US Supreme Court To Consider Tax Rule On Medical Residents

Yesterday, the U.S Supreme Court decided they would hear a case regarding the payment of social security taxes for students of medical colleges and teaching hospitals. As the Wall Street Journal explains, the law being challenged is an old Treasury Department rule asserting that medical residents and other "full-time employees" cannot qualify for the general student exemption from Social Security taxes.

At stake is the tax treatment of medical residents nationwide, of which there are currently about 100,000, and $700 million in annual revenue to the federal government, according to court papers.

The Mayo Clinic and the University of Minnesota challenged the Treasury ruling and have also sought refunds for Social Security taxes they already paid on behalf of medical residents.

The St. Louis-based 8th U.S. Circuit Court of Appeals sided with the IRS in a ruling last June.

In their petition to the Supreme Court, the Mayo Clinic and University of Minnesota said four other federal appeals courts have sided with hospitals against the government on the issue. That leaves medical residents in the 8th Circuit--which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota--subject to taxes that their peers elsewhere in the U.S. do not have to pay, they argued.

The Social Security tax represents 12.4% of wages. Half of the tax is paid by the employer and half by the employee. For a medical resident earning a $50,000 stipend, that represents $3,100 paid by the resident and $3,100 paid by the hospital.

Continue reading at Wall Street Journal.com…

IRS Silent So Far On New US Tax Rules For Inherited Wealth

From TradeSignalOnline.com:

The U.S. Internal Revenue Service is taking a wait-and-see approach on issuing guidance dealing with taxes on inherited wealth, unsure whether Congress will act in the next several months to change the rules again.

Advisers to the wealthy say they are left without a roadmap on a number of issues related to the disposition of assets left behind by those who have died since Jan. 1. In particular, they are looking to IRS for rules on how a new capital gains-tax regime that took effect this year will apply to estates.

"There are no forms that give us any idea how or what we are supposed to report," said Stephen Litman, an estate planner at the Minneapolis law firm of Leonard, Street and Deinard. "This leads to significant administrative challenges for families."

Congress is weighing whether to set permanent rules for taxing estates, and whether to make those rules retroactive to the beginning of this year, but such action is weeks, and maybe even months, away.

The 2001 tax-cut law was aimed at gradually eliminating estate taxes, but repeal proponents at the time lacked the congressional majorities needed to do so permanently.