MAYO FOUNDATION v. UNITED STATES
The Mayo Foundation for Medical Education and Research ("Mayo") and the University of Minnesota ("University") sued the United States in a Minnesota federal district court seeking a refund for taxes paid under the Federal Insurance Contributions Act ("FICA"). They argued that payments made to doctors in their residency qualify for FICA's student exemption. The district court agreed and awarded judgment in favor of Mayo and the University.
On appeal, the U.S. Court of Appeals for the Eighth Circuit reversed, holding that the residents in this case did not qualify for the FICA exemption. The court reasoned that Treasury Regulation 26 U.S.C. § 3121(b)(10) excludes "full-time employees" from the FICA student exemption. Here, the resident doctors were full-time employees and, therefore, were excluded from the FICA exemption.
- Brief for Amici Curiae Association of American Medical Colleges, American Council On Education, Association of American Universities, Association of Public And Land-grant Universities, American Osteopathic Association, And American Association of Colleges
- Brief for the American Hospital Association as Amicus Curiae In Support of Petitioners
- Brief of the University of Texas System as Amicus Curiae Supporting Petitioner
Can the Treasury Department categorically exclude all medical residents who meet the FICA definition of student and who would be subject to the FICA student exemption?
Legal provision: 26 U.S.C. § 3121(b)(10)
Yes. Chief Justice John G. Roberts, Jr. writing for a unanimous Court, upheld the Treasury Department's rule that treats medical residents as full-time employees, and therefore not exempt from the payment of payroll taxes is a valid interpretation of federal law. Justice Elena Kagan did not take part in the decision.
OPINION OF THE COURT
MAYO FOUNDATION FOR MEDICAL ED. AND RESEARCH V.UNITED STATES
562 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
MAYO FOUNDATION FOR MEDICAL EDUCATION AND RESEARCH, et al., PETITIONERS v. UNITED STATES
on writ of certiorari to the united states court of appeals for the eighth circuit
[January 11, 2011]
Chief Justice Roberts delivered the opinion of the Court.
Nearly all Americans who work for wages pay taxes on those wages under the Federal Insurance Contributions Act (FICA), which Congress enacted to collect funds for Social Security. The question presented in this case is whether doctors who serve as medical residents are properly viewed as “student[s]” whose service Congress has exempted from FICA taxes under 26 U. S. C. §3121(b)(10).
Most doctors who graduate from medical school in the United States pursue additional education in a specialty to become board certified to practice in that field. Petitioners Mayo Foundation for Medical Education and Research, Mayo Clinic, and the Regents of the University of Minnesota (collectively Mayo) offer medical residency programs that provide such instruction. Mayo’s residency programs, which usually last three to five years, train doctors primarily through hands-on experience. Residents often spend between 50 and 80 hours a week caring for patients, typically examining and diagnosing them, prescribing medication, recommending plans of care, and performing certain procedures. Residents are generally supervised in this work by more senior residents and by faculty members known as attending physicians. In 2005, Mayo paid its residents annual “stipends” ranging between $41,000 and $56,000 and provided them with health insurance, malpractice insurance, and paid vacation time.
Mayo residents also take part in “a formal and structured educational program.” Brief for Petitioners 5 (internal quotation marks omitted). Residents are assigned textbooks and journal articles to read and are expected to attend weekly lectures and other conferences. Residents also take written exams and are evaluated by the attending faculty physicians. But the parties do not dispute that the bulk of residents’ time is spent caring for patients.
Through the Social Security Act and related legislation, Congress has created a comprehensive national insurance system that provides benefits for retired workers, disabled workers, unemployed workers, and their families. See United States v. Lee, 455 U. S. 252, 254, 258, and nn. 1, 7 (1982). Congress funds Social Security by taxing both employers and employees under FICA on the wages employees earn. See 26 U. S. C. §3101(a) (tax on employees); §3111(a) (tax on employers). Congress has defined “wages” broadly, to encompass “all remuneration for employment.” §3121(a) (2006 ed. and Supp. III). The term “employment” has a similarly broad reach, extending to “any service, of whatever nature, performed … by an employee for the person employing him.” §3121(b).
Congress has, however, exempted certain categories of service and individuals from FICA’s demands. As relevant here, Congress has excluded from taxation “service performed in the employ of … a school, college, or university … if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university.” §3121(b)(10) (2006 ed.). The Social Security Act, which governs workers’ eligibility for benefits, contains a corresponding student exception materially identical to §3121(b)(10). 42 U. S. C. §410(a)(10).
Since 1951, the Treasury Department has applied the student exception to exempt from taxation students who work for their schools “as an incident to and for the purpose of pursuing a course of study” there. 16 Fed. Reg. 12474 (adopting Treas. Regs. 127, §408.219(c)); see Treas. Reg. §31.3121(b)(10)–2(d), 26 CFR §31.3121(b)(10)–2(d) (2010). Until 2005, the Department determined whether an individual’s work was “incident to” his studies by performing a case-by-case analysis. The primary considerations in that analysis were the number of hours worked and the course load taken. See, e.g., Rev. Rul. 78–17, 1978–1 Cum. Bull. 307 (services of individual “employed on a full-time basis” with a part-time course load are “not incident to and for the purpose of pursuing a course of study”).
For its part, the Social Security Administration (SSA) also articulated in its regulations a case-by-case approach to the corresponding student exception in the Social Security Act. See 20 CFR §404.1028(c) (1998). The SSA has, however, “always held that resident physicians are not students.” SSR 78–3, 1978 Cum. Bull. 55–56. In 1998, the Court of Appeals for the Eighth Circuit held that the SSA could not categorically exclude residents from student status, given that its regulations provided for a case-by-case approach. See Minnesota v. Apfel, 151 F. 3d 742, 747–748. Following that decision, the Internal Revenue Service received more than 7,000 claims seeking FICA tax refunds on the ground that medical residents qualified as students under §3121(b)(10) of the Internal Revenue Code. 568 F. 3d 675, 677 (CA8 2009).
Facing that flood of claims, the Treasury Department “determined that it [wa]s necessary to provide additional clarification of the ter[m]” “student” as used in §3121(b)(10), particularly with respect to individuals who perform “services that are in the nature of on the job training.” 69 Fed. Reg. 8605 (2004). The Department proposed an amended rule for comment and held a public hearing on it. See id., at 76405.
On December 21, 2004, the Department adopted an amended rule prescribing that an employee’s service is “incident” to his studies only when “[t]he educational aspect of the relationship between the employer and the employee, as compared to the service aspect of the relationship, [is] predominant.” Id., at 76408; Treas. Reg. §31.3121(b)(10)–2(d)(3)(i), 26 CFR §31.3121(b)(10)–2(d)(3)(i) (2005). The rule categorically provides that “[t]he services of a full-time employee”—as defined by the employer’s policies, but in any event including any employee normally scheduled to work 40 hours or more per week—“are not incident to and for the purpose of pursuing a course of study.” 69 Fed. Reg. 76408; Treas. Reg. §31.3121(b)(10)–2(d)(3)(iii), 26 CFR §31.3121(b)(10)–2(d)(3)(iii) (the full-time employee rule). The amended provision clarifies that the Department’s analysis “is not affected by the fact that the services performed … may have an educational, instructional, or training aspect.” Ibid. The rule also includes as an example the case of “Employee E,” who is employed by “University V” as a medical resident. 69 Fed. Reg. 76409; Treas. Reg. §31.3121(b)(10)–2(e), 26 CFR §31.3121(b)(10)–2(e) (Example 4). Because Employee E’s “normal work schedule calls for [him] to perform services 40 or more hours per week,” the rule provides that his service is “not incident to and for the purpose of pursuing a course of study,” and he accordingly is not an exempt “student” under §3121(b)(10). 69 Fed. Reg. 76409, 76410; Treas. Reg. §31.3121(b)(10)–2(e), 26 CFR §31.3121(b)(10)–2(e) (Example 4).
