In July, federal judges will consider dueling motions for summary judgment in a lawsuit Rochester, Minn.-based Mayo Clinic filed against the IRS more than two years ago, according to the Post Bulletin.
Mayo filed the lawsuit in September 2016 in an attempt to recover money the hospital says it was wrongly forced to pay the IRS. The case centers on whether Mayo is primarily a medical center or a school.
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 a healthcare system as its primary purpose and function."
Under the IRS' classification, more of the income generated by Mayo's investments is taxable.
Two federal judges from the U.S. District Court in Minneapolis will consider motions for summary judgment filed by both sides at a hearing July 1. If the case isn't resolved, a bench trial is slated to begin Aug. 28, according to the report.
The issues involved in the lawsuit date back to 2009, when the IRS audited Mayo Clinic 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.
In 2014, the IRS 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 tax payments. The health system made the payments and then asked the IRS for a refund of the full amount. However, the IRS rejected the refund claim in August 2016. One month later, Mayo sued the IRS to recover the $11.5 million payment.
"We don't take the decision to sue the federal government lightly," a Mayo Clinic spokesperson said in a statement to the Post Bulletin. "But we strongly believe that education is a primary function of Mayo Clinic as that concept is defined in our federal tax laws. To continue to offer medical education, Mayo Clinic must not be disadvantaged by tax laws compared with other similar educational institutions."
More articles on healthcare finance:
11 health systems with strong finances
Hedge fund manager predicts CHS will go bankrupt
Washington health system files for bankruptcy, cites issues with revenue cycle vendor