Justice Argues Medical Residents Don't Qualify for Student FICA Exception

                       TABLE OF CONTENTS

On March 1, 2006, the District Court entered judgment awarding the Government $3,036,601.15. (R98.) The judgment is a final, appealable order that disposed of all claims of all parties. On March 10, 2006, Mt. Sinai filed a timely notice of appeal (R100). 28 U.S.C. § 2107(b); Fed. R. App. P. 4(a)(1)(B). This Court's jurisdiction rests upon 28 U.S.C. § 1291.

Although the court entered what it denoted as a "final judgment" at the same time, granting the Government judgment in the amount of $2,450,177.32, plus statutory interest, the order itself contemplated that there would be further proceedings regarding the amount of interest due, unless the parties agreed. (R73.) The correct amount of interest was, in fact, disputed. (R77, R78.)³ The court ultimately agreed with the Government regarding the correct amount of interest payable (R95) and entered judgment accordingly (R98). Mt. Sinai now appeals. (R100.) In its opening brief, however, it does not raise, and has therefore waived, any challenge to the correctness of the amount of interest set forth in the judgment.

Because Mt. Sinai has at least 100 residents, it is one of six statutorily-designated teaching hospitals in the State of Florida. (R75 at 3; R62 at 4.) Mt. Sinai maintained medical residency and fellowship programs, accredited by the Accreditation Council for Graduate Medical Education (ACGME), in certain specialties and subspecialties, including internal medicine, pathology, radiology, general surgery, cardiology and, beginning in 1998, emergency medicine. (R75 at 22-4; R62 at 1-2; R48 at 1-2.) A manual provided by Mt. Sinai to incoming medical residents states in part that "[y]ou are now part of an organization dedicated to providing the best possible health care to our community . . . . Patient care, our medical center's primary concern, will be your major responsibility." (R48, Ex. G at 2 (emphasis supplied).)

Training in the Mt. Sinai residency programs primarily involved clinical work. (E.g., R62, Ex. 18 at 6-18, 28-64, 77-106.) A resident would learn by performing medical tasks under the supervision, at all times, of a full-time physician employed by Mt. Sinai, referred to as an attending faculty member. (R62, Ex. B at 4- 5; R48, Ex. G at 64-65.) During the quarters in suit, residents were not limited to working 80 hours per week (as they now are), and some residents spent more than 80 hours per week at the hospital performing patient care. (R62, Ex. B at 30, 137, 287.) As residents gained experience, their responsibilities progressively were increased, and they were permitted to perform more complex medical tasks, but still under the supervision of attending faculty. (Id. at 5-8.)

For example, in Florida, first-year residents (interns) are not yet eligible to apply for a license to practice medicine. (Id. at 146-47.) They are nevertheless registered with the State (R48, Ex. G at 6) and may write prescriptions for drugs other than controlled substances (R62, Exs. B at 146-47 & D at 73-75).

After completing the first year of residency, a resident may apply for a license. (Ibid.) A licensed resident may write a prescription for any medicine, including controlled substances. (R64, Report of Dr. Richard A. Cooper (Cooper Rept.) at 14.) Licensed residents may also "moonlight" as physicians, independently of participating in any residency program. (R62, Ex. B at 311; R48, Ex. G at 24.)

Mt. Sinai's residents also were provided with "didactic" training. Such training included (i) one-hour "core curriculum" conferences four times per week, the curriculum of which was prescribed by the ACGME (or other accrediting body); (ii) daily discussions of patient-care plans with attending faculty; (iii) "grand rounds," a forum at which residents and attending faculty met weekly for a one-hour lecture by an attending faculty member, private practice physician or chief medical resident on an aspect of medical treatment; (iv) morbidity and mortality conferences; and (v) journal clubs. (E.g., R62 at 3-4 & Ex. B at 52-62, 71-91; R48, Ex. G at 6-7.)

Mt. Sinai assessed residents' progress through monthly clinical evaluations and by administering annual examinations prepared by the specialty boards responsible for certifying residents. (R62 at 3 & Ex. B at 308-10.) Although the examinations were graded, residents were not provided with transcripts. (R62, Ex. B at 308-11.)

Upon completing a residency, a resident received a certificate from Mt. Sinai, not a degree. (Id., at 69, 315.) The resident was then eligible to take the specialty board examination. (Ibid.) Upon passing the board examination, the resident received certification to practice in a particular field of medicine. (Id., Ex. B at 69, 235, 315.)

Mt. Sinai provided, free of charge to each resident, coverage under its medical malpractice insurance policy, which also covered other physicians and nurses employed by the hospital. (R62, Ex. B at 303-04; R49 at 53-54.) In addition, like other hospital staff, residents were provided with other employee benefits, including paid vacation and sick leave and health and life insurance. (R62, Ex. B at 299-300, 304-06; R48, Ex. G at 13-15.) Residents also were eligible to participate in the hospital's § 401(k) plan and had access to its child-care facilities. (R62, Ex. B at 307; R48, Ex. G at 13.) Other fringe benefits provided to residents included free parking, free meals on nights they were on call and no charge for medicines stocked in the hospital's pharmacy. (R62, Ex. B at 299-300; R48, Ex. G at 13-14.) In addition, Mt. Sinai treated residents as employees for purposes of worker's compensation and the Occupational Safety and Health Act. (R62, Ex. B at 312; R49 at 76-77; R48, Ex. G at 15.)

