Mayo Clinic attempts to block IRS from questioning CEO

Rochester, Minn.-based Mayo Clinic filed an $11.5 million lawsuit against the Internal Revenue Service in 2016, and the health system is trying to keep the IRS from deposing CEO John Noseworthy, MD, before the trial, according to the Post Bulletin.

The lawsuit stems from a dispute over how Mayo Clinic is classified for tax purposes. Mayo contends it is an "educational organization" that "makes patient care available as a necessary and integral part of its educational activities." However, the IRS considers Mayo to be "a parent company of healthcare system as its primary purpose and function."

Under the IRS' classification, more of the income generated by Mayo's investments is taxable.

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

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 Mayo Clinic as a nonprofit educational organization.

Because of the adjustments, the IRS required Mayo Clinic to make $11.5 million 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. One month later, Mayo sued the IRS to recover the rebate, according to the report.

The case is headed to trial in about nine months, and the parties are now debating whether Dr. Noseworthy should be deposed.

The IRS wants to depose Dr. Noseworthy on June 28, but Mayo Clinic said it will attempt to block the deposition by filing a motion for a protection order before that date.

"Mayo is opposing the request on the grounds that the issues in dispute can be fully addressed by other Mayo employees with more direct responsibility for Mayo's educational activities," a Mayo spokesperson told the Post Bulletin.

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