TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, June 28, 2018

Is The Mayo Clinic’s Primary Activity Health Care Or Education? Millions In Taxes Ride On The Answer.

MayoNonprofit Quarterly:  Mayo Clinic’s Primary Activity Could Cost It Millions in Taxes, by Michael Wyland:

When people think of the Mayo Clinic, they think of doctors and nurses providing health care to patients from all over the world. Mayo is also well known for its rich history of medical research and education. A seemingly minor provision of the US Tax Code, however, makes it very important to define which aspect of the organization is its primary activity.

Here’s the details: 501c3 organizations that make money on debt-financed real estate investments typically owe unrelated business income taxes (UBIT) because that income is unrelated to their charitable purpose. However, educational institutions are exempted from this provision and do not owe the tax.

Mayo Clinic claims its primary function is as an educational institution. They have 3,800 enrolled students and provide part-time instruction for up to 100,000 health care professionals annually. Mayo says it meets the legal standard for an educational institution: “a regular faculty and curriculum for a regularly enrolled group of students attending at a place where teaching is normally carried out.” Based on this, Mayo is seeking more than $11 million in refunds of taxes paid since the early 2000s on its debt-financed real estate investments.

The IRS, on the other hand, looks at Mayo’s March 2018 $16.3 billion balance sheet and $2.6 billion in health care services revenue earned in the first quarter of the year and determines that its primary activity is health care. Adding strength to this finance-based argument is the omission in Mayo’s financials of any specific mention of revenue earned from providing educational services.

Minneapolis Star-Tribune, Is Mayo Primarily a Clinic? Millions in Tax Refunds at Stake

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