Mayo Clinic secures Eighth Circuit decision affirming $11.5 million judgment
Client(s) Mayo Clinic
The Eighth Circuit affirmed a trial court victory in favor of Mayo Clinic, awarding over $11 million (plus statutory interest) in a closely watched and precedent-setting case. Mayo, like many other academic medical centers around the world, uses investment income to fund its mission, particularly its massive research and educational endeavors, which operate at a loss. The IRS claimed Mayo owed unrelated business income tax on its debt-financed real-estate income. Mayo paid the tax and sued the IRS, seeking a refund for certain years between 2003-2012. Mayo claimed that it did not owe UBIT because it qualified as an "educational institution" because none of its substantial functions were unrelated to education. The court adopted that position in an opinion that spanned over 98 pages of detailed factual findings.
The Government appealed the trial court's decision, arguing that health care per se could not qualify as "educational" for purposes of the tax code. The Eighth Circuit disagreed and affirmed the trial court opinion. After extensively surveying the trial court's excellent factual findings, the Court concluded that Mayo was, indeed, an educational organization entitled to a UBIT exemption. The majority adopted Mayo's legal arguments regarding the tax statute. The concurring judge rested his decision instead of the court's fact findings, seeing no clear error in the District Court's findings of fact that Mayo would have prevailed even using the Government's legal standards.
Mayo Clinic v. United States of America, No. 0-16-cv-03113 (D. Minn.); No. 23-2246 (8th Cir.)
