasive significance,' particularly where administrative regulations are inconsistent with the controlling statute.” (citations omitted)); Girouard v. United States, 328 U.S. 61, 69 (1946) (“It is at best treacherous to find in Congressional silence alone the adoption of a controlling rule of law.”). As the First Circuit has noted, because “Congress has neither the time nor the inclination to correct every administrative misinterpretation of a prior statute,” its “failure to pass a 'revising amendment' does not automatically show that any member of Congress ever thought that an existing administrative interpretation of present law was desirable or correct, much less that Congress intended to 'underwrite' it.” Mayburg v. Sec. of Health & Human Servs., 740 F.2d 100, 104 (1st Cir. 1984). That is particularly true here, where Congress could have interpreted the regulation as allowing more than one “primary purpose.” See infra section II.B. Action would be unnecessary in the face of that interpretation.

In sum, the district court was correct to conclude that Congress clearly spoke as to the relevant question here: whether there is a “principal purpose” requirement in section 170(b)(1)(A)(ii). There is not. Therefore, the USA has no basis to insist that Mayo is not an “educational organization” because, as part of its educational activities, it also provides patient care and performs research. And the USA concedes that Mayo meets section 170(b)(1)(A)(ii)'s faculty-curriculum-students-place requirements. Add. 7. Accordingly, this Court should affirm the grant of summary judgment for Mayo on this ground alone.

II. THE USA'S PLAIN-LANGUAGE ANALYSIS OF SECTION 170(b)(1)(A)(ii) IS WRONG

The district court was also correct to reject the USA's proffered plain-language interpretation. The new one the USA offers on appeal fares no better.

The USA argues the district court erred because the plain meaning of “educational organization” includes a “primacy requirement” consistent with the regulation's “primary purpose” test. Appellant's Br. 37-38. The USA cannot cite any dictionary definition of “educational,” “organization,” or “educational organization” that includes a primacy requirement, and its preferred interpretation renders much of section 170(b)(1)(A)(ii) surplusage.

The USA argues that the statute should be interpreted in light of Black's Law Dictionary's definition of “educational institution”: a “school, seminary, college, or educational establishment, not necessarily a chartered institution.” Id. at 37 (internal quotation marks omitted). This argument is a complete shift from the USA's argument to the district court. There, the USA cobbled together its plain-language argument based on a cherry-picked definition of “organization” that mentioned the phrase “particular purpose,” combined with a dictionary definition of “particular” to mean, essentially, “primary.” Mayo App. 112-14. The USA never cited Black's Law Dictionary's definition of “educational institution” below. A “plain language” argument that was not even “plain” to the USA below is self-evidently a post-hoc rationalization, not a clear-eyed reading of the statute. And this Court need not consider the argument, because it is forfeited. See UnitedHealth Grp. Inc. v. Exec. Risk Specialty Ins. Co., 870 F.3d 856, 865 (8th Cir. 2017) (“UnitedHealth did not present this argument to the district court, and it is forfeited.”).

If the Court considers the USA's new “plain language” argument, it should reject it. The USA does not cite any authority to support its claim that the word “educational” means having a primary focus on education. Indeed, the parties agreed below that “educational” simply meant “of or relating to education.” Mayo App. 113. Moreover, the USA's argument that “educational” necessarily includes “primary” is undercut by Treas. Reg. § 1.501(c)(3)-1(d)(3)(ii), which defines “educational” without including any “primary” requirement, and states a 501(c)(3) “educational organization” includes museums, zoos, and symphony orchestras. And this Court has cautioned against reading primacy requirements into other IRC sections addressing “school[s], college[s], or universit[ies].” See Mayo Found. for Med. Educ. & Research v. United States, 568 F.3d 675, 683-84 (8th Cir. 2009) (“The government also argues that the district court erred in invalidating the amended regulation providing that an organization . . . is not a 'school, college, or university' within the meaning of 26 U.S.C. § 3121(b)(10) unless its 'primary function' is education. Although we are inclined to believe that this provision is arbitrary and unreasonable in this context, we need not decide the issue. . . .”), aff'd 562 U.S. 44 (2011).

