Mayo Clinic, feds battle over $11.5M in tax refunds

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Mayo Clinic argues a trial is necessary to resolve a dispute between the health system and the U.S. government over $11.5 million in tax refunds, according to court documents filed by the Rochester, Minn.-based system Aug. 24. 

The legal dispute dates back to May 2016, when Mayo Clinic filed a lawsuit against the Internal Revenue Service in an attempt to recover tax payments the hospital says it was wrongly forced to pay. The case centered on whether Mayo Clinic is primarily an educational organization or a healthcare system. 

Mayo Clinic contends it is an educational organization that makes patient care available as a necessary part of its education activities, while the IRS considers Mayo Clinic to be a parent company of a health system as its primary purpose. Under the IRS' classification, more of the income generated by Mayo Clinic's investments is taxable. 

After a federal judge sided with Mayo Clinic in August 2019, the federal government appealed the ruling. In May, the 8th Circuit U.S. Court of Appeals sent the case back to the lower court. The question on remand is whether the health system is operated and organized exclusively for educational rather than other purposes. 

In its Aug. 24 letter to Judge Eric Tostrud, lawyers representing Mayo Clinic argue a bench trial is needed to resolve the dispute. 

"Because the Eighth Circuit has already determined that the case cannot be decided at summary judgment, a bench trial is now necessary," the health system's lawyers wrote. "At the bench trial, the court will be asked to determine whether Mayo is 'organized and operated exclusively for … educational purposes.'" 

The federal government disagrees, and is asking the judge to allow the U.S. to file a new summary judgment motion in the case. 

"The Eighth Circuit has now clarified the law on what Mayo Clinic must prove to establish that it is an 'educational organization' under the governing statute, and that clarification is dramatic: 'The presence of a single non-educational purpose, if substantial in nature, will destroy [Mayo's claim to] the … exemption,'" the federal government wrote in an Aug. 24 letter to Mr. Tostrud. 

The government argues that summary judgment briefing would reveal a hole in Mayo Clinic's case. 

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