In this article, Alan Horowitz and George Clarke discuss the decision in Mayo Foundation for Medical Education and Research v. U.S., No. 09-837, in which the U.S. Supreme Court unanimously held that the Treasury Department acted reasonably in promulgating a rule that says medical residents are not exempt from paying employment taxes under the Federal Insurance Contributions Act. In the 8-0 opinion written by Chief Justice John Roberts, the justices deferred to an Internal Revenue Service regulation interpreting the student exemption to FICA, in which the Service said employees normally scheduled to work 40 or more hours per week cannot claim a student exemption.
The decision unquestionably raises the bar for a frontal assault on Treasury regulations. This article examines the deference standard adopted by the Mayo court and holds up both the 2009 final Section 482 services rules and the 2008 temporary cost sharing rules against the prism of that standard.