The Government recounted that an attempt by medical residents to invoke the "intern" exception had foundered in St. Luke's Hospital Ass'n v. United States, 333 F.2d 157 (6th Cir. 1964). (Id. at 12.) The residents there had challenged their FICA coverage as anomalous, pointing out that both self-employed physicians and interns were then exempt from coverage. (Id. at 11-12.) In St. Luke's, noted the Government, the Sixth Circuit had concluded that there was a distinction between residents and interns in 1939, when the intern exception was adopted, and that Congress had explicitly singled out interns alone for a FICA tax exception.⁵ The Sixth Circuit relied upon a statement in the legislative history noting that the exception was intended to apply to "service performed as an interne (as distinguished from a resident doctor) at a hospital * * * ." (R46 at 12-13 (quoting St. Luke's, 333 F.2d at 160-163) (quoting H.R. Rep. No. 76- 728, 49 (1939), reprinted in 1939-2 C.B. 538, 550-51).) The Government also noted that, although the Sixth Circuit recognized that the distinctions between residents and interns had narrowed significantly between 1939 and 1964, the court had refused to expand the intern exception to residents, reasoning that it was up to Congress to expand any exemption from Social Security coverage. (R46 at 12-13 (citing St. Luke's, 333 F.2d at 164).)

The Government further noted that one year after the decision in St. Luke's, Congress repealed the exemptions that had applied both to interns and self-employed physicians, with a view toward giving "young doctors an earlier start in building up social security protection." (R46 at 13-14.) E.g., H.R. Rep. No. 89-213, 95 (1965), reprinted in 1965-2 C.B. 733, 735. The Government contended that it would be contrary to congressional intent to conclude that residents are eligible for the student exception, particularly since Congress had specifically declined to cover residents under the intern exception and had later repealed both the intern and self-employed physician exceptions in an attempt to expand Social Security coverage for "young doctors." (Doc.46 at 14-16.) Finally, the Government emphasized that residents were ineligible for the student exception in any event because the services they rendered were neither intermittent nor part-time and their pay was not nominal. (R46 at 14.)

Mt. Sinai opposed the Government's motion for summary judgment, arguing that the terms "intern" and "resident" had different meanings in 1939 than they do today. (R61 at 7-9.) According to Mt. Sinai, "interns" were not considered students because their work at hospitals focused on patient care, not education. (Id. at 9.) By contrast, Mt. Sinai asserted, residents were always considered to be engaged in training to obtain additional education. (Id. at 8-9.) In particular, Mt. Sinai contended that in 1939 interns' services were not educational in nature, while residents' services were. (Id. at 9.) Mt. Sinai contended that the alleged difference between interns in 1939 and interns at the time of the proceedings in St. Luke's justified the distinction Congress made in limiting the exception to interns while, at the same time, still permitting residents to claim the student exception. (Ibid.) Mt. Sinai further contended that Congress had repealed the intern exception because "it was no longer necessary" in light of the discontinuance of internships by hospitals, not because Congress had intended to preclude residents per se from claiming the student exception. (R61 at 9.) Mt. Sinai also relied upon Minnesota v. Apfel, 151 F.3d 742 (8th Cir. 1998), and United States v. Mayo Found. for Med. Educ. and Research, 282 F. Supp. 2d 997, 1006 (D. Minn. 2003), where residents had been found to qualify for the student exception. (Id. at 10-15.)

In its reply, the Government contended that residents were never eligible for the student exception. (R64 at 7.) It argued that Mt. Sinai's interpretation of the congressional rationale for repealing the intern exception was directly contrary to the legislative history of the 1965 amendments, which indicated an intention to expand Social Security coverage to "young doctors." (Id. at 2, 7.) Relying upon St. Luke's, the Government likewise argued that Mt. Sinai's interpretation of the meaning of the terms "interns" and "residents" in 1939 was without support, since St. Luke's had found that even in 1939, the focus of an internship, like that of a residency, was educational. (Id. at 2-4 (quoting 133 F.3d at 163-164).) Finally, the Government observed that Congress had chosen not to expand the intern exception to cover residents. To the contrary, it had repealed both the intern exception and the exemption for self-employed physicians in 1965 in order to expand the Social Security coverage of doctors, particularly "young doctors." (Id. at 4-7.) In so doing, the Government noted, Congress had eliminated any anomalies in the Social Security coverage of physicians, thereby advancing its policy of providing the broadest possible Social Security coverage of the workforce. (Id. at 4.)

The District Court then observed that, in 1939, Congress enacted the student exception as two separate exemptions, one for students employed by tax-exempt entities and another for those working for non-tax-exempt organizations and that, at the same time, it enacted a separate exemption for medical and dental interns. (R75 at 9-10.) In the court's view, Congress had demonstrated its intention not to have the intern exception apply to residents by describing the intern exception in the legislative history as including only "service performed by an interne (as distinguished from a resident doctor) in the employ of a hospital by an individual who has completed a four years' course in a medical school chartered or approved pursuant to state law." (Id. at 10 (quoting H.R. Rep. No. 76-728, 49 (1939), reprinted in 1939-2 C.B. 538, 550-551).)

Based on the legislative history of the intern and student exceptions, the District Court concluded that Congress had drafted those exceptions "narrowly" and intended that they constitute no more than "de minimis exceptions to the Act." (Ibid.) The court further explained that Congress had intended the exceptions to alleviate the burdens associated with administering FICA tax withholding for those employees working only part-time or intermittently who received nominal wages:

The District Court further explained that, in 1950, Congress had eliminated the $45 cap on remuneration paid to a student rendering services to a non tax-exempt school, college or university, consolidating it with the other student exception applicable to tax- exempt organizations. (Ibid.) But the court stated that, tellingly, Congress had not made any substantive change to the student exemption. (Ibid.) Instead, as the court explained, Congress expressed an intent that the student and intern exceptions "continue" to pertain only to "nominal" compensation for part-time or intermittent services, much as originally enacted under the 1939 amendments. (Ibid.)

The District Court further noted that, prior to the 1965 amendments, medical students, interns and doctors in private practice were not subject to FICA taxes. (Ibid.) Instead, the court explained, the only doctors subject to FICA taxes between 1939 and 1950 were residents. (Ibid.) The court observed that residents had urged the Sixth Circuit to expand the intern exception to include residents, contending that there was no difference between the roles they served. (R75 at 12.) It further observed that the Sixth Circuit had flatly rejected that argument, holding that residents were subject to FICA taxes because Congress explicitly had excluded residents from the scope of the intern exception and that it was the province of Congress, not the courts, to expand that exception. (Id. at 12-13 (citing St. Luke's, 333 F.2d at 163- 164).)