After the Department promulgated the full-time employee rule, Mayo filed suit seeking a refund of the money it had withheld and paid on its residents’ stipends during the second quarter of 2005. 503 F. Supp. 2d 1164, 1166–1167 (Minn. 2007); Regents of Univ. of Minn. v. United States, No. 06–5084 (D Minn., Apr. 1, 2008), App. to Pet. for Cert. C–47a. Mayo asserted that its residents were exempt under §3121(b)(10) and that the Treasury Department’s full-time employee rule was invalid.
The District Court granted Mayo’s motion for summary judgment. The court held that the full-time employee rule is inconsistent with the unambiguous text of §3121, which the court understood to dictate that “an employee is a ‘student’ so long as the educational aspect of his service predominates over the service aspect of the relationship with his employer.” 503 F. Supp. 2d, at 1175. The court also determined that the factors governing this Court’s analysis of regulations set forth in National Muffler Dealers Assn., Inc. v. United States, 440 U. S. 472 (1979), “indicate that the full-time employee exception is invalid.” 503 F. Supp. 2d, at 1176; see App. to Pet. for Cert. C–54a.
The Government appealed, and the Court of Appeals reversed. 568 F. 3d 675. Applying our opinion in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984), the Court of Appeals concluded that “the statute is silent or ambiguous on the question whether a medical resident working for the school full-time is a ‘student’ ” for purposes of §3121(b)(10), and that the Department’s amended regulation “is a permissible interpretation of the statut[e].” 568 F. 3d, at 679–680, 683.
We granted Mayo’s petition for certiorari. 560 U. S. ___ (2010).
We begin our analysis with the first step of the two-part framework announced in Chevron, supra, at 842–843, and ask whether Congress has “directly addressed the precise question at issue.” We agree with the Court of Appeals that Congress has not done so. The statute does not define the term “student,” and does not otherwise attend to the precise question whether medical residents are subject to FICA. See 26 U. S. C. §3121(b)(10).
Mayo nonetheless contends that the Treasury Department’s full-time employee rule must be rejected under Chevron step one. Mayo argues that the dictionary definition of “student”—one “who engages in ‘study’ by applying the mind ‘to the acquisition of learning, whether by means of books, observation, or experiment’ ”—plainly encompasses residents. Brief for Petitioners 22 (quoting Oxford Universal Dictionary 2049–2050 (3d ed. 1955)). And, Mayo adds, residents are not excluded from that category by the only limitation on students Congress has imposed under the statute—that they “be ‘enrolled and regularly attending classes at [a] school.’ ” Brief for Petitioners 22 (quoting 26 U. S. C. §3121(b)(10)).
Mayo’s reading does not eliminate the statute’s ambiguity as applied to working professionals. In its reply brief, Mayo acknowledges that a full-time professor taking evening classes—a person who presumably would satisfy the statute’s class-enrollment requirement and apply his mind to learning—could be excluded from the exemption and taxed because he is not “ ‘predominant[ly]’ ” a student. Reply Brief for Petitioners 7. Medical residents might likewise be excluded on the same basis; the statute itself does not resolve the ambiguity.
The District Court interpreted §3121(b)(10) as unambiguously foreclosing the Department’s rule by mandating that an employee be deemed “a ‘student’ so long as the educational aspect of his service predominates over the service aspect of the relationship with his employer.” 503 F. Supp. 2d, at 1175. We do not think it possible to glean so much from the little that §3121 provides. In any event, the statutory text still would offer no insight into how Congress intended predominance to be determined or whether Congress thought that medical residents would satisfy the requirement.
To the extent Congress has specifically addressed medical residents in §3121, moreover, it has expressly excluded these doctors from exemptions they might otherwise invoke. See 26 U. S. C. §§3121(b)(6)(B), (7)(C)(ii) (excluding medical residents from exemptions available to employees of the District of Columbia and the United States). That choice casts doubt on any claim that Congress specifically intended to insulate medical residents from FICA’s reach in the first place.
In sum, neither the plain text of the statute nor the District Court’s interpretation of the exemption “speak[s] with the precision necessary to say definitively whether [the statute] applies to” medical residents. United States v. Eurodif S. A., 555 U. S. ___, ___ (2009) (slip op., at 13).
In the typical case, such an ambiguity would lead us inexorably to Chevron step two, under which we may not disturb an agency rule unless it is “ ‘arbitrary or capricious in substance, or manifestly contrary to the statute.’ ” Household Credit Services, Inc. v. Pfennig, 541 U. S. 232, 242 (2004) (quoting United States v. Mead Corp., 533 U. S. 218, 227 (2001)). In this case, however, the parties disagree over the proper framework for evaluating an ambiguous provision of the Internal Revenue Code.
Mayo asks us to apply the multi-factor analysis we used to review a tax regulation in National Muffler, 440 U. S. 472. There we explained:
“A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner’s interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent re-enactments of the statute.” Id., at 477.
The Government, on the other hand, contends that the National Muffler standard has been superseded by Chevron. The sole question for the Court at step two under the Chevron analysis is “whether the agency’s answer is based on a permissible construction of the statute.” 467 U. S., at 843.
Since deciding Chevron, we have cited both National Muffler and Chevron in our review of Treasury Department regulations. See, e.g., United States v. Cleveland Indians Baseball Co., 532 U. S. 200, 219 (2001) (citing National Muffler); Cottage Savings Assn. v. Commissioner, 499 U. S. 554, 560–561 (1991) (same); United States v. Boyle, 469 U. S. 241, 246, n. 4 (1985) (citing Chevron); see also Atlantic Mut. Ins. Co. v. Commissioner, 523 U. S. 382, 387, 389 (1998) (citing Chevron and Cottage Savings).
Although we have not thus far distinguished between National Muffler and Chevron, they call for different analyses of an ambiguous statute. Under National Muffler, for example, a court might view an agency’s interpretation of a statute with heightened skepticism when it has not been consistent over time, when it was promulgated years after the relevant statute was enacted, or because of the way in which the regulation evolved. 440 U. S., at 477. The District Court in this case cited each of these factors in rejecting the Treasury Department’s rule, noting in particular that the regulation had been promulgated after an adverse judicial decision. See 503 F. Supp. 2d, at 1176; see also Brief for Petitioners 41–44 (relying on the same considerations).
Under Chevron, in contrast, deference to an agency’s interpretation of an ambiguous statute does not turn on such considerations. We have repeatedly held that “[a]gency inconsistency is not a basis for declining to analyze the agency’s interpretation under the Chevron framework.” National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U. S. 967, 981 (2005); accord, Eurodif S. A., supra, at ___ (slip op., at 10). We have instructed that “neither antiquity nor contemporaneity with [a] statute is a condition of [a regulation’s] validity.” Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735, 740 (1996). And we have found it immaterial to our analysis that a “regulation was prompted by litigation.” Id., at 741. Indeed, in United Dominion Industries, Inc. v. United States, 532 U. S. 822, 838 (2001), we expressly invited the Treasury Department to “amend its regulations” if troubled by the consequences of our resolution of the case.
