Mayo Clinic, IRS legal dispute will return to lower court

A dispute between Rochester, Minn.-based Mayo Clinic and the IRS over $11.5 million in tax refunds will head back to a lower court, the Eighth Circuit U.S. Court of Appeals ruled May 13. 

Mayo Clinic, which filed the lawsuit against the IRS in 2016, argues that it was wrongly forced to pay tax money to the IRS and is seeking to recover the payments. The lawsuit centers on whether Mayo Clinic is primarily an educational organization or a healthcare system. 

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

In August 2019, a federal judge sided with Mayo Clinic. In the 2019 opinion and order, the federal judge said Mayo Clinic was entitled to a $11.5 million tax refund because the federal government exceeded its authority by creating extra requirements for organizations to qualify as tax-exempt educational organizations under the Treasury Regulation.

The federal government appealed the ruling to the Eighth Circuit Court of Appeals in October 2020.

In sending the case back to the lower court, the Eighth Circuit said it disagrees with the federal court's invalidation of the Treasury Regulation. 

"We reverse the district court's invalidation of Treasury Regulation … to the extent it is not inconsistent with [Internal Revenue Code] … and remand for proceedings consistent with this opinion," the appeals court said. 

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