In addition, noted the District Court, Congress in 1965 moved to expand, not contract, the coverage of doctors under Social Security by by repealing the exceptions for interns and self-employed doctors. (Id. at 13-14.) In explaining the 1965 amendments, the court cited the following legislative history:

The District Court concluded that, through the 1965 Amendments, "Congress brought medical interns and self-employed medical practitioners within the ambit of Social Security," while "[m]edical residents had always been covered by Social Security." (R75 at 15.) The court considered it significant that Congress had given no indication that it intended to exclude medical residents and interns from coverage as students. (Id. at 15, 16.) It reasoned that "interpreting the student exception to include medical residents" conflicted with "the clear intent of Congress to reserve the student exception for students working few hours and earning nominal compensation [unlike medical residents]." (Id. at 15.) The court also noted that excluding residents from coverage was directly contrary to Congress's expressly stated goal of expanding the Social Security coverage of "young doctors," a group of which residents clearly were a part. (Id. at 16.)

The court disagreed with Mt Sinai's contention that the purposes of internships and residencies were very different in 1939, thereby causing Congress to repeal the intern exception as no longer "necessary" in 1965. (Id. at 15-17.) The court reasoned that "the focus of an intern's and a resident's service was educational in 1939, remained educational in 1965, and remains educational today." (Ibid.) The court found no indication that, in 1965, Congress had been unaware of the educational aspect of internships and residencies. (Id. at 16.) The court emphasized that, in St. Luke's, the hospital had not argued that residents were eligible for the student exemption, even though the hospital had presented ample evidence of the educational component of a residency. (R75 at 16.) The court therefore concluded that despite the existence of educational aspects of internships and residencies, "Congress plainly intended that social security cover 'young doctors,' like the 'other employees working for the same hospital.'" (Ibid. (internal citations omitted).)

The District Court opined that if Congress had intended to include residents and interns within the student exception, as Mt. Sinai contended, "Congress likely would have stated that it was overruling St. Luke's." (Id. at 17.) The court observed that, instead, Congress had explicitly stated its intent to extend coverage to young doctors who were unlikely, in the early years of their practice, to have adequate coverage for survivorship and disability, which would be the case today if residents were to be excepted from coverage. (Ibid.)

The District Court also found Mt. Sinai's position to be contrary to norms of statutory construction. (Id. at 18.) The court explained that if the student exception encompassed residents, the former intern exception would have been rendered superfluous, since interns, too, would have been eligible for the student exception, thereby obviating the need for any separate intern exception. (R75 at 18.) The court noted that when Congress enacted the intern exception in 1939, it had expressed an intention that that exception "not include 'resident doctor[s],' lending further support to the notion that the student exception included neither medical interns nor medical residents." (Ibid., quoting H.R. Rep. No. 76-728 at 49, reprinted in 1939-2 C.B. 550.)

Finally, the District Court rejected Mt. Sinai's reliance upon the Minnesota and Mayo cases. (Id. at 19-20.) The court observed that the Minnesota case involved whether residents were included in an agreement entered into by the State of Minnesota and the Social Security Administration under 42 U.S.C. § 418 (§ 218 of the Social Security Act) concerning which state employees were subject to Social Security. (Ibid.) The court noted that the Eighth Circuit had affirmed the holding that residents were not employees covered under the § 418 agreement. (Ibid.) The District Court characterized as dictum the Eighth Circuit's alternative holding that, even if residents were employees who were covered under the § 418 agreement, they still were excepted from Social Security coverage, because that conclusion was unnecessary to the court's interpretation of the § 418 agreement. (Ibid.)

In addition, the District Court noted that the court's holding in Mayo that residents' eligibility for the student exception should be determined on a case-by-case basis was unworkable, particularly given the large number of refund claims filed since the Minnesota decision was issued. (R75 at 20.) Noting that each claim could require a separate trial, the District Court found it difficult to believe that Congress could have intended to create such a result. (Ibid.)⁶

This appeal followed. (R100.)

In this case, Mt. Sinai invokes the so-called "student" exception to "employment" contained in § 3121(b)(10), which excepts from "employment" service performed in the employ of a school, college or university, if performed by a student who is enrolled and regularly attending classes at that school. The District Court correctly rejected Mt. Sinai's contentions that its residents are students exempt from coverage.

The student exception was enacted as part of the Social Security Act Amendments of 1939. At the same time, Congress enacted a separate exemption for medical interns. Both exceptions were intended to be de minimis and to apply only to individuals who worked part- time or intermittently for nominal wages. An accompanying report expressed the view the intern exception to interns only, as opposed to resident doctors. Some years later, in St. Luke's Hospital Ass'n v. United States, 333 F.2d 157 (6th Cir. 1964), the court refused to extend the intern exception to residents, reasoning that to do so would thwart congressional intent. In response, Congress acted the next year, not to expand the intern exception to residents, but to repeal that exception, as well as one that had applied to self-employed doctors.

Against this backdrop, the District Court properly concluded that Mt. Sinai's residents were not exempt from coverage as students. To begin with, it is fundamental that the words of statutes should be interpreted in their ordinary, everyday senses. It is scarcely the most natural reading of the word "student" to read it as applying to a medical resident, since a medical resident is no longer a medical student, but already has a medical degree. Similarly, Mt. Sinai is most naturally understood to be a hospital, rather than a school, college or university in the most ordinary sense of those words.

Further, the meaning of a statute is not to be determined in isolation, but only in the context of the statute as a whole. Nor should a statute be read so as to render any part of it superfluous. Since the intern and student exceptions were enacted at the same time, the apparent reason that Congress found it necessary to make an express provision for excepting interns from coverage was that it understood that the more general student exception did not cover them.

