Judge Orders Refund for U. of Minnesota

A federal judge in Minneapolis ordered the Internal Revenue Service to refund the University of Minnesota $1.1-million in Social Security and Medicare taxes he said the government improperly levied on medical residents in 2005.

Judge Richard H. Kyle of the U.S. district court for Minnesota ruled that the medical residents qualified for a student exemption from the payroll taxes (known as FICA taxes).

In 2005 the IRSchanged its regulations to state that medical residents are teaching-hospital employees rather than students and therefore are not exempt. The University of Minnesota challenged that interpretation by suing the government in 2006 for a refund of both the money it had been withholding from residents’ stipends and additional amounts it had paid on their behalf. (Employers pay half of Social Security taxes, and employees pay the other half.)

Judge Kyle ruled in the university’s favor, ordering the government to refund the taxes, with interest. This is the second time he has sided with parties challenging the IRS amendment. In August he issued a similar ruling in a case involving the Mayo Clinic, in Rochester, Minn. The federal government has appealed that decision.