Put simply, neither “educational” nor “organization” imply any particular quantitative standard. This makes sense, because the USA's interpretation of “educational organization” to include a “primary” requirement would render the second half of section 170(b)(1)(A)(ii) surplusage. See, e.g., In re Bellanca Aircraft Corp., 850 F.2d 1275, 1280 (8th Cir. 1988) (“A statute should not be interpreted so as to render the legislature's language mere surplusage.”). If the term “educational organization” required education to be the organization's primary activity, there would be no need to include the faculty-curriculum-students-place requirements. All organizations engaged primarily in educational activities would necessarily satisfy those requirements.

In a last-ditch effort to support its “plain language” argument, the USA cites inapposite state and regulatory court decisions, many for the first time on appeal. See Appellant's Br. 36-39. None of them are persuasive because they do not concern section 170(b)(1)(A)(ii). Two of the USA's state court decisions interpreted state constitutions with no surrounding language similar to subsection (iii). See Cedars of Lebanon Hosp. v. L.A. Cty., 221 P.2d 31, 36 (Cal. 1950) (holding “the words 'educational institution' [in the California Constitution] . . . do not include a general hospital which has, as an incident to its main purpose and usefulness, an educational feature”); NRA Special Contribution Fund v. Bd. of Cty. Comm'rs, 591 P.2d 672, 675 (N.M. Ct. App. 1978) (addressing Article VIII § 3 of the New Mexico Constitution, which provides “all property used for educational . . . purposes . . . shall be exempt from taxation”). The third case, Milwaukee Regional Medical Center, Inc. v. City of Wauwatosa, 735 N.W.2d 156 (Wis. 2007), interpreted a state statute containing different language than section 170(b)(1)(A)(ii). There, the Wisconsin Supreme Court interpreted Wis. Stat. § 70.11(4), which provides a property tax exemption “for property owned by 'educational or benevolent associations.'” 735 N.W.2d at 171. Unlike section 170(b)(1)(A)(ii), the Wisconsin statute requires property to be “owned and used exclusively by an educational association.” Wis. Stat. § 70.11(4) (emphasis added). None of these cases involved a statutory or constitutional scheme comparable to section 170(b)(1)(A).

The USA also cites for the first time Chapman v. Commissioner, 48 T.C. 358 (1967), to argue its narrow interpretation of “educational organization” is proper. See Appellant's Br. 36-37. Chapman is not binding on this court, see Gordon v. United States, 757 F.2d 1157, 1161 (11th Cir. 1985), and does not support the USA's position. In Chapman, the Tax Court stated section 170(b)(1)(A)(ii) does not “encompass an organization which is engaged in noneducational activity but which incidentally engages in some form of educational activity to further its major function.” 48 T.C. at 365 (emphasis added). Mayo agrees with this statement. That is why the statute imposes the regular faculty-curriculum-students-place requirements — they ensure an organization that has merely incidental educational activity remains outside the statute's scope.

A. The USA's legislative history does not support its interpretation of section 170(b)(1)(A)(ii)

The USA cites legislative history for various IRC provisions to support its flawed “plain language” argument. See Appellant's Br. 53-59. The Court should not rely on this legislative history for five reasons.

First, legislative history is relevant only if the statute is ambiguous. Estate of Farnam, 583 F.3d at 584. Section 170(b)(1)(A)(ii) is not ambiguous. When viewed in context, it is clear Congress declined to include any “primary” requirement in subsection (ii). That can, and should, end the inquiry. See Conn. Nat'l Bank v. Germain, 503 U.S. 249, 254 (1992) (“When the words of a statute are unambiguous . . . 'judicial inquiry is complete.'” (citation omitted)); N. States Power Co. v. United States, 73 F.3d 764, 766 (8th Cir. 1996) (“[W]hen, as here, the statutes are straightforward and clear, legislative history . . . [is] at best interesting, at worst distracting and misleading, and in neither case authoritative.”).

Second, legislative history is not useful when it consists of nothing more than “general remarks . . . [that] 'were obviously not made with th[e] narrow issue in mind.'” Chevron, 467 U.S. at 862 (quoting Jewell Ridge Coal Corp. v. Mine Workers, 325 U.S. 161, 168-69 (1945)). The USA quotes language from the 1954 House and Senate Reports suggesting Congress intended “educational organization” to include “universities” and “colleges.” See H.R. Rep. 83-1337 at A54 (1954); S. Rep. 83-1622 at 208 (1954). While “universities” and “colleges” fall within the scope of “educational organization,” nothing in this proffered history suggests Congress intended its illustrative examples of “educational organizations” to be exhaustive.