It is also significant that, after the Sixth Circuit refused to extend the intern exception to residents in St. Luke's, Congress did not act to override that decision by extending the exception to residents. Instead, it did the quite the opposite. It repealed the intern exception entirely, together with a further exception for self-employed doctors. In doing so, it expanded the coverage of doctors to encompass the stages of their careers both before and after residency. The obvious implication of this action is that Congress already considered residents to be covered.

Even if the language and development of the statute alone were to be considered inconclusive in denying exemption to medical residents under the student exception, the statutory scheme is at the very least ambiguous, warranting consideration of the attendant reports as evidence of congressional intent. The statements that both the student and intern exceptions were intended to be de minimis and that the intern exception was not to apply to residents are compelling indications that Congress never meant to except residents from coverage. As a result, it clearly is the District Court's reading, not Mt. Sinai's, that correctly interprets the scope of the student exception not to encompass medical residents.

The judgment of the District Court is correct and should be affirmed.

The term "wages" is generally defined in § 3121(a) as "all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash," except for certain payments described therein. (See Stat. App.) "Employment" is defined in § 3121(b) as "any service, of whatever nature, performed by an employee for the person employing him," with certain stated exceptions. (See Stat. App.) These provisions, first enacted as part of the Social Security Act of 1935, Pub. L. No. 271, 74th Cong., 1st Sess., § 811(a) & (b), 49 Stat. 620, 639, impose taxes upon a broad range of employer-provided remuneration in order to accomplish the significant remedial objectives of the Social Security Act. See H.R. Rep. No. 74-615, at 3 (1935), reprinted in 1935-3 C.B. 600, 601; Helvering v. Davis, 301 U.S. 619, 641 (1947).

"It has long been a 'familiar canon of statutory construction that remedial legislation should be construed broadly to effectuate its purpose.'" Sutton v. United Airlines, Inc., 527 U.S. 471, 507 (1999)) (internal citations omitted); see Ayers v. Wolfinbarger, 491 F.2d 8, 16 (5th Cir. 1974). In keeping with this principle, and in light of the broad remedial purposes of Social Security legislation, the Supreme Court has repeatedly cautioned the courts against according a restrictive interpretation to the terms "wages" and "employment," emphasizing that courts should err on the side of finding employees covered under Social Security, unless an exemption is beyond question. United States v. Silk, 331 U.S. 704, 711-712 (1947); Social Sec. Bd. v. Nierotko, 327 U.S. 358, 365 (1946). As the Supreme Court explained in Silk:

And, because tax exemptions do not "rest upon implication," United States Trust Co. v. Helvering, 307 U.S. 57, 60 (1939), but "must be unambiguously proved," United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988), it is well settled that taxpayers bear the burden of establishing their entitlement to an exemption. E.g., Groves v. United States, 533 F.2d 1376 (5th Cir. 1976); Knapp v. Commissioner, 867 F.2d 749 (2d Cir. 1989). As the First Circuit has noted, "if 'doubts are nicely balanced' regarding the applicability of a tax exemption, the exemption must be accorded its more limited interpretation." Tupper v. United States, 134 F.3d 444, 446 (1st Cir. 1998) (citing Trotter v. Tennessee, 290 U.S. 354, 356 (1933)).

The District Court correctly applied these settled rules of statutory construction in concluding that residents are per se ineligible for the student exception. To begin with, it is scarcely the most natural reading of the word "student" to read it as applying to a medical resident. A medical resident is no longer a medical student, but already has a medical degree and has merely entered a post-medical school residency program at a hospital. The likelier assumption is that such a person no longer is a "student" as that word is most commonly understood. By the same token, Mt. Sinai is most naturally understood to be a hospital, as it admitted on its tax returns, rather than a school, college or university in the most common sense of those words.

In addition, since the intern exception not only coexisted with the student exception, but was enacted at the same time, the obvious inference is that Congress made an express provision for excepting interns from coverage because it understood that the more general student exception did not cover them. Put another way, if the student exception covered both students in medical school and medical residents, then it would also have covered interns. In that case, however, a separate intern exception would have been entirely unnecessary.

Significantly, after the Sixth Circuit held in St. Luke's that residents did not qualify for the intern exception, Congress's reaction was not to override that decision by extending the exception to residents. Instead, it repealed the intern exception entirely, together with a further exception for self-employed doctors, in the interest of expanding coverage of doctors to encompass the stages of their careers both before and after residency. The obvious implication is that Congress already considered residents to be covered.

In short, on the face of the statute read as a whole, giving effect to every part and treating no provision as surplusage, the most plausible reading of the statute is that neither residents nor interns were ever intended to be eligible for the student exception. That reading is underscored by the evident congressional approval of the narrow reading of the intern exception in St. Luke's, as is shown not only by its failure to override that decision to include residents in the intern exception, but by its decision to expand coverage further, beyond residents, to both interns and self-employed doctors. As a result, it is only logical to conclude that Congress never intended to except medical residents from coverage.

In analyzing the coverage of medical residents in light of the student exception they invoke, the statutory language must be read in light of the remedial purpose of Social Security legislation as a whole, namely, to interpret coverage broadly and exceptions narrowly. Silk, 331 U.S. at 711-712; Nierotko, 327 U.S. at 365. The student exception must also be read narrowly in light of the principle "against interpreting federal statutes as providing tax exemptions unless those exemptions are clearly expressed." Wells Fargo Bank, 485 U.S. at 354; United States Trust Co., 307 U.S. at 60.

b. The statutory context and legislative intent here are demonstrably at odds with interpreting the student exception to apply to residents on a case-by-case basis, as Mt. Sinai and the amici urge. As is explained below, the statutory language, taken together with the context of later amendments, as well as the legislative history, show that Mt. Sinai's reading of the student exception is demonstrably at odds with Congress's intent, both as to the coverage of doctors under Social Security and as to the limited scope of the student exception.

