Mayo Clinic continues fight against IRS over tax code regulations: 9 things to know

Rochester, Minn.-based Mayo Clinic has petitioned the Internal Revenue Service for additional documents regarding its tax code regulations, the Post-Bulletin reports.

Here are nine things to know about the case.

1. Mayo Clinic contends it is an "education organization" and that patient care represents a "necessary and integral part of its educational activities." However, the IRS considers Mayo to be the "parent company of healthcare system." By classifying the health system as such, the clinic is required to pay a higher tax on its investment income.

2. The IRS audited Mayo Clinic in 2009 and issued an "adjustment" for Mayo's income for 2005 and 2006. The agency later expanded the adjustment to include seven nonconsecutive years of the clinic's tax returns, including the years 2003, 2005 to 2007, and 2010 to 2012. The years of 2004, 2008 and 2009 were not included because Mayo did not report any investment income during those years, according to the report.

3. In 2014, the IRS also concluded Mayo Clinic does not qualify for a tax exemption on revenue generated by "debt-financed real-estate investments." That type of income would not be taxed if the IRS categorized the health system as a nonprofit education organization, the report states.

4. Because of the adjustments, the IRS required Mayo Clinic to pay $11,501,621 in additional payments. The health system made the payments and asked the IRS for a refund of $11.5 million. However, the IRS rejected the refund claim in August 2016.

5. Mayo Clinic proceeded to sue the IRS in September 2016 to recover the refund claim, in addition to "statutory interest as provided by law," the report states.

6. The lawsuit marks the second time Mayo Clinic has sued the IRS. The clinic filed a lawsuit against the agency in 2007, claiming medical residents should be considered students rather than employees. The U.S. Supreme Court took the case and sided with the health system, forcing the IRS to refund Mayo $1.7 million to make up for Social Security taxes collected in 2005.

7. In its 2016 lawsuit, Mayo Clinic cited the 2007 case as evidence of the institution's role as an education organization. The health system also requested the IRS hand over documents to help prove the organization's mission.

8. During a court hearing in Minneapolis Nov. 28, the IRS said it has already provided the health system with 8,700 pages worth of information.

9. A spokesperson for Mayo Clinic told Becker's Hospital Review via email Tuesday, "We don’t take the decision to sue the federal government lightly, but we strongly believe that education is a primary function of Mayo Clinic as that concept is defined in our federal tax laws. Mayo Clinic’s not-for-profit status is not in question. Rather, Mayo is challenging the application of a specific tax code section that taxes some of our investment income. … To continue to offer medical education, Mayo Clinic must not be disadvantaged by tax laws compared with other similar educational institutions."

To read the full Post-Bulletin report, click here.

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