IRS is late in paying back $11.5 million, so Mayo Clinic is asking for interest
In December, a judge ruled that the IRS owed Mayo Clinic a refund. Since the government hasn't paid yet, Mayo wants interest totaling $1.5 million — and counting — added to the bill.
ROCHESTER — In the wake of winning an $11.5 million judgment against the IRS in December, Mayo Clinic is back in court to demand interest totaling more than $1.5 million.
On Jan. 6, 2023, Mayo Clinic filed a motion asking U.S. District Judge Eric Tostrud to clarify the specific amount of statutory interest owed by the IRS since the judge in the clinic’s favor on Dec. 10, 2022.
“Mayo respectfully requests that the Court clarify its judgment to specify that $1,557,569.50 in prejudgment interest was due and owed by the USA on the date that judgment was entered, that interest accrued at a rate of $1,256.40 per day between December 10 and December 31, 2022, and that interest has continued to accrue since January 1, 2023 at a rate of $1,617.62 per day,” according to the filing.
Since the U.S. government did not pay back the $11,501,621 “with statutory interest” on the day the final ruling was filed, Mayo Clinic says the meter is running and the interest is still adding up.
The origins of this case started in 2009, when the IRS issued a notice of "adjustment" for what ultimately became seven years of Mayo Clinic filings — 2003, 2005-07, and 2010-12. The IRS billed Mayo Clinic for $11.5 million of taxes on revenue generated by "debt-financed real-estate investment."
While Mayo Clinic paid the $11.5 million, the clinic filed a lawsuit in 2016 claiming it should be tax-exempt and asking for the money back.
That type of revenue is not taxed for nonprofit educational institutions, like universities or schools. For other tax-exempt institutions, that type of revenue is considered “Unrelated Business Income,” which is taxable.
After years of back and forth, Judge Tostrud ruled in Mayo Clinic’s favor, writing that “... during the refund years, Mayo was organized and operated exclusively for educational purposes and had no noneducational purpose that was substantial in the relevant sense.”
It is not known if the U.S. government intends to appeal that ruling as did with an earlier one in 2019 , which led the case to be returned to Tostrud.
After the most recent ruling in December, Mayo Clinic Communications Manager Kristy Jacobson released a statement.
"We are pleased with the court’s decision, which affirms the integral role that education has had in Mayo Clinic’s mission from its earliest days. While Mayo Clinic is largely exempt from paying income taxes due to its nonprofit status, it still pays millions of dollars of taxes annually from various activities," according to the statement. "Today’s ruling will help ensure that Mayo Clinic receives the same treatment under federal tax laws as other educational organizations. Mayo plans to invest the refunded money to continue support for our three-shield mission."