Aside from our past citation of National Muffler, Mayo has not advanced any justification for applying a less deferential standard of review to Treasury Department regulations than we apply to the rules of any other agency. In the absence of such justification, we are not inclined to carve out an approach to administrative review good for tax law only. To the contrary, we have expressly “[r]ecogniz[ed] the importance of maintaining a uniform approach to judicial review of administrative action.” Dickinson v. Zurko, 527 U. S. 150, 154 (1999). See, e.g., Skinner v. Mid-America Pipeline Co., 490 U. S. 212, 222–223 (1989) (declining to apply “a different and stricter nondelegation doctrine in cases where Congress delegates discretionary authority to the Executive under its taxing power”).
The principles underlying our decision in Chevron apply with full force in the tax context. Chevron recognized that “[t]he power of an administrative agency to administer a congressionally created … program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress.” 467 U. S., at 843 (internal quotation marks omitted). It acknowledged that the formulation of that policy might require “more than ordinary knowledge respecting the matters subjected to agency regulations.” Id., at 844 (internal quotation marks omitted). Filling gaps in the Internal Revenue Code plainly requires the Treasury Department to make interpretive choices for statutory implementation at least as complex as the ones other agencies must make in administering their statutes. Cf. Bob Jones Univ. v. United States, 461 U. S. 574, 596 (1983) (“[I]n an area as complex as the tax system, the agency Congress vests with administrative responsibility must be able to exercise its authority to meet changing conditions and new problems”). We see no reason why our review of tax regulations should not be guided by agency expertise pursuant to Chevron to the same extent as our review of other regulations.
As one of Mayo’s amici points out, however, both the full-time employee rule and the rule at issue in National Muffler were promulgated pursuant to the Treasury Department’s general authority under 26 U. S. C. §7805(a) to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code. See Brief for Carlton M. Smith 4–7. In two decisions predating Chevron, this Court stated that “we owe the [Treasury Department’s] interpretation less deference” when it is contained in a rule adopted under that “general authority” than when it is “issued under a specific grant of authority to define a statutory term or prescribe a method of executing a statutory provision.” Rowan Cos. v. United States, 452 U. S. 247, 253 (1981); United States v. Vogel Fertilizer Co., 455 U. S. 16, 24 (1982) (quoting Rowan).
Since Rowan and Vogel were decided, however, the administrative landscape has changed significantly. We have held that Chevron deference is appropriate “when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” Mead, 533 U. S., at 226–227. Our inquiry in that regard does not turn on whether Congress’s delegation of authority was general or specific. For example, in National Cable & Telecommunications Assn., supra, we held that the Federal Communications Commission was delegated “the authority to promulgate binding legal rules” entitled to Chevron deference under statutes that gave the Commission “the authority to ‘execute and enforce,’ ” and “to ‘prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions’ of,” the Communications Act of 1934. 545 U. S., at 980–981 (quoting 47 U. S. C. §§151, 201(b)). See also Sullivan v. Everhart, 494 U. S. 83, 87, 88–89 (1990) (applying Chevron deference to rule promulgated pursuant to delegation of “general authority to ‘make rules and regulations and to establish procedures, not inconsistent with the provisions of this subchapter, which are necessary or appropriate to carry out such provisions’ ” (quoting 42 U. S. C. §405(a) (1982 ed.))).
We believe Chevron and Mead, rather than National Muffler and Rowan, provide the appropriate framework for evaluating the full-time employee rule. The Department issued the full-time employee rule pursuant to the explicit authorization to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code. 26 U. S. C. §7805(a). We have found such “express congressional authorizations to engage in the process of rulemaking” to be “a very good indicator of delegation meriting Chevron treatment.” Mead, supra, at 229. The Department issued the full-time employee rule only after notice-and-comment procedures, 69 Fed. Reg. 76405, again a consideration identified in our precedents as a “significant” sign that a rule merits Chevron deference. Mead, supra, at 230–231; see, e.g., Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158, 173–174 (2007).
We have explained that “the ultimate question is whether Congress would have intended, and expected, courts to treat [the regulation] as within, or outside, its delegation to the agency of ‘gap-filling’ authority.” Id., at 173 (emphasis deleted). In the Long Island Care case, we found that Chevron provided the appropriate standard of review “[w]here an agency rule sets forth important individual rights and duties, where the agency focuses fully and directly upon the issue, where the agency uses full notice-and-comment procedures to promulgate a rule, [and] where the resulting rule falls within the statutory grant of authority.” 551 U. S., at 173. These same considerations point to the same result here. This case falls squarely within the bounds of, and is properly analyzed under, Chevron and Mead.
The full-time employee rule easily satisfies the second step of Chevron, which asks whether the Department’s rule is a “reasonable interpretation” of the enacted text. 467 U. S., at 844. To begin, Mayo accepts that “the ‘educational aspect of the relationship between the employer and the employee, as compared to the service aspect of the relationship, [must] be predominant’ ” in order for an individual to qualify for the exemption. Reply Brief for Petitioners 6–7 (quoting Treas. Reg. §31.3121(b)(10)–2(d)(3)(i), 26 CFR §31.3121(b)(10)–2(d)(3)(i)). Mayo objects, however, to the Department’s conclusion that residents who work more than 40 hours per week categorically cannot satisfy that requirement. Because residents’ employment is itself educational, Mayo argues, the hours a resident spends working make him “more of a student, not less of one.” Reply Brief for Petitioners 15, n. 3 (emphasis deleted). Mayo contends that the Treasury Department should be required to engage in a case-by-case inquiry into “what [each] employee does [in his service] and why” he does it. Id., at 7. Mayo also objects that the Department has drawn an arbitrary distinction between “hands-on training” and “classroom instruction.” Brief for Petitioners 35.
We disagree. Regulation, like legislation, often requires drawing lines. Mayo does not dispute that the Treasury Department reasonably sought a way to distinguish between workers who study and students who work, see IRS Letter Ruling 9332005 (May 3, 1993). Focusing on the hours an individual works and the hours he spends in studies is a perfectly sensible way of accomplishing that goal. The Department explained that an individual’s service and his “course of study are separate and distinct activities” in “the vast majority of cases,” and reasoned that “[e]mployees who are working enough hours to be considered full-time employees . . . have filled the conventional measure of available time with work, and not study.” 69 Fed. Reg. 8607. The Department thus did not distinguish classroom education from clinical training but rather education from service. The Department reasonably concluded that its full-time employee rule would “improve administrability,” id., at 76405, and it thereby “has avoided the wasteful litigation and continuing uncertainty that would inevitably accompany any purely case-by-case approach” like the one Mayo advocates, United States v. Correll, 389 U. S. 299, 302 (1967).
