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Supreme Court Denies UT’s Bid for Med Students FICA Refund

Client Alert | 1 min read | 05.05.15

The Supreme Court denied without comment the University of Texas' petition to recoup $11 million in Federal Insurance Contributions Act (FICA) taxes paid with respect to medical residents, letting stand a Fifth Circuit decision denying the refunds because the residents were not "students."

UT's argument was based on Texas's "§ 218 agreement" with the Social Security Agency (SSA), pursuant to which Texas opted into the Social Security system for its employees. The § 218 agreement excludes services performed by students, and therefore such services are exempt from FICA tax. Applying a contractual approach to Texas's § 218 agreement, the Fifth Circuit noted that at the time Texas entered into the agreement, the SSA clearly stated its position that medical residents did not fall within the meaning of the term "student" for purposes of the student exclusion. There was no evidence presented that Texas had a different understanding.

In its petition to the Supreme Court, UT argued that the Fifth's opinion conflicted with a similar Eighth Circuit case, Minnesota v. Apfel, which potentially caused a difference in law between the Eighth Circuit and the rest of the country. After Apfel, however, the IRS adopted regulations stating that a school employee who works 40 or more hours per week is not exempt from FICA taxes. Those regulations are applicable for services performed on or after April 1, 2005.

Crowell & Moring's Education Group will continue to monitor cases and legislation important to post-secondary education institutions, ensuring awareness of any changes.

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Client Alert | 1 min read | 07.08.26

CAS Board Publishes Final Rule Rescinding CAS 404, 408, 409, and 4117

As part of its ongoing effort to conform the Cost Accounting Standards (“CAS”) to generally accepted accounting principles (“GAAP”), the CAS Board published a final rule rescinding CAS 408 (Accounting for costs of compensated personal absence) and CAS 411 (Accounting for acquisition costs of material).  The CAS Board also rescinded CAS 404 (Capitalization of tangible assets) and CAS 409 (Depreciation of tangible capital assets) but retained certain requirements of CAS 404 and 409, which will be located in new paragraphs of CAS 405 (Accounting for unallowable costs).  Specifically, the CAS Board retained the requirements currently located at CAS 404-50(d)(1), CAS 409-50(e)(5), CAS 409-50(j)(1), and CAS 409-50(j)(4), which the CAS Board explained are necessary to protect the Government’s interests.  Otherwise, the CAS Board determined that the requirements of CAS 404, 408, 409, and 411 overlapped with GAAP such that GAAP “may be applied reasonably as a substitute for CAS to support contract cost and pricing.”...

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