HOW TO COLLECT REFUNDS OF FICA FOR PAYMENTS MADE

APRIL 2010
WWW.BDO.COM
XSUBJECT
CONTACT:
HOW TO COLLECT REFUNDS
OF FICA FOR PAYMENTS MADE
TO MEDICAL RESIDENTS PRIOR
TO APRIL 1, 2005
ANDREW GIBSON, Atlanta
404-979-7106
[email protected]
JOAN VINES, Dallas
214-259-1414
[email protected]
DERRICK NEUHAUSER, Chicago
XOVERVIEW
Great news was recently received by university medical institutions with
pending claims for a refund of FICA taxes remitted on amounts of
compensation paid to medical residents. The Internal Revenue Service made
an administrative determination to concede that amounts paid to medical
residents for taxable periods ending before April 1, 2005, are exempt from
FICA taxes under the student exception.
Unfortunately, the refund opportunity does not apply to any payments made
after the Treasury’s final regulations went into effect on April 1, 2005. These
regulations were contested but, in June 2009, they were upheld by the United
States Court of Appeals for the Eighth Circuit. See Mayo Foundation for
Medical Education & Research v. United States, 568 F.3d 675 (8th Cir. 2009).
The court of appeals decision reversed two separate decisions by a federal
district court in Minnesota involving medical residents of the Mayo Foundation
for Medical Education and Research as well as the University of Minnesota.
The refund opportunity also does not apply to taxpayers that did not timely
file claims for refund of the taxes. The normal three-year statute of
limitations applies to such claims.
XRead more
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[email protected]
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AN ALERT FROM THE BDO COMPENSATION & BENEFITS TAX PRACTICE
2
The Service has said that it will begin contacting hospitals, universities, and medical residents who filed FICA refund
claims for these periods with more information and procedures within 90 days and stated that employers and those with
pending claims do not have to take any action at this time. However, once they are notified, employers are expected to
have a limited time to perfect their claims, many of which were filed as protective claims showing one dollar of refund
due.
WHAT SHOULD ORGANIZATIONS BE DOING NOW?
Those organizations that filed protective claims for refunds for periods ending before April 1, 2005, should start the
process of gathering the information that will be needed to perfect or verify their refund claims before ultimate
processing by the Service:
1. Review the type of claim previously filed, i.e., protective or actual.
2. Quantify the total amounts paid to medical residents that qualify for the exclusion from FICA wages.
3. Identify each recipient of the payments in order to build a contact list that will be used to obtain the required
consents regarding employees’ share of FICA.
4. Compare the list to alumni records, professional data banks, etc., for current mailing addresses.
5. Develop a plan to find missing individuals who received payments.
6. Begin seeking consents from affected wage earners with respect to their share of FICA taxes.
7. Identify resources within the organization or externally to timely complete this process.
BDO can assist organizations in completing these steps.
To ensure compliance with Treasury Department regulations, we wish to inform you that any tax advice that may be contained in this
communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding taxrelated penalties under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or
recommending to another party any tax-related matters addressed herein.
Material discussed in this tax alert is meant to provide general information and should not be acted on without professional advice tailored
to your firm's individual needs.
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