As the Treasury Department has explained, moreover, the full-time employee rule has more to recommend it than administrative convenience. The Department reasonably determined that taxing residents under FICA would further the purpose of the Social Security Act and comport with this Court’s precedent. As the Treasury Department appreciated, this Court has understood the terms of the Social Security Act to “ ‘import a breadth of coverage,’ ” 69 Fed. Reg. 8605 (quoting Social Security Bd. v. Nierotko, 327 U. S. 358, 365 (1946)), and we have instructed that “exemptions from taxation are to be construed narrowly,” Bingler v. Johnson, 394 U. S. 741, 752 (1969). Although Mayo contends that medical residents have not yet begun their “working lives” because they are not “fully trained,” Reply Brief for Petitioners 13 (internal quotation marks omitted), the Department certainly did not act irrationally in concluding that these doctors—“who work long hours, serve as highly skilled professionals, and typically share some or all of the terms of employment of career employees”—are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system. 69 Fed. Reg. 8608.
The Department’s rule takes into account the SSA’s concern that exempting residents from FICA would deprive residents and their families of vital disability and survivorship benefits that Social Security provides. Id., at 8605. Mayo wonders whether the full-time employee rule will result in residents being taxed under FICA but denied coverage by the SSA. The Government informs us, however, that the SSA continues to adhere to its longstanding position that medical residents are not students and thus remain eligible for coverage. Brief for United States 29–30; Tr. of Oral Arg. 33–34.
* * *
We do not doubt that Mayo’s residents are engaged in a valuable educational pursuit or that they are students of their craft. The question whether they are “students” for purposes of §3121, however, is a different matter. Because it is one to which Congress has not directly spoken, and because the Treasury Department’s rule is a reasonable construction of what Congress has said, the judgment of the Court of Appeals must be affirmed.
It is so ordered.
Justice Kagan took no part in the consideration or decision of this case.
ORAL ARGUMENT OF THEODORE B. OLSON ON BEHALF OF THE PETITIONERS
Chief Justice John G. Roberts: We will hear argument next in Case 09-837, Mayo Foundation For Medical Education and Research v. The United States.
Mr. Olson: Mr. Chief Justice, and may it please the Court:
Congress expressly exempted from Social Security taxes wages paid to a student who is enrolled and regularly attending classes.
The medical residents at Petitioner's schools are enrolled and pursuing a formal accredited curriculum that has a rigorous core curriculum, as I said.
Hundreds of classes, conferences, lectures, laboratory research, written exams, grades, and intensive, hands-on clinical patient training under the supervision of faculty members.
Justice Ruth Bader Ginsburg: Mr. Olson, are all institutions that employ residents schools?
Mr. Olson: I don't know whether all -- as I understand, the resident program, which is accredited by the Accreditation Council For Graduate Medical Education, does involve an accreditation program which would probably fit -- where it's taking place would probably fit the definition of schools.
That is certainly not an issue in this case.
There are -- the institutions we represent--
Justice Ruth Bader Ginsburg: But it might be relevant, because it would be unseemly, perhaps, to have residents who are not working at, quote, FICA tax, and other residents whose training is approximately the same escape the tax.
Mr. Olson: --Well, that was a judgment that Congress made.
Congress made the exemption with respect to students and it tied specifically in to someone who is enrolled and regularly attending classes.
Justice Ruth Bader Ginsburg: But you can't give me the reality there.
Are all resident programs conducted in schools or are there resident programs that would not qualify because they take place in institutions that are not schools?
Mr. Olson: The only reason I'm hesitating, Justice Ginsberg, is I don't know the entire universe out there.
Every program, residents' program, that has been involved in the various cases that have discussed this have been at schools or universities or colleges.
I am aware of no program that involves residency and resident programs accredited by the ACGME that does not involve in or does not take place in a school, university, or college.
So it could be something out there that I am not aware of, but I'm not aware of anything of that nature.
It is undisputed that these individuals in these residents' programs are enrolled and that they are regularly attending classes by various definitions of the word "class".
The clinical experience that they are receiving in hospital rooms, in lecture halls, in circumstances that they are involved in, are educational.
They are classes, and it is undisputed -- undisputed that the purpose of these programs is to educate doctors so that they can achieve board certification and hospital privileges.
Justice Sonia Sotomayor: Mr. Olson, are residents supervised their entire employ, the 80 hours?
Is there an attending physician standing over their shoulder and looking at what they are doing?
Mr. Olson: Well, there's two parts of that question.
The answer to the second part is: Of course not.
There is not a supervising attending physician standing over their shoulder at every moment, but they are being supervised at all the time during their residency program; that is to say that the work that they do is under the supervision, in that broad sense, of an attending physician who looks over what they do, comments on what they do, and so forth.
Justice Sonia Sotomayor: What I -- how I look at this case is: How do you draw the line between a student who is working and a worker who is studying?
So the issue for me is: Is the Treasury Department's identification of how to draw that line unreasonable?
Do we owe them deference?
Let's use the example that's been floating around the briefs: The general counsel of the university who takes classes to increase his knowledge.
Is he a student who is working or is he a worker who is studying?
Mr. Olson: There is -- well, various courts have considered this, have found the statutory provision that Congress has spoken to the subject, it has provided an exemption for students and it has provided its own limitations.
You have to be enrolled in regular classes--
Justice Sonia Sotomayor: Why isn't the general counsel who is going to, let's assume, either three classes a week or six hours of classes is working 40 hours as general counsel, and he's regularly enrolled in classes.
Why isn't he part of--
Mr. Olson: --The Internal Revenue Service imposes a predominance requirement with respect to this.
The courts that have considered it have said: This is not a question of law, it is a question of fact.
Is someone really a student or not?
Common sense and common understanding of the word "students" would lead one to the conclusion of that.
Justice Sonia Sotomayor: --So why wouldn't common sense lead you to the conclusion that if someone is working 40 unsupervised hours without an attending physician at their side, taking care of patients, that that's really not a student?
That's what the Treasury Department is saying.
Mr. Olson: Well, that is what the Treasury Department is saying.
But first of all, you have to be an employee for this provision to apply at all.
Justice Sonia Sotomayor: You don't think receiving $50,000 or $60,000 a year is enough to make you an employee of someone?
Mr. Olson: No.
In fact, the government will say that the amount of remuneration is immaterial.
The government says that in its regulations.
The IRS says that, and it has said it for many, many, many years.
And right from the beginning, the amount of remuneration has no significance at all.
The fact is, as every court that has considered the question has concluded, is that these residents are under supervision.
You may be supervised if someone's not standing over your shoulder.
If they review at the end of the day or at the beginning of the -- of the course, what you have done, what you -- what you -- what situations you have encountered, the standards that are being applied--
Justice Sonia Sotomayor: Why isn't that -- assume it's not the general counsel of the university but a lawyer working in the general counsel's office.
Mr. Olson: --Well--
Justice Sonia Sotomayor: He's being supervised by the general counsel, his work's being reviewed, and he's attending classes at night.
Mr. Olson: --In the first place, that is a different case.
This is a refund action based upon the situation -- the facts are on the ground with respect to these residents.
That is not the case here.
However, that and the other parade of horribles that the government mentions in its briefs: What about the professor -- I mean, what about the university president?
What about the general counsel?
all would be excluded by the predominant requirement -- predominancy requirement, which we are not challenging, which is not involved in this case, and the government hasn't challenged here.
These individuals cannot achieve what they need to achieve for board certification and hospital privileges except by having clinical experience.
Justice Sonia Sotomayor: Well, what they want to achieve is a higher long-term pay, but they can go out and work as doctors.
Mr. Olson: --They could -- well, very little.
The -- the record is very, very clear that almost in no cases in -- in a very, very narrow circumstance can they work as doctors.
