Daily Tax Report ®

Government Appeals Mayo Clinic’s $11.5M Tax Refund Victory

Oct. 5, 2019, 6:00 PM

The government is fighting back against Mayo Clinic’s $11.5 million tax refund win in the U.S. District Court for the District of Minnesota.

The government filed an appeal to the U.S. Court of Appeals for the Eighth Circuit on Oct. 4, following an Aug. 29 ruling in favor of Mayo Clinic. Attorneys for Mayo didn’t immediately return a request for comment.

Rochester, Minn.-based Mayo Clinic, a nonprofit parent organization to several hospitals and clinics, in September 2016 filed suit against the government seeking an $11.5 million tax refund for tax years 2003, 2005-2007, and 2010-2012. The question in the case is whether Mayo Clinic is an educational organization for tax purposes, because patient care is a key part of its educational activities.

“The undisputed facts show that Mayo Clinic is not an organization whose particular purpose is to provide education,” the government said in a May 2019 memo in support of its motion for summary judgment. At other times, the government argued, “Mayo Clinic has candidly and consistently described itself during this period as an organization whose primary purpose is to provide healthcare.”

The IRS had argued that Mayo Clinic owed unrelated business income tax on certain income it received from partnerships, because it isn’t primarily an education organization and thus isn’t a qualified organization under tax code Section 514(c)(9)(C).

Section 514 gives a tax break to exempt organizations whose purpose is to provide education.

Unrelated business income tax (UBIT) is the tax nonprofits can owe on income stemming from a trade or business, regularly carried on, that isn’t substantially related to its charitable or educational purpose.

The case is Mayo Clinic v. U.S., D. Minn., No. 0:16-cv-03113, appeal filed 10/4/19.

To contact the reporter on this story: Colleen Murphy in Washington at cmurphy@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Rachael Daigle at rdaigle@bloombergtax.com

To read more articles log in. To learn more about a subscription click here.