The 1939 Amendments created two general exceptions that are relevant here: the student exceptions and the medical intern exception (which was part of a provision that also contained an exception for student nurses). See Social Security Act Amendments of 1939, § 606(a) & (b) (student exceptions); § 606(b)(13) (intern and student nurse exceptions). The original student exception was enacted as two separate exceptions: one that applied to students who worked for tax-exempt schools, colleges or universities and a second exception that applied to students who worked for non-tax-exempt schools, colleges or universities. The exception for students who worked at non-tax-exempt schools contained a $45 per quarter earnings cap, while the other student exception contained no earnings cap.

Congress addressed the student and medical intern exceptions together in the legislative history. Both were intended to be de minimis exceptions and narrow in scope. The House Report indicates that "[t]he intent of the amendment is to exclude those persons and those organizations in which the employment is part-time or intermittent and the total amount of earnings is only nominal, and the payment of the tax is inconsequential and a nuisance." H.R. Rep. No. 76-728, at 18, reprinted in 1939-2 C.B. at 543. In other words, the student and intern exceptions were intended simply to provide the employer, the employee and the IRS with relief from the administrative burden associated with the reporting and payment of FICA taxes on very small wages received by students working only part-time or intermittently.

In 1950, Congress removed the wage cap that previously had applied to the exception for students who worked for a non tax-exempt school, college or university and, at the same time, it consolidated the two student exceptions into a single exception. See Social Security Act Amendments of 1950, Pub. L. No. 81-734, § 204(a). Congress made no other substantive changes to the student exception or the intern exception at that time. The legislative history of the 1950 amendments indicates that Congress intended the student and intern exceptions to continue to have the same narrow, de minimis application. In this regard, the House Report stated that "the legislation continue[s] to exclude service performed for nominal amounts in the employ of tax-exempt non profit organizations, service performed by student nurses and interns, and services performed by students in the employ of colleges and universities." H.R. Rep. No. 81-1300, at 12-13, reprinted in 1950-2 C.B. at 260.

c. Since the enactment of the 1950 amendments, the student exception has remained substantially the same as it now appears in § 3121(b)(10). The history of the student exception is relevant, however, because it is replete with indications that allowing a resident who works full-time and receives pay far in excess of a nominal amount would frustrate Congress's intent in enacting the exception in the first place.

A review of the legislative history of the student exception, both as initially enacted in 1939 and as amended in 1950, makes it clear that Congress intended it as only a narrow, de minimis exception from coverage. The reports expressly state that only the "nominal" earnings of students who work on a "part- time" or "intermittent" basis were to be excepted. Nothing in the legislative history suggests that Congress intended the exception to be anything but a means of providing administrative relief from the burden of having to report "very small" wages.

Here, Mt. Sinai's residents worked full time, frequently 80 or more hours per week, and earned from $28,000 to $44,000 per year. There was, to be sure, an educational aspect to the residents' on- the-job training at Mt. Sinai, just as the hospital also benefitted from the patient care services rendered by the residents. But the residents' hours were not part-time or intermittent, and their pay certainly was not "nominal." As a result, the residents simply cannot qualify as students under the student exception.

d. Likewise, the history of the intern exception is relevant in construing the applicability of the student exception. The intern exception was repealed in 1965, one year after the Sixth Circuit handed down its decision in St. Luke's. See 333 F.2d at 162- 164. In that case, the court refused a hospital's invitation to expand the intern exception to include residents. The court instead concluded, based on the legislative history of the intern exception, that Congress intended to single out interns alone for an exemption, not residents. Id. at 164. In so holding, the court reasoned that it was legislature's role to rewrite the exception to include residents, not the judiciary's.

In the 1965 amendments, rather than extending the intern exception to residents, Congress acted to repeal the intern exception as part of its larger objective to extend Social Security coverage to doctors at all stages of their careers, not just the residency. See Social Security Amendments of 1965, Pub. L. No. 89-97, § 311. In repealing the intern exception, Congress explicitly mentioned a concern with Social Security coverage of "young doctors," including interns. Congress viewed young doctors as unlikely to have the disability and survivorship protection they needed from another source, if they were not covered. See H.R. Rep. No. 89-213 at 95, reprinted in 1965-2 C.B. at 735. The history of the intern exception and of the congressional goal of expanding the coverage of doctors obviously are relevant concerns of the drafters that would be frustrated by recognizing residents as being eligible for the student exception.

e. Moreover, the District Court's consideration of the context and statutory history of the 1939 exceptions for students and interns is supported by decisions of courts that likewise have concluded, in the context of analyzing the relative scope of these provisions, that it is permissible to look beyond the statutory language to the legislative history to reach a solution. For example, in St. Luke's, 333 F.2d at 160-164, the Sixth Circuit concluded, based on the legislative history of the student and intern exceptions, that residents were not eligible for the student exception and therefore were subject to FICA tax. (See pp. 5152, infra (discussing St. Luke's).

In addition, in Johnson City Med. Cntr. v. United States, 999 F.2d 973, 975 (6th Cir. 1993), which involved the analogous student-nurse exception,⁹ the Sixth Circuit concluded that the statute was ambiguous regarding the conditions required to qualify for the exception. The court accordingly relied on the legislative history of that exception, which is the same legislative history discussed above regarding the student and intern exceptions. In light of that legislative history (as well as the terms of the statute itself), the IRS ruled that the student-nurse exception applied only if the employment was substantially less than full-time, the total amount of earnings was nominal and the only services performed were incidental parts of the student nurses' training toward a degree. Rev. Rul. 85-74, 1985-1 C.B. 331-332. The IRS denied the exemption in Johnson City because the nurses there did not receive academic credit for their work. The Sixth Circuit upheld that determination, reasoning that "[t]he revenue ruling simply reflects the legislative history of the statute, that the exception be granted to those student nurses who are receiving academic credit for their work." 999 F.2d at 977. Despite the obvious import of Johnson City, Mt. Sinai does not cite it, much less attempt to come to grips with it.