They won't have hospital privileges.
Justice Sonia Sotomayor: I understood that 15 percent of the physicians were not board certified.
Mr. Olson: --And -- and many of them may be in the military or in circumstances, but the -- but the record is examined by the various courts that have considered it, said for all intents and purposes in the modern world, that physicians that are going to be treating you and me in the vast majority of cases will be board certified.
It's an enormous impediment, and--
Justice Sonia Sotomayor: So how about the architect residents who are working in universities?
Are they medical -- like medical residents as well?
Mr. Olson: --Well, they may be.
I haven't studied whether an architect, if they are in a school -- Congress decided what this exemption would cover.
It says: If you are a student enrolled in a school, university, or a college, and you are regularly attending classes, then you would be covered.
Justice Ruth Bader Ginsburg: Mr. Olson, why not read that provision -- now we are going to the statute -- if such service is performed by a student, et cetera, as saying: Well, this student status and the service is distinct from the student status?
Take the typical work/study program in a college.
That would seem to fit this language to a tee.
There is a student and the student is working part time, but you are -- there -- there is no independent significance to this term "student" as you read the text; that is, the student and the services are all together.
"I am a student here and I perform services there. "
It's -- the student is -- the education is the service.
Mr. Olson: --Well, the services are performed for the purpose of receiving an education.
As -- as the Internal Revenue Service construed this provision, up until the fact that they lost several cases, was that if your purpose was to achieve or pursue a course of studies.
That's the old regulation.
Justice Ruth Bader Ginsburg: But wouldn't -- wouldn't this fit the work/study student who is studying philosophy and then he's working in the, say, speech department?
Mr. Olson: --I didn't hear that last word.
Justice Ruth Bader Ginsburg: The -- it seems to me that what came into my mind when I read these words was a work/study program, where the student is studying and that -- the status is student.
The work is separate from that.
It's not necessarily to advance the person's education.
It's to give the student some money.
So that's what I thought -- I thought that this was -- this was describing student status, okay?
And the student is also working for some money.
But you seem to say that the service -- that -- that it -- the student status is not independent from the service.
Mr. Olson: Well, this -- absolutely, that is true in this case.
The students -- the service that the students are performing in hospital rooms, looking at patients, listening to lectures, working in laboratories, is a part of what they are getting paid for.
So they have to be an employee to begin with, in order for this exemption to apply.
They have -- it might be -- it's -- it -- I don't know whether you have in mind someone being paid for -- by someone outside the school, but this--
Justice Ruth Bader Ginsburg: No, I have in mind the typical work/study program.
The -- the student signs up for work/study and may be assigned to work in the administration, helping out with clerical things there, but the student status is one thing, services are another.
Now, that, I assume, would be covered, that the earnings of the student in the work/study program would not be subject to FICA?
Mr. Olson: --Well, the government's got various categories of examples.
The situation that you've just described sort of falls close to one of those examples, but this is -- that is not this case.
The government would say, I would think, that if you are a student, even though your service is unrelated to your education, you would fall within the exemption.
I think that's one of the examples that the government gives.
I might have guessed that it would come out differently.
But in this case, the purpose for the service is education.
The goal of the service is education.
It's not to earn a living.
And -- and it's and the goal of the universities is not to make money.
It is to provide--
Chief Justice John G. Roberts: Well, you keep focusing, Mr. Olson, on -- on this case.
And one of the things I think is important in the tax code is that you not have litigation on different case, so the different courts are coming out with different rules.
And at the end of the day, you put one next to the other, and it looks pretty hard to tell the difference.
So why doesn't it make sense simply to refer to -- to defer to the Service's interpretation?
Mr. Olson: --Well--
Chief Justice John G. Roberts: It goes back -- both of you go back and forth with hypotheticals, each of which sort of supports, but this basically a very familiar situation of an apprentice who is both an employee and both a student, and to try to draw the line in some categorical way doesn't make sense.
The only way you can draw the line is to have somebody say: This is going to be the line.
And if anybody is going to say it, it ought to be the IRS.
Mr. Olson: --I know we are in the Supreme Court, but five courts of appeals that considered this said that the language is clear.
It does not admit to a categorical exclusion of residents in programs like this.
Justice Sonia Sotomayor: Well, those five courts did it before -- most of those opinions were rendered before the new regulation.
Mr. Olson: --That's right.
And what the government--
Justice Sonia Sotomayor: Only one--
Mr. Olson: --The government having lost based upon the words of the statute and the regulations that they had promulgated that had to do with the goals, the purpose, the objective, and the nature of the activity, lost every one of those cases and said: We are going to adopt a regulation that does have the virtue that the Chief Justice mentioned of -- of being categorical.
It's the same as saying, if you are left handed, you are not going to be covered by this student exemption, or if you are only doing it during the daytime--
Justice Stephen G. Breyer: Is it -- is it -- the -- the answer to Justice Ginsberg's question -- I was uncertain.
Suppose a student is working 45 hours a week in the grounds department cutting lawns, and he does -- cutting the school lawn, and he earns enough money to help his way through college.
Now, I thought, under this, that he is not within this statute because it's 45 hours and not 40?
Mr. Olson: --Oh, yes.
The -- the United States--
Justice Stephen G. Breyer: All right.
Mr. Olson: --could take the position--
Justice Stephen G. Breyer: Then it's not.
So -- so, what they're doing is -- it started out with the word "student" and the word "service" performed in the statute.
Then, for many, many years, they have talked about the employment, how it has to be incident to the study.
And "incident" is the key word.
And so now what they have done is interpret their own word, "incident", as saying if it bulks too large in comparison with the -- with the studying, it's not incident to the study.
It's a separate thing.
And that's true whether it happens to be medical school or it happens to be lawnmowing.
They can't -- they don't want it as so big in comparison to the study that it's not really part of trying to get the study.
It's just too big.
And they use the 40 for that.
Mr. Olson: --Yes, they have.
Justice Stephen G. Breyer: All right.
Now if you are going to admit the word 40 hours a week?
Mr. Olson: Well, because it's both arbitrary and it's irrational.
If what the student is doing, what the individual is doing, what the resident is doing, is learning the craft that he needs to perform a doctor--
Justice Sonia Sotomayor: --Mr. Olson--
Mr. Olson: --The government is saying -- the government is saying--
Justice Sonia Sotomayor: --everyone learns.
Aren't you learning today -- sitting here and watching this -- maybe you are not -- your own argument?
But the arguments before -- aren't we learning in every case that we're hearing?
I -- I--
Mr. Olson: --Oh, by the way--
Justice Sonia Sotomayor: --It's -- it's, in my mind, difficult to separate out what makes a person or stops a person from learning on a job.
Mr. Olson: --Well, the fact is--
Justice Sonia Sotomayor: At any job, actually.
Mr. Olson: --Well, the Justices of this Court are exempt from Social Security taxes--
Chief Justice John G. Roberts: You are not challenging that, are you, Mr. Olson?
Mr. Olson: No, you're okay.
Justice Sonia Sotomayor: I opted in, Mr. Olson, for the very reason the residents might want to.
Mr. Olson: Congress -- Congress decided to provide an exemption for students.
And I want to address what Justice--
Justice Stephen G. Breyer: No, no -- didn't as interpreted -- it's not -- it's that -- I concede everything you say: It's a total learning experience and it's a special learning experience.