Third, none of the USA's remaining legislative history involved section 170(b)(1)(A)(ii) itself or proposed amendments to the provision. The USA quotes other portions of 1954 House and Senate Reports discussing the meaning of “educational institution” in 26 U.S.C. § 151, not “educational organization” in section 170(b)(1)(A). Appellant's Br. 56-57. The 1983 Senate Finance Committee's subcommittee's hearing on adding section 170(b)(1)(A)(ii) to section 514(c)(9)(C)'s list of “qualified organizations,” see id. at 53-55, shows only that a single subcommittee member once used “school” as a shorthand to describe one type of “educational organization.” See Hearing on S. 927, S. 1183, and H.R. 2163 Before the Subcomm. on Taxation and Debt Management of the S. Comm. on Finance, 98th Cong. 189 (1983) (statement of Sen. Spark M. Matsunaga, Member, S. Subcomm. on Taxation and Debt Management). Equally irrelevant is the 1982 Report from the Joint Committee on Taxation concerning H.R. 5573, a proposed bill to “provide a larger charitable deduction . . . for charitable contributions by corporations of computers or other sophisticated technological equipment, if contributed to a primary or secondary school, and if used by the school directly in the educational of students.” J. Comm. on Taxation, Description of Tax Bills before House Committee on Ways and Means, JCS-22-82 at 16 (1982). The “principal intended beneficiary of the bill [was] Apple,” and the bill did not pass. Id. None of this legislative history supports the USA's position or calls into question the District Court's analysis.

Fourth, some of the USA's “legislative history” consists of irrelevant third-party testimony. See Appellant's Br. 57-58; Hearing on P.L. 88-272 § 209(a); Hearing before the S. Finance Comm., 91st Cong. 5568 (Oct. 1969). Congressional intent should not be inferred from third-party testimony. See Sierra Club v. Clark, 755 F.2d 608, 617 (8th Cir. 1985).

Fifth, to the extent the USA argues legislative history supports interpreting “educational organization” narrowly to cover only traditional schools, colleges, and universities, see Appellant's Br. 54, that argument is undercut by Congress's failure to include that limitation expressly. It is further undercut by the IRS's historic practice. See, e.g., IRS G.C.M. 39757, 1988 WL 567331 (Oct. 11, 1988) (concluding an organization operating a day-care service satisfies section 170(b)(1)(A)(ii)); IRS G.C.M. 39039, 1983 WL 197924, at *1 (Feb. 5, 1982) (concluding a nonprofit corporation operating a “wilderness camping program to rehabilitate adolescents” satisfies section 170(b)(1)(A)(ii)).¹⁰

B. If this Court concludes “educational organization” contains a “primary” requirement, summary judgment for Mayo remains proper because, in this context, “primary” does not mean “solely”

Finally, even if this Court concludes that the USA is right and “educational organization” under section 170 includes a “primary purpose” requirement, it should still affirm the district court's judgment for Mayo.

The USA's argument that Mayo does not qualify for a UBIT exemption in this case rests on the premise that “primary” means “solely.” See Appellant's Br. 36. But there are competing dictionary definitions of “primary.” Some dictionaries define “primary” as “[f]irst or highest in rank or important.” “Primary”, The American Heritage of the English Language (5th ed. 2019). Other dictionaries define “primary” as “basic, fundamental.” “Primary”, Merriam-Webster's Collegiate Dictionary 986 (11th ed. 2006). Because of these competing, yet common, meanings, the Supreme Court has recognized the meaning of “primary” must be determined by context. In Board of Governors of Federal Reserve System v. Agnew, 329 U.S. 441 (1947), the Court stated “primary” may mean “first, chief or principal” when “applied to a single subject,” but also that “[a]n activity or function may be 'primary' . . . if it is substantial.” Id. at 446. Context, case law, and interpretive canons show the only reasonable interpretation of “primary” as applied to Section 170 is “substantial.”