Viewed in this light, it is manifest that the legislative history is germane and should not be ignored. It has an obvious bearing upon whether allowing residents to invoke the student exception would impermissibly expand the exemption beyond its intended scope, thereby thwarting Congress's intent to provide Social Security coverage to young doctors. Accordingly, the District Court was well justified in considering the statutory and legislative history of the student and related exceptions in considering whether residents were eligible for the student exception.

Apparently viewing the existence of coverage solely during the residency as an unjustified anomaly, St. Luke's Hospital sued for a refund of FICA taxes. See St. Luke's, 333 F.2d at 158. Relying on the pre-1965 "intern" exception, the hospital sought a refund of taxes paid with respect to salaries paid to residents in their second and subsequent years of clinical training. The hospital contended that there was no longer any substantive difference between interns and residents, as had been true at the time of enactment in 1939, and that, consequently, residents were likewise exempt from coverage. Ibid.

The Sixth Circuit rejected the hospital's contention. Id. at 163-64. The court did not dispute the fact that, in 1939, when Congress enacted the intern exception, a distinction had existed between residents and interns. Id. at 160-162. Indeed, the court noted that, when it created the exception, Congress had expressly distinguished interns from residents, singling out only interns for exemption from coverage and had expressly excluded a "resident doctor." Id. at 163 (internal citations omitted). The Sixth Circuit also recognized that the distinction between interns and residents had blurred since 1939. Finally, the court acknowledged the anomaly of subjecting doctors to FICA taxes only during their residencies. Id. at 164. Nevertheless, the court refused to expand the intern exception to apply to post-internship residents, reasoning that "if there is warrant for doing so at all [it] is the function of legislation and not that of judicial interpretation." Ibid.

When Congress acted one year later, however, it was not to exempt residents from coverage, as the hospital in St. Luke's would have wished. Instead, Congress repealed the intern exception in its entirety. Social Security Act Amendments of 1965, Pub. L. No. 89- 97, § 311(b)(5). The House Report explains as follows:

At the same time, Congress further expanded coverage of doctors by repealing the existing exception for self-employed physicians. Social Security Amendments of 1965, § 311(b)(1). As is explained in the House Report:

Contrary to the suggestions of Mt. Sinai (Br. 19) and the amici (DMC Br. 19; 9, Emory Br. 10-11), given the clear congressional intent to cover young doctors under Social Security, it is implausible in the extreme that Congress would provide coverage for interns and self-employed physicians, but would allow residents -- young doctors working for several years between those two stages of practice -- to escape coverage. Indeed, from the time the intern exception was first adopted in 1939, it has been clear that Congress intended residents to be subject to FICA taxes. The House Report explains that the intern exception applies to "services performed as an intern (as distinguished from a resident doctor) in the employ of a hospital by an individual who has completed a four years' course in a medical school . . . ." H.R. Rep. No. 76-728, at 49, 1939-2 C.B. at 550-51 (emphasis supplied). If it had intended to exempt residents' wages, in addition to those of interns, Congress could easily have so provided. If it had done so, there would have been no need for Congress to have made the very distinction it did between (exempt) interns and (covered) "resident doctors."

In sum, an interpretation that would except medical residents from Social Security coverage would "produce a result demonstrably at odds with the intentions of [the] drafters" of § 3121(b)(10). Samuels, Kramer & Co., Inc. v. Commissioner, 930 F.2d 975, 979 (2d Cir. 1991). Based on the history and context of the statutory scheme, as well as the congressional intent to provide as broad coverage as possible to the workforce under the Social Security Act, the District Court manifestly was correct in concluding that residents are ineligible for the student exception as a matter of law.

Minnesota executed a § 418 agreement with the SSA in 1955, which Minnesota modified in 1958 to exclude residents' services. Ibid. In 1990, however, the SSA determined that medical residents should be included under the agreement. Ibid.

The Eighth Circuit rejected the SSA's argument that the Social Security Act Amendments of 1965 made the parties' intent in 1955 irrelevant. It held, instead, that as a matter of contract law, the services rendered by residents were not included in the § 418 agreement. 151 F.3d at 746-47. The state also argued, in the alternative, that if residents were considered to be covered under the § 418 agreement, then a parallel student exception under the Social Security Act, 42 U.S.C. § 418(c)(5), which was added to the agreement in the 1958 modification, excluded the residents from coverage.¹⁰Id. at 747. The Eighth Circuit agreed, although its holding was unnecessary to its resolution of the case as a contractual matter. Id. at 747-48.

Because Minnesota resolved the resident coverage issue as a matter of contractual interpretation, its discussion of the student exception was inessential to its holding and constitutes dictum, as the District Court below correctly concluded. (App.4, R-37-38.) In any event, the alternative holding that the student exception was applicable is not well founded. The Eighth Circuit did not mention, much less address, the history or legislative intent of the student and intern amendments, nor did it cite St. Luke's.

In the second case, United States v. Mayo Found. for Med. Educ. and Research, 282 F. Supp. 2d 997, 1006 (D. Minn. 2003), a district court in the Eighth Circuit rejected the Government's contention that medical residents are per se ineligible for the student exception in § 3121(b)(10). Id. at 997. In reaching its conclusion, the court in Mayo noted that it had already rejected the Government's contentions in the unreported decision of the district court in the Minnesota case (Minnesota v. Chater, No. 4-96-756, 1997 WL 33352908 (D. Minn., May 21, 1997), aff'd sub nom., Minnesota v. Apfel, 151 F.3d 742). The court in Mayo noted that, in affirming the district court's decision in Chater that residents were not covered under Minnesota's § 418 agreement, the Eighth Circuit in Minnesota had "explicitly reject[ed] the [Social Security] Commissioner's contention that courts should defer to a 'bright line' agency ruling that medical residents can never be exempted from FICA taxation as students" (282 F. Supp. 2d at 1006 (quoting Minnesota, 151 F.3d at 748)), in favor of "a case by case examination of the residents' relationship with their school" (282 F. Supp. 2d at 1007). The court in Mayo ultimately held that residents' eligibility for the exception under § 3121(b)(10) should be determined on a case-by-case basis.