The problem I was having that I wanted your answer to is that they have for many, many years said: Just because it's a pure learning experience and nothing but a pure learning experience, you still can't get this exemption unless the work is incident to that experience.
And by "incident" we mean it can't bulk too large--
Mr. Olson: --Well--
Justice Stephen G. Breyer: --in respect to the whole.
So the problem for you is not that it's not education.
Mr. Olson: --That's -- that's--
Justice Stephen G. Breyer: It's that the work is the education.
Mr. Olson: --That last step that you made is just like Humpty Dumpty in Lewis Carroll's "Through the Looking Glass",
"a word is what I say it is. "
It -- the work the residents do, the services they perform are all incident to the educational process.
There is no dispute that the goal is the education, both from the standpoint of the university and from the standpoint of the student, that that is what is accomplished.
And what -- Justice Breyer, what they've said is because you are doing that, the -- the service is incident to the education until you do it for 40 hours.
Then it's no longer incident.
So someone who may be a student under the -- under the government's interpretation is a student until they work that 40th hour a week on a regular basis; then somehow they are no longer a student.
Justice Ruth Bader Ginsburg: Mr. Olson, there has been a concern expressed that if we accept your position that residents are students, it will have ramifications for other areas of the law, notably, the National Labor Relations Act.
Suppose the residents wanted to organize and collectively bargain.
If they are students, they can't do that.
And let's take the Title VII and the other antidiscrimination in employment statutes.
If they are not employed, if they are students rather than employees, then they wouldn't be covered by that legislation.
Mr. Olson: That is the fallacy that the government is making, that you have to either be a student or an employee.
That argument is not correct, because in all other respects, these residents are employees.
The exemption provided in 3121(b)(10) does not come into play unless you are an employee.
So for all those purposes -- Title VII, the Fair Labor Standards Act and so forth -- those are other statutes that define a term in a certain way.
What the -- what the code says in 3121(b)(10) -- that you are an employee, but if you are an employee of a college or a university, and you are a student, which means you are enrolled in classes and regularly taking a program for the purpose of education -- then you don't pay FICA taxes.
It doesn't have any other implication.
And the government's position in that respect, and the argument that's made in the other briefs, is -- are classic red herrings.
They distract from the real issue.
You don't have to be either an employee or a student.
In fact, you have to be both for this exemption to apply, and that is what is happening here.
Now, again, this is -- there may be circumstances where there might be something that's close to the line and the government might say,
"Well, you're not really a student. "
And the government really tried that in the Second Circuit, in the Sixth Circuit, and the Eleventh Circuit, and the Seventh Circuit.
And in each one of those cases, the court -- and uniformly, all five circuits, including the Eighth Circuit -- until the government decided to change the regulation to say, essentially, residents are out -- that's basically what they said.
Justice Stephen G. Breyer: I looked it up in the dictionary, and meaning number one of "incident" is: An accompanying minor occurrence or -- occurrence or condition.
In other words, there's the big thing, and then there's the incident.
Now, if that's the meaning, well, this is 40.
It's trying to get at whether it's minor or the whole--
Mr. Olson: But that's the whole dichotomy that doesn't exist.
The person is a student.
They are just doing it long and arduously and they are doing it for several years so that they can be board certified as good doctors in their specialty.
The idea that somehow you are a student if you do it for 39 hours, and if you do it for 41 hours -- the programs are rigorous.
They -- they have been designed by the accreditation programs to be rigorous, so that -- rigorous, so that a doctor will see lots of patients, do lots of clinical work, because that, according to all the record in all of the cases, is where the education takes place.
You need the classes.
You need the laboratory.
But you need to work with patients doing the things that we want doctors to be doing with respect to us when they are certified as a specialist in neurology or whatever it might be.
So Justice Breyer, the idea that -- this is a classic definition of not only an arbitrary but a capricious and irrational regulation.
It says that if -- even if you are a student, you are doing the things where you would have to be a student, and you are doing the types of things that you would make -- makes you a student, and you are doing it for the purposes that would make you for a student, but if you do it a little bit too much, you are too much of a student, and therefore you are not a student.
Justice Stephen G. Breyer: --Well, that's because of the second meaning here.
It's very surprising.
I'm found, first, reading the statute in the last case, and now I am reading the dictionary.
Justice Antonin Scalia: We don't know whether that's a step forward or backward.
Justice Stephen G. Breyer: And here what it is says is: Something arising or resulting from something else of greater or principal import.
So they are trying to work out, with that word "incident", is the studying of greater or principal import?
And what they are saying is, when it's 40 hours a week, this other thing, the studying, is not of greater import.
Mr. Olson: But that--
Justice Stephen G. Breyer: Rather, it's -- let's say it's of equal import.
Mr. Olson: --I submit that that makes no sense at all.
Because if you're -- if you're studying, and are doing it for 39 and a half hours, you are a student, and if you do it for 40 and a half hours, all of a sudden you are not doing the same thing?
You are not a student?
Justice Stephen G. Breyer: You have to draw the line.
Mr. Olson: --I accept the word "incident".
Justice Samuel Alito: Why do you accept the word "incident"?
Incident is not in the statute.
Mr. Olson: No, it isn't.
I'm saying, for purposes--
Justice Samuel Alito: Well, why isn't the answer that the -- that the noneducational aspect of the service has to be incidental to what they are doing?
Mr. Olson: --Well, that might be also.
What we're -- what we're saying -- I don't -- I am accepting the word "incident" for the purposes of this case, that there is no question that the work that's being done, the services that are being performed, Justice Alito, are incident to the education.
They are a part of the educational process.
They are subservient to the educational process.
In fact, they make the educational process.
If I may, Chief -- Mr. Chief Justice, may I reserve the balance of my time?
Chief Justice John G. Roberts: Thank you, Mr. Olson.
ORAL ARGUMENT OF MATTHEW D. ROBERTS ON BEHALF OF THE RESPONDENT
Mr. Roberts: Mr. Chief Justice, and may it please the Court:
FICA student exemption covers individuals who are predominantly students but perform incidental employment for their schools.
It does not cover Petitioners' medical residents.
They are full-time employees, and the Treasury Department has reasonably concluded that an employee's paid work does not make him an exempt student, even if he also learns from his job.
And that is true for three reasons.
First, the text of the student exemption makes clear that it is not a broad exclusion for apprenticeships and other learning jobs.
Instead, it's a narrow exemption that applies only to students performing services for a school, college, or university where they are enrolled and regularly attending classes.
And second, when employees are working long hours and being paid substantial amounts, they and their employers should be helping to fund the Social Security system, and they should be earning credit towards benefits so that they and their families will have something to fall back on if they become disabled or die.
Justice Samuel Alito: If the question is whether someone is predominantly a student or an employee, why shouldn't we ask: Why are they enrolled in this program, and why is the institution enrolling them in the program?
Why are residents enrolled in the program?
Are they enrolled in the program to make money or are they enrolled in the program either because it's a licensing hurdle they have to clear or they want additional education, and why is the institution hiring them?
Is the institution hiring them to get the value of their services or is it hiring them for educational purposes?
Mr. Roberts: It's probably both, Your Honor, but it's not workable to determine student status by looking at a particular case, whether the predominant motive or the motive of the employee or the employer is education.
Justice Samuel Alito: In general, why are residents -- why do medical school graduates become residents?