Beginning with context, because Section 170(b)(1)(A)(iii) shows that Congress did not intend a “principal function” requirement to apply to educational organizations, it follows that “primary” — if read into section 170(b)(1)(A)(ii) — means “substantial,” not “principal.” Agnew supports this reading. There, the Supreme Court concluded that interpreting “primarily” to mean “first, chief, or principal” would create absurd results because a financial firm would “not [be] 'primarily engaged' in any line of business though it specializes in at least two [underwriting and brokerage] and does a substantial amount of each.” Agnew, 329 U.S. at 446. Like many human endeavors, medical education simultaneously serves several goals, and it would be absurd to insist that none of them are therefore “primary.” See In re Kellogg Brown & Root, Inc., 756 F.3d 754, 759 (D.C. Cir. 2014) (“[T]rying to find the one primary purpose for a communication motivated by two sometimes overlapping purposes . . . can be an inherently impossible task. It is often not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B.”). One of Mayo's “substantial purposes” is education, and the USA has never argued otherwise.¹¹ Mayo specializes in education, research, and patient care. Each is a substantial function, even if none predominates, just as underwriting and brokerage are both primary functions of financial firms. See id. And, like in Agnew, it makes little sense to single out medical education as undeserving of an exemption, when other types of education entitle a taxpayer to one. The nonprofit-taxpayer canon supports this interpretation, because interpreting “primary” as “substantial” affords exemptions for more nonprofit organizations. See Bliss, 293 U.S. at 150-51; Green, 880 F.3d at 529; St. Luke's Hosp., 494 F. Supp. at 89.

Because “primary” must mean “substantial” in this context, the undisputed facts establish education is one of Mayo's primary functions. Mayo operates five world-renowned graduate medical schools, accredited by multiple agencies, that offer M.D., PhD, and other degrees, as well as residencies, fellowships, and continuing medical education. Mayo App. 10. Its student enrollment, excluding the School of Continuing Professional Development, ranged from 2,584 to 3,579 students during the Refund Years. Id. at 20-21, 39-40. The school for residents and fellows, the School of Graduate Medical Education, has remained one of the largest in the country in terms of number of students and programs offered. Mayo has a formal academic governance structure, education committees, and determines the schools' faculty, programs, and curricula. Id. at 17; cf. Rev. Rul. 2004-51, 2004-1 C.B. 974, 2004 WL 1038122 (2004) (stating a university “approv[ing] the curriculum, training materials and instructors” supported exempting joint-venture income from UBIT as educational). The expectation at Mayo is that all physicians hold an academic appointment. Mayo App. 18. The USA agrees actual patient care is necessary, inherent, and integral to medical education. Id. at 27-28, 80. These undisputed attributes show that, at minimum, education is one of Mayo's primary functions.

This conclusion is consistent with other courts' characterizations of Mayo. See United States v. Mayo Found. for Med. Educ. & Research, 282 F. Supp. 2d 997, 1014-15 (D. Minn. 2003) (concluding Mayo Foundation was a school and stating “[t]he quality of a graduate medical education program depends directly on the breadth and quality of patient care pursued at the clinical institutions”); Mayo Found. v. C.I.R., 236 N.W.2d 767, 774 (Minn. 1975) (“[T]he private practice of medicine. . . . appears to be incidental to the educational and research activities of the Mayo entities. The quality of a clinical education program depends, to a large extent, on the availability of a large and diverse patient population to provide exposure to various medical problems and situations.”). Because education is undisputedly a substantial function of Mayo's, summary judgment in its favor was appropriate.

III. ALTERNATIVELY, THIS COURT MAY AFFIRM BECAUSE, AS USED IN SECTION 170(b)(1)(A)(ii), “EDUCATIONAL ORGANIZATION” UNAMBIGUOUSLY INCLUDES MAYO

If this Court concludes the district court applied Russello correctly to determine section 170(b)(1)(A)(ii) does not contain a “primary function” requirement, this case ends there, because the USA concedes that Mayo meets the statute's faculty-curriculum-students-place requirements. Add. 1, 7. However, the Court can also affirm summary judgment on the ground that “educational organization,” as used in the statute, unambiguously includes Mayo and therefore, to the extent the regulation conflicts with the statute, it should not be followed.