The decision in Mayo is misconceived for the same reasons as is the Eighth Circuit's alternative holding on the student exception in Minnesota. For the reasons already explained above, the District Court's decision here is well founded -- not the decisions in Minnesota or Mayo. Rather, the decisions in Minnesota and Mayo fly in the face of the statute's language, history, context and purpose.

At all events, the approach proposed by Mayo is unworkable, because it would require a case-by-case analysis in thousands of cases, a result that Congress could not have intended and one that is unwarranted based on the purpose of the student exception, as expressed in the legislative history. Because virtually all residents work full-time positions and receive pay far in excess of a nominal amount, considering residents' eligibility for the student exception on a case-by-case basis would be futile.

The words in the legislative history following Mt. Sinai's selective quote, which put the quote into context and demonstrate the fallacy of its position, are as follows:

As in effect during the quarters at issue, Treas. Reg. § 31.3121(b)(10)-2, provides that the student exception under § 3121(b)(10) applies only to services rendered by a student to a school, college or university "as an incident to and for the purpose of pursuing a course of study at a school, college, or university."¹² Under Treas. Reg. § 31.3121(b)(10)-2 and rulings in effect for the years at issue, the IRS has indicated that if the service aspect of an employee's relationship with the school, college or university is predominant, the employee's service will not be considered "incident to" and for the purpose of pursuing a course of study. See generally Treas. Reg. § 31.3121(b)(10)-2 (preamble, ¶ 3, (describing requirement under regulations effective for years at issue)); see Johnson City, 999 F.2d at 976-978 (approving Revenue Ruling that required academic credit to be given for student nurse exception to apply); see also Rev. Proc. 98-16, 1998-1 C.B. 403 (addressing the student exception's application to institutes of higher education in situations not involving medical residents); Rev. Rul. 8574, 1985-1 C.B. 331-332; Rev. Rul. 78-17, 1978-1 C.B. 306 (weighing eligibility for student exception by reference to hours worked in relation to credits taken); Rev. Rul. 74-109, 1974-1 C.B. 288; Rev. Rul. 72-142, 1972-1 C.B. 317.¹³

Mt. Sinai argues that the regulation, as the long-standing position of the Treasury regarding the student exception, unambiguously requires a facts-and-circumstances approach for each medical resident. To conclude otherwise, it contends, the court would have to invalidate the regulation. Mt. Sinai does no better at interpreting the Government's long-standing position than it does Congress's words.

The applicable regulation applies a facts-and-circumstances approach only with respect to those individuals who have met the threshold requirements for the student exception. Since, as previously shown, Congress has determined that medical residents and interns are not eligible to claim the student exception, the regulation simply has no application to them. The Treasury has consistently taken this position, and at any rate the issue never arose until after the Minnesota decision. See Preamble to Proposed Amendments to Treas. Reg. § 31.3121(b)(2)-1 and Treas. Reg. § 31.3121(b)(10)-2, 69 Fed. Reg. 8604 (Feb. 25, 2004).

Revenue Procedure 98-16, 1998-1 C.B. 403, at § 3.04, also supports this conclusion. Although this guidance states that it does not apply to medical residents, it properly interprets the general application of Treas. Reg. § 31.3121(b)(10)-2 as meaning that it applies only in the event the employee is otherwise eligible for the student exception ("if the employee * * * has the status of student, * * * then * * * ."). (Emphasis supplied).

As to the regulation that was not applicable during the years in suit, see p. 64 n.13, supra, a close examination of it reveals that it also takes what is, in effect, a per se approach, in that it carries out the congressional intent of precluding medical residents and interns from being eligible for the student exception. It provides that if anyone works 40 hours per week or more, he or she is ineligible for the student exception. Since no medical resident or intern today works less than 40 hours per week, the new regulation, when all relevant portions are considered, in effect creates a per se rule that residents and interns do not qualify for the student exception.

At all events, the regulations and other authorities cited by Mt. Sinai do not support its position. Mt. Sinai gives short shrift to the regulations that were in effect for the period at issue (Br. 27-28), contending only that Treas. Reg. § 31.3121(b)(10)-2(c) "contemplated a case-by-case examination to determine if an individual's relationship with a school qualified for the Student Exception." Mt. Sinai quotes only the first sentence of that subsection of the regulation, conspicuously omitting the most significant requirement under the regulation. The second sentence of that subsection, which neither Mt. Sinai nor the amici even mention, much less address, provides as follows:

The term "incident to" is defined by Webster's Third International Dictionary 1142 (Merriam Webster 1986)), as "occurring or likely to occur as a minor consequence or accompaniment." Cf. Treas. Reg. § 31.3121(b)(10)- 2(d)(3), 2005-1 C.B. 261 (explaining that in order for services to be "incident to" the pursuit of a course of study, the educational aspect of the employee's relationship must be "predominant").

Although there was an educational aspect to residents' on-the-job training, the service aspect of the residents' position was predominant. As former residents and the head of graduate medical education testified, residents generally attended one purely educational conference per day, lasting about an hour, and they spent the remaining hours of their work providing patient-care services, frequently in excess of 80 hours per week. (R62, Exs. B at 36-43, 72- 77, 140-47.) Mt. Sinai's "House Staff Manual," provided to each resident, proclaimed that "[p]atient care, our medical center's primary concern, will be your major responsibility." (R42, Ex. G at 3 (emphasis supplied).)