Are they doing that because they want to earn the 40 to $50,000 a year that they are paid or are they doing it for some other reason?
Mr. Roberts: I think they are doing it for both reasons, Your Honor.
But many, many individuals pursue their jobs for the primary purpose of learning, like judicial law clerks, like other apprentices.
But they are not included -- they are not covered by this exemption.
Justice Ruth Bader Ginsburg: Because they don't work at schools.
Mr. Roberts: Because they don't work at schools, colleges, and universities, and they, you know, may not be enrolled and regularly attending classes.
And so the Treasury reasonably concluded that because this isn't a general exemption for apprenticeships, that they shouldn't construe it as providing a special exemption for apprentices who happen to be employed by schools, colleges, and universities.
Justice Samuel Alito: What if on average they were paid $10,000 a year?
Would it be the same?
Mr. Roberts: Yes.
If they would -- if their work -- I mean, here, basically, they have work and the argument is that that work qualifies them as students.
And what the Treasury Department has concluded is that it's going to treat work and study as distinct categories in deciding whether somebody is predominantly a student, and that it's not going to count the work as study even if there's some educational component to it.
And that's reasonable for several reasons, as I said.
First, because the statute just isn't a general provision that's designed to cover apprenticeships.
And second, because when people are primarily workers and they are working for long hours, they should be covered and participating in the FICA system.
And finally, it would be very difficult to determine on a case-by-case basis what's their purpose: What the employer's purpose?
You know, is this job more like study?
Is this job more like work?
And on that basis -- and to, on that basis, decide whether that should make them a student.
So considering all of those things, the Treasury has decided to draw a bright line and say: Study is study; work is work; and if you are not a student independently of that, then your work doesn't make you a student.
And the Treasury has also decided that if you are working full-time, that then you are predominantly an employee rather than predominantly a student, and you are not covered by the exemption.
In addition, FICA's historical development indicates that the student exemption doesn't cover medical residents, because at the same time that Congress enacted the student exemption, it also enacted a separate exemption for medical interns, and it decided not to include residents in that exemption.
And those actions would have made little sense if the student exemption had the scope asserted by Petitioners.
And then in 1965 Congress repealed the intern exemption in order to give young doctors an earlier start in building up Social Security coverage.
And that repeal also wouldn't have achieved its purpose if many and most residents were covered -- were excluded from FICA under the student exemption.
These residents are people.
They are working between 50 and 80 hours a week.
They are working over a long period of time, and they are providing critical patient care with minimal supervision.
Chief Justice John G. Roberts: What if the school said: You have to get all this clinical experience, but we are going to pay you for the first two hours of the day that you are doing that?
Does that change the analysis at all?
You seem to be focusing on how many hours they are working.
But what if the school says: Well, look, we recognize some of this is going to school and some of this is working, so just like the IRS, we are going to have an arbitrary rule and we are going to say you are being paid for the first two hours.
Mr. Roberts: Well, the rule is that the paid work doesn't count towards student status, and it doesn't count whether you are doing it for 4 hours, for 10 hours, or for 40 hours.
So in a circumstance where they are only being paid -- they're only working for paid time for a certain amount, then that work -- you would have to look--
Chief Justice John G. Roberts: It looks more -- if you accept their classification, it looks more like their work is incidental to their status as a student.
Mr. Roberts: --If you accept the classification in your hypothetical of two hours and the other eight hours?
But those -- that other work wouldn't necessarily qualify as a course of study, either, Your Honor.
I mean, if what they are doing is providing services--
Chief Justice John G. Roberts: Presumably, you would say it does if they don't pay them anything.
Mr. Roberts: --No, not necessarily, Your Honor.
What the -- Treasury regulations define what a class is and what a course of study is, and the individuals have to be engaging in that to qualify as students and performing -- giving somebody something of value.
Justice Samuel Alito: But I thought clinical work couldn't qualify as a course.
Is that wrong?
Mr. Roberts: Clinical work can qualify as a course under certain circumstances.
But the clinical work that medical students are doing, if you are referring to that, is of an entirely different order than the work--
Justice Ruth Bader Ginsburg: It certainly -- they can be a student in the last year of medical school and then they are doing intern-level work.
That is -- that is clinical programs where they would be categorized as students.
Mr. Roberts: --Yes, it's clinical work, but it's very different than the work that the residents are doing.
First, there is the distinction that the residents are getting paid and that the medical students are paying tuition.
But secondly from that, the residents are providing valuable patient care.
Medical students are primarily participating in the clinical activities solely in an educational capacity.
If I could describe the different things--
Justice Samuel Alito: We now have a lot of briefs -- we now have a lot of briefs filed in this Court in which a lot of the work is done by students in law school.
I assume they are getting credit for that.
Is that not a course?
Mr. Roberts: --They are not getting paid for it.
Justice Samuel Alito: But is it a course?
Is it not a course?
Mr. Roberts: It might be a course, Your Honor, but they are also engaged in other classes and other activities that make them regularly enrolled and its part of a degree program.
So it's one small -- the clinical course is one small part of that.
Justice Samuel Alito: I understand that.
I am questioning why you are resisting the proposition that clinical work can constitute a course.
Mr. Roberts: I'm not resisting the proposition that clinical work can constitute a course.
What I'm saying is that when you are being paid to provide services, that doesn't count as a course, because the IRS has decided to treat work and study as distinct categories in applying this exemption, and that that's a perfectly reasonable distinction.
Nothing in the statute precludes them from doing that, and Petitioners concede that it's reasonable to interpret the statute as limited to the individuals that are predominantly students.
Justice Ruth Bader Ginsburg: Mr. Roberts, do you know the answer to the question I asked Mr. Olson; that is: Are all resident programs schools?
Mr. Roberts: No, Your Honor, they are not.
First of all, under the IRS's regulation, the IRS defines schools, colleges, and universities to include only those institutions whose primary function is the provision of formal instruction.
And second of all, if on J.A. 27a in the record in this case there is an example of residency programs that are not students.
One of the hospitals that the Hennepin County Hospital that has University of Minnesota residents also has its own residents, and just looking on page 27a if you have the J.A., there is a question.
Question, do the Hennepin County residents, are they enrolled in any academic institution that you are aware?
"Not at the present time".
So, that is an example of one, Your Honor.
And that does point out an anomaly about Petitioner's interpretation of the exemption, medical residents who work for hospitals that are operated by schools, colleges and universities would be exempt from FICA tax, but residents who work for other hospitals wouldn't be exempt, even though their work is equally educational.
That is just an illustration of the broader principle that this isn't an apprenticeship exemption, and that's why -- because of that the Treasury has taken this approach to the situation where people are learning on the job.
Justice Ruth Bader Ginsburg: Mr. Roberts, the Petitioner's brief says twice that there is some question.
Assuming that we hold that the -- the residents are subject to the FICA tax, there is some question whether even if they had to pay their tax, whether they would be eligible to receive Social Security benefits or I take it credit for full-time employment?
Mr. Roberts: There's no -- there's no question, Your Honor.
It's always been the Social Security Administration's position that medical residents are not students exempt from the Social Security Act.
The Social Security Administration stated that in a Social Security ruling as far as back as 1978, and they continue to adhere to that position.
In addition, as a practical matter, the way the Social Security Administration determines whether people get coverage for a particular period under the Social Security Act is they look at the W-2's that come in.
And if FICA tax has been paid, then they put them down as being covered under the Social Security Act.