A. Section 170(b)(1)(A)(ii) defines “educational organization”

“When a statute includes an explicit definition, [courts] must follow that definition.” Stenberg v. Carhart, 530 U.S. 914, 942 (2000). This remains true in the Chevron context. See, e.g., Aremu v. Dep't of Homeland Sec., 450 F.3d 578, 581 (4th Cir. 2006) (concluding no deference was owed to a regulation that was inconsistent with a statutory definition).

Here, the relevant statute reads “an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” 26 U.S.C. § 170(b)(1)(A)(ii) (emphasis added). “Which” is a definitional term. See “Which”, The American Heritage Dictionary of the English Language (5th ed. 2019) (defining “which” as a “relative pronoun in a clause that defines or restricts the antecedent”); “Which”, Oxford English Dictionary Online (last accessed Feb. 10, 2020) (defining “which” as “[i]ntroducing a clause defining or restricting the antecedent and thus completing the sense”); Random House Dictionary 2165 (2d ed. 1987) (defining “which” as “used relatively in restrictive and nonrestrictive clauses to represent a specified antecedent”). This means the statute itself defines “educational organization” — an “educational organization” is an organization which “normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” 26 U.S.C. § 170(b)(1)(A)(ii).

Indeed, even the House and Senate have previously labeled the faculty-curriculum-students-place requirements a “definition” of “educational organization.” S. Rep. No 86-878, at 3 (quoting the faculty-curriculum-students-place requirements and stating that there were questions regarding whether “the reference to 'educational organizations' in this definition” included parochial schools (emphasis added)); see also H. Rep. No. 86-992, at 5 (same); S. Rep. No. 83-1622, at 4660 (1954) (“The term 'educational institution' is defined as an organization which [satisfies the faculty-curriculum-students-place requirements].” (emphasis added)).

Courts have also suggested that “educational organization” is defined by statute. In Center for Family Medicine v. United States, 614 F.3d 937 (8th Cir. 2010), this Court observed that “IRS regulations incorporate 26 U.S.C. § 170(b)(1)(A)(ii)'s definition of an educational institution into the definition of a school, college, or university.” Id. at 942 n.7 (emphasis added); see also Streiff v. C.I.R., 77 T.C.M. (CCH) 1565, 1999 WL 153738, at *2 (T.C. 1999) (“[E]ven if we were to accept petitioner's argument . . . the board would have to meet the definitional requirements of an 'educational organization' as provided by section 170(b)(1)(A)(ii).” (emphasis added)).

The district court disagreed with this statutory-definition argument, citing Mayo Foundation for Medical Education and Research v. United States, 562 U.S. 44 (2011), to conclude section 170(b)(1)(A)(ii) did not use “which” in the definitional sense. Add. 20-22. In Mayo Foundation, the Supreme Court concluded the phrase “student who is enrolled and regularly attending classes at [a] school, college, or university” did not provide a statutory definition for “student.” 562 U.S. at 49, 52 (emphasis added). That analysis overlooks two critical differences between this case and Mayo Foundation.

First, “who” and “which” are different terms with different meanings. Dictionaries recognize that “which” may be definitional. “Who,” by contrast, is an introductory, descriptive term — not a definitional term. See “Who”, The American Heritage Dictionary of the English Language (5th ed. 2019) (defining “who” as “a relative pronoun [used] to introduce a clause when the antecedent is a person or persons”); “Who”, Merriam-Webster's Dictionary (last accessed Feb. 10, 2020) (defining “who” as “a function word [used] to introduce a relative clause”).

Second, an affirmative statutory-definition argument was not presented to the Supreme Court in Mayo Foundation. Mayo did not argue that “student” was defined by statute, instead relying on a plain-language argument. See Br. for Pet'rs 19-22, Mayo Found. for Med. Educ. and Research v. United States, 562 U.S. 44 (2011) (No. 09-837), 2010 WL 4111636. Thus, Mayo Foundation is not instructive on the definition issue.

B. If this Court concludes “educational organization” is not defined by statute, the plain meaning of the term is still unambiguous

Alternatively, if this Court concludes section 170(b)(1)(A)(ii) does not define “educational organization,” the term's plain meaning is unambiguous and supports summary judgment for Mayo. See Schumacher v. Cargill Meat Sols. Corp., 515 F.3d 867, 871 (8th Cir. 2008) (“In the absence of a statutory definition . . . statutory terms are given their plain, ordinary, and commonly understood meaning.”); C.I.R. v. Soliman, 506 U.S. 168, 174 (1993) (“In interpreting the meaning of the words in a revenue Act, [courts] look to the ordinary, everyday senses of the words.” (internal quotation marks omitted) (citations omitted)).

