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 312-616-4664 [email protected] The Tax Practice at BDO is among the largest tax advisory practices in the United States. With 37 offices and more than 400 independent alliance firm locations in the United States, BDO has the bench strength and coverage to serve you. BDO is the brand name for BDO Seidman, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,138 offices in 115 countries. www.bdo.com BDO Seidman, LLP, a New York limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com. 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. Copyright © 2010 BDO Seidman, LLP www.bdo.com