So as a practical matter, it works that way as well.
As I said before, these workers who are working between 50 and 80 hours a week over many years for substantial salaries, are precisely the kind of workers whose employers should be supporting the Social Security system and who should be earning credit towards disability and survivor benefits.
And we would ask that the judgment of the court of appeals be affirmed.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Olson, five minutes remaining.
REBUTTAL ARGUMENT OF THEODORE B. OLSON ON BEHALF OF THE PETITIONERS
Mr. Olson: Thank you, Mr. Chief Justice.
With respect to the question that Mr. Roberts was addressing with you, Justice Ginsberg, the record is very unclear.
In the Eighth Circuit residents may not be eligible for Social Security benefits.
It's quite unclear in the other circuits.
And I invite your attention -- and this is cited in the briefs -- to 20 C.F.R. 404.1028, which is a Social Security regulation.
"If your main purpose is pursuing a course of study rather than earning a livelihood. "
and it's unquestioned that that is what is happening here,
"we consider you to be a student, and your work is not considered employment. "
Justice Ruth Bader Ginsburg: Mr. Olson, you are not taking issue with what Mr. Roberts has said?
That is, in practice the Social Security looks to see -- they look at the W-2, see that the FICA tax was paid, and if it was, then -- then they get credit for Social Security.
Mr. Olson: Well, that may be what they do, and that may be dependent upon what happens with the FICA taxes, which is going to be determined -- which has been determined in four circuits as not being payable with respect to the residents' programs.
The fact is that the government has taken a position for many, many years.
Talk about deference for a moment.
The National Muffler factors, which we understand still to be appropriate to evaluate deference given to an IRS regulation.
This is not a contemporaneous regulation.
It is something that came along just a couple of years ago.
It's a result-oriented regulation.
It's basically saying, we lost all these cases on the facts in the court of appeals, and now we will pronounce that we will win these cases, because we know all these residents programs involve more than--
Justice Sonia Sotomayor: We have said that agencies can clarify situations that have been litigated and positions that they have lost on.
Mr. Olson: --Yes.
Justice Sonia Sotomayor: So, why is this any different?
Mr. Olson: This is very different, because it -- there's -- not of any change in circumstances or facts.
It isn't a clarification.
It is a reversal.
Because for all those years, the government said we had this predominance test.
If your goal is to pursue a course of study, you are a student.
Now the government is saying, if your goal is to produce a course of study, but you do it for 41 hours a week, you are not a student.
It is a--
Chief Justice John G. Roberts: Why are we talking about National Muffler?
I thought the whole point of Chevron was to get away from that kind of multifactor ad hoc balancing?
Mr. Olson: --This is up to the Court.
The Court has never set aside National Muffler.
The Court cited the National Muffler case in the Cottage Savings case, which is subsequent to Chevron.
It cited Cottage Savings case in the Boeing case just a couple of years ago.
You may tell me that the factors in National Muffler are no longer something that you would apply, but they are all sensible factors with respect to whether you would give deference to a regulation that pops up 65 years after the enactment of the statute, after the government has lost five cases on the facts which are directly relevant to the facts here, and it's a new regulation and there has been no reliance.
Chief Justice John G. Roberts: If Chevron applies, those considerations are irrelevant, right?
Mr. Olson: You don't need to get to the part two, because we submit Chevron would apply and would stop you at step one.
The Congress addressed the fact at issue in this case, it said what students are, people who are regularly -- are enrolled and taking classes.
To the extent you get to the second phase, those factors seem to be appropriate to consider.
If this is important, and if there is some anomaly out there, what the government should have done is turned to Congress, which enacted the regulation that describes student and described what the limitations were.
It has had nothing to do about a categorical limitation that if you are too much of a student, you were not a student.
It is backwards.
If there is some anomaly, and if the government wants to collect the funds from these programs that it has really never collected them from before, then it should turn to Congress.
There has been no reliance -- and well, the intern -- the intern anomaly, one of the court of appeals -- the court of appeals that considered that said it relies completely on non sequiturs.
It relies for the interpretation of one statute with the repeal of another statute 45 years ago and draws inference from the legislative history with respect to that which the repeal took place one year after of the St. Luke's case.
The St. Luke's case, the Sixth Circuit decided that interns were not residents, residents were not interns.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Olson: Thank you, Your Honor.
Chief Justice John G. Roberts: The case is submitted.
Justice John G. Roberts, Jr.: Most of us who work for wages pay taxes on those wages under laws Congress has enacted to collect funds for Social Security.
Congress has however exempted from the Social Security taxes students who work for a school where they are enrolled and regularly taking classes.
The easiest example is the college student who buses tables in the dining hall to earn some extra money.
He doesn't have to pay Social Security taxes out of his earnings.
This case however is not so easy.
It's about medical residents.
These are doctors who have graduated from medical school but are pursuing additional medical training to become certified as a specialist in a particular field.
Most doctors in this country go through this process.
They largely learn by working a lot, 50 to 80 hours per week, caring for patients and performing procedures under the supervision of senior residents and faculty members known as attending physicians.
The residents get paid by their school or teaching hospital around $50,000 a year and the school also pays for things like malpractice insurance.
The question here more or less boils down to whether these residents are workers who study, so they have to pay employment taxes that other workers do or are they students who work so they fall within the student exemption.
Now, the language that Congress enacted doesn't help very much.
It just says that you are exempt from the taxes if you work for a school where you are enrolled and regularly attending classes.
The generality of that provision is not surprising.
There are a lot of different scenarios that can come up and Congress can't be expected to have addressed the nuances of everyone.
That's where the Treasury Department comes in.
Congress delegated to that Department the authority to issue regulations implementing the tax code.
Now, the Department recently issued a regulation saying that if you work 40 hours or more a week, they are going to consider you a worker, subject to the taxes no matter how educational or part of a formal course of study your work might be.
And the Department helpfully gave an example of what it meant saying that for example, medical residents would not qualify for the student exemption.
The Mayo Teaching Hospital sued.
Mayo cared about this because if its residents had to pay the taxes, Mayo as the employer had to chip in as well.
Now, in a case like this, we just don't decide what we think the right answer is.
First, we look at the law that Congress passed to see if it answers the particular question before us.
I've already explained that it doesn't.
And if Congress has given an agency the power to issue rules implementing the statute, we let the agency do just that and uphold the agency's view so long as it is reasonable even if it's not the same answer we might have given in the first instance ourselves.
So the question is, is it reasonable for the Treasury Department to say that if you work in a job for more than 40 hours a week, we're going to count you as a worker even if that work is part of a program of study.
And we think it is reasonable.
You have to draw the line according to some principle.
Treasury could have said we're going to look at each program and see if you're really mostly learning or mostly doing things you already know how to do.
But that would have taken the time of a lot of tax department employees with no real reason to think we'd be any closer to what Congress was trying to get at.
So to sum up, we have a difficult question under the tax code.
Congress gave general guidance but can't be said to have answered the question itself in the statute.
Congress did however direct an expert agency to implement the law and that agency has given a direct answer to the question here.
And that answer is a reasonable one.
We therefore defer to the agency's view that medical residents are workers who study not students who work.
And that means that we affirm the judgment of the United States Court of Appeals for the Eight Circuit.
All members of the Court joined the opinion to that effect, except Justice Kagan who did not participate in the consideration or decision of this case.