Mayo Clinic's $11.5 Million Suit Will Test Tax Exemption's Scope
Nonprofit and Tax-Exempt Organizations attorney Kelly Hellmuth was quoted in a Bloomberg Law article analyzing a federal appellate court case that could affect the ability to be classified as an educational organization by the IRS for tax exemption purposes. The U.S. Court of Appeals for the Eighth Circuit will hear arguments on whether the Mayo Clinic qualifies as one such organization; the U.S. contends the center's non-educational functions such as patient care are too substantial for it to be deemed educational, whereas Mayo argues the government wrongfully excludes non-classroom activities like clinical practice in its criteria. Ms. Hellmuth noted a ruling in favor of Mayo Clinic could open an opportunity for online educational platforms that lack physical instructional spaces to become tax-exempt.
She also talked about the potential effects of the U.S. Supreme Court's Loper Bright decision that overturned Chevron deference, as the section of the tax code that defines educational institutions does not contain an express directive to expand that definition through promulgating regulations. Because the IRS relies on its general authority to issue rules clarifying parts of the tax code, this area in particular could be vulnerable to challenges. However, Ms. Hellmuth said, it's not certain whether the Eighth Circuit will touch the question at all.
"The court may or may not take up a Loper Bright argument in determining its understanding of what an educational institution is, and whether it should give deference to the IRS regulations that say it should be primarily educational," she said.
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