As further evidence of the fact that residents' services were not "incident to" a course of study, Mt. Sinai admitted that once the ACGME required hospitals to limit residents' hours to no more than 80 per week, it was required to hire physician assistants to cover duties formerly performed by residents, to reduce residents' call schedules, and to shift some of the residents' duties to staff doctors and other medical staff. (R62, Exs. B at 140-47, D at 17-24.) One cannot therefore reasonably conclude that residents were paid to perform duties that were "incident to" a course of study.

To begin with, as Mt. Sinai acknowledges (Br. 31-32 n.11), a Chief Counsel Advice is not precedential authority because it represents the opinion of only one IRS employee. The Internal Revenue Code explicitly provides that written determinations, such as CCAs and private letter rulings, may not be cited as precedent in any case. See I.R.C. § 6110(k)(3). Yet Mt. Sinai nonetheless repeatedly cites the CCAs in its briefs as if it were precedential authority. (Br. 30-33; see Emory Br. 16.)

In any event, contrary to Mt. Sinai's contention, the CCAs do not undermine the Government's position. They were issued in response to the Eighth Circuit's decision in Minnesota, discussed above. The CCAs were intended to provide guidance to IRS field agents concerning the best approach for auditing several test claims out of the numerous claims filed by hospitals following the decision in Minnesota, seeking refunds based on the student exception.

Tellingly, although Mt. Sinai fails to mention it, the drafter states in both CCAs that the IRS believes that the legislative history supporting Social Security coverage for all doctors, including residents, is quite compelling. (CCA 200029030; CCA 200212029.) Both CCAs indicate that the IRS believes that the intention of Congress, as expressed in the legislative history of the 1939, 1950 and 1965 amendments to the Social Security Act (and the purpose of the Act to provide broad coverage to the workforce), was "to create a scheme under which all medical doctors are covered under the social security system, whether or not they are still in training, whether or not they are self-employed, or whether or not they work for the federal government." (CCA 200029030, Add. 41; CCA 200212029, Add. 77.) Consistent with the Government's position here, CCA 200029030 expressly indicates that the drafter believes that a broad interpretation of the student exception to include residents would frustrate Congress's intent, as expressed in the 1965 amendments, to extend Social Security coverage to all doctors, particularly young doctors.

At bottom, the CCAs have no bearing upon the disposition of this case. They provide guidance to IRS field agents to help them develop the facts of medical resident cases, so that in a case such as Mayo, supra, the Government will have a fallback position and be able to establish, in the event of the denial of summary judgment based on residents' per se ineligibility for the student exception, that the student exception does not apply to a resident under a facts-and-circumstances test. Mt. Sinai is therefore mistaken in asserting that the CCAs support its position.

² "R" references are to the documents constituting the original recordon appeal, as numbered by the Clerk of the District Court, and "Stat. App." cites are to the Government's separately bound statutory appendix.

³ An appeal filed by Mt. Sinai (R81) prior to the final disposition of the interest question (R95) was dismissed by this Court as premature (R85, R86).

⁴ Mt. Sinai further contended, in its refund claim that amounts paid to residents were not "wages" by reason of being nontaxable scholarships under § 117 (R1 at 2), but it conceded that argument below (R62 at 3).

⁵ The court in St. Luke's noted that, in 1939, the completion of a one-year internship was a prerequisite to the award of an M.D. degree at many prominent medical schools, 333 F.2d at 160, but that, at the time of St. Luke's, a one-year internship was no longer a requirement, either for a medical degree or for a license to practice medicine, id. at 161.

⁶ If this Court were to disagree with the District Court's conclusion that medical residents are ineligible to claim the student exception as a threshold matter, further proceedings below would be required on the questions whether, on the particular facts presented, the residents were in fact "students" and whether Mt. Sinai constitutes a "school, college, or university" within the meaning of § 3121(b)(10).

⁷ Prior to 1950, some medical schools required candidates to complete a-one-year internship at a hospital as a prerequisite to the award of an M.D. degree. (R64, Cooper Rept. at 3; see also St. Luke's Hospital Ass'n v. United States, 333 F.2d 157, 160 (6th Cir. 1964); see also p. 12 n.5, supra.)

⁸ As reflected in the Statutes at Large, the citation to the 1950 amendments is Pub. L. No. 81-734, § 208(a), 64 Stat at 531.

⁹ The student-nurse exception was enacted as part of the same subsection as the intern exception, see pp. 33-34, supra, but it survived the repeal of the intern exception in 1965.

¹⁰ The coverage provisions in the Social Security Act and the Federal Insurance Contributions Act (including the student exception) are substantially the same. The regulations under the Social Security Act's student exception, 20 C.F.R. § 404.1028(c), however, which looks to the student's purpose (pursuing a course of study vs. earning a livelihood), are clearly less restrictive than the more objective approach taken in Treas. Reg. § 31.3121(b)(10)-2(c), which concern whether the services performed "were incident to and for the purpose of pursuing a course of study."

¹¹ This federal-hospitals exception was repealed as to residents in 1965, at the same time as coverage was extended to interns and self-employed physicans. 1965 Amendments, Pub. L. No. 89-97, § 311, 79 Stat. at 380-381. Notably, federal employees were also exempted by § 204(a) of the 1950 Amendments, 64 Stat. at 529 (codified at § 1426(b)(7)(A) of the 1939 Code), if such service was covered by a retirement system established by federal law.

¹² Unless otherwise indicated, references to Treasury regulations are to those in effect during the years at issue.

¹³ Treas. Reg. § 31.3121(b)(10)-2 has been revised, effective for services provided on and after April 1, 2005. See T.D. 9167, 2005-1 C.B. 261. Although not controlling, the new regulation is instructive regarding the nature and type of services that the IRS, the agency charged with interpreting § 3121, deems "incident to" under the student exception. The revised regulation provides that an employee who works at least 40 hours per week is a full-time employee who is not eligible for the student exception because his services are not considered to be "incident to" and for the purpose of pursuing a course of study. Treas. Reg. § 31.3121(b)(1)-2(d)(3).