As the parties agreed below, “educational” means “[o]f or relating to education.” “Education”, The American Heritage Dictionary of the English Language (5th ed. 2019); see also “Educational”, Oxford English Dictionary Online (last accessed Feb. 10, 2020) (defining “educational” as “[o]f or relating to the provision of education”); Webster's Third New International Dictionary 723 (1981) (defining “educational” as “of, relating to, or concerned with education or the field of education”).

“Organization” means “association.” “Organization”, The American Heritage Dictionary of the English Language (5th ed. 2019); see also Merriam-Webster's Collegiate Dictionary 874 (11th ed. 2006) (defining “organization” as “association, society” or “an administrative and functional structure (such as a business or political party”); Random House Dictionary 1364 (2d ed. 1987) (defining “organization” as “a group of persons organized for some end or work; association”).

Thus, the plain, unambiguous meaning of “educational organization” is “an association of or relating to education.”

This interpretation is consistent with the statute. Defining “educational organization” as “an association of or relating to education” affords meaning to the statute's faculty-curriculum-students-place requirements, as those requirements narrow the class of “educational organization” covered by the statute. Moreover, this interpretation harmonizes section 170(b)(1)(A)(ii) with its surrounding subsections, as it avoids reading an implicit “primary” requirement into subsection (ii) despite Congress providing that requirement explicitly only in subsection (iii). Supra Section I.B. The USA provides no plausible alternative plain-language reading of “educational organization”; its proffered definition has no dictionary support and violates canons of construction. Supra Section II.

C. Because section 170(b)(1)(A)(ii) is unambiguous, no deference is owed to the regulation

Section 170(b)(1)(A)(ii) is unambiguous. Whether this Court concludes “educational organization” is defined by statute or relies on plain-meaning analysis, there is no doubt Congress did not intend to include or imply any “primary” requirement in the term. Consequently, this Court's inquiry should end at Chevron step one. See, e.g., Bd. of Governors of Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361, 368 (1986); Chevron, 467 U.S. at 842-43; N. Nat. Gas Co. v. O'Malley, 277 F.2d 128, 134 (8th Cir. 1960).

That Brundage v. Commissioner of Internal Revenue, 54 T.C. 1468 (T.C. 1970), concluded the regulation was valid does not alter this conclusion. See Appellant's Br. 67-68. Brundage does not control here for three reasons. First, Tax Court decisions are not binding on federal courts. See, e.g., Gordon, 757 F.2d at 1161. Second, Brundage predates Chevron, and did not consider whether any test comparable to Chevron has been satisfied. Third, Brundage's limited analysis focused on subsequent legislative history, see 54 T.C. at 1473-74, and “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one,” Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 117 (1980) (internal quotation marks omitted).¹² Nothing in Brundage changes the reality that “[a]n agency has no power to 'tailor' legislation to bureaucratic policy goals by rewriting unambiguous statutory terms.” Utility Air Regulatory Grp., 573 U.S. at 325.

D. Even if this Court concludes section 170(b)(1)(A)(ii) is ambiguous, the regulation is not reasonable

Even if this Court concludes section 170(b)(1)(A)(ii) is ambiguous, it does not follow that it should defer to Treas. Reg. § 1.170A-9(c)(1). The Supreme Court has held time and again that “an agency's interpretation of a statute is not entitled to deference when it goes beyond the meaning that the statute can bear.”MCI Telecomms. Corp., 512 U.S. at 229; see also City of Arlington v. F.C.C., 569 U.S. 290, 297 (2013) (“No matter how it is framed, the question a court faces when confronted with an agency's interpretation of a statute it administers is always, simply, whether the agency has stayed within the bounds of its statutory authority.” (emphasis omitted)).

As the district court pointed out, to the extent the regulation imposes a primary purpose requirement, it goes beyond any meaning the statute can bear. The court observed, “[i]f Congress intended for an 'educational organization' to be defined by a primary-function requirement, 'it had an excellent chance to say so' but elected not to.” Add. 15 (quoting Watt v. GMAC Mortg. Corp., 457 F.3d 781, 783 (8th Cir. 2006)).

Indeed, this Court has suggested, in dicta, that if the USA is correct in its interpretation of the regulation, the regulation should be invalidated as “arbitrary or unreasonable.” In Mayo Foundation, this Court was tasked with determining whether Mayo was required to pay FICA tax for its residents. See 568 F.3d at 676-77. As relevant here, FICA tax was not owed if the employee was a student “at a school, college, or university,” and the regulation stated that an organization was a “school, college, or university” if its “primary function is the presentation of formal instruction,” then referenced section 170(b)(1)(A)(ii). Id. at 677-78. The regulations also clarified that the exception did not apply if the student-employee worked more than 40 hours per week, which it was undisputed the residents did. Id. While the Court found that the “full-time employee” exception did not contradict the plain language of the statute, and decided the case on that basis, it noted that it was “inclined to believe” that the “primary purpose” regulation was “arbitrary and unreasonable in this context.” Id. at 683-84 (emphasis in original).

Thus, even if the Court chooses to apply the regulation to Mayo, it should determine that any “primary purpose” requirement excluding Mayo from section 170(b)(1)(A)(ii)'s scope) is either contrary to statute or arbitrary and capricious and affirm summary judgment in Mayo's favor.

IV. THE DISTRICT COURT CORRECTLY CONCLUDED THAT BECAUSE MAYO SATISFIES THE FACULTY-CURRICULUM-STUDENTS-PLACE REQUIREMENTS, IT IS AN “EDUCATIONAL ORGANIZATION” ENTITLED TO A REFUND

The USA takes issue with the district court's ultimate conclusion that because the USA conceded Mayo satisfies the faculty-curriculum-students-place requirements, “there is no genuine issue of material fact that Mayo qualifies as an 'educational organization' under § 170(b)(1)(A)(ii) and is entitled to summary judgment on its refund claims.” Add. 30. That conclusion is correct.

The USA's position before the district court was that Mayo is entitled to a refund unless an “educational organization” is required to satisfy a “primary function” requirement. See id. (“The Government's position that Mayo is not entitled to the refunds it seeks is premised entirely on Mayo's alleged inability to satisfy the primary-function and merely-incidental requirements. . . .”).

The court rejected the USA's position, and concluded functionally, in the absence of a valid regulation, section 170(b)(1)(A)(ii) is satisfied if the faculty-curriculum-students-place requirements are satisfied: “Implicit in a determination that Congress did not include a primary-function requirement in § 170(b)(1)(A)(ii) is a determination that Congress intended the statute's requirements around faculty, curriculum, students, and place to carry most of the weight in identifying an educational organization.” Id. at 19 n.6.

Before the district court, the USA did not articulate any alternative basis for prevailing if the statute did not contain, and could not support, a “primary” requirement. Nor has the USA articulated such a basis to this Court. Therefore, the faculty-curriculum-students-place requirements are the “definition” to which the USA argues it is entitled. Supra Section III. As the court pointed out, the USA is free to regulate as to the “precise meaning” of those terms if it feels the need for a more precise definition, so long as it does not “impos[e] a primary-function or merely-incidental test.” Id. at 20 n.6. But the court's correct decision not to rewrite the statute is hardly a reason to reverse its grant of summary judgment.

CONCLUSION

For all of the foregoing reasons, the Court should affirm the district court's grant of summary judgment for Mayo Clinic.

Dated: March 20, 2020

Respectfully submitted,

Andrew M. Luger

Mark P. Rotatori
Nicole C. Henning
JONES DAY
77 West Wacker
Chicago, IL 60601-1692
Tel: (312) 782-3939
Fax: (312) 782-8585
mprotatori@jonesday.com
nhenning@jonesday.com

Andrew M. Luger
Annamarie A. Daley
Andrew P. Leiendecker
JONES DAY
90 South 7^th Street, Suite 4950
Minneapolis, MN 55402
Tel: (612) 217-8800
Fax: (844) 345-3178
aluger@jonesday.com
adaley@jonesday.com
aleiendecker@jonesday.com

Counsel for Plaintiff-Appellee Mayo Clinic