Mayo Clinic wins $11.5 million judgment in tax refund case against United States

Client(s) Mayo Clinic

After a five-day bench trial, Jones Day, on behalf of Mayo Clinic, won a tax refund case of more than $11 million (plus statutory interest) in a lawsuit against the United States in federal court in St. Paul Minnesota. Mayo proved that it is an "educational institution" under 26 U.S.C. § 170(b)(1)(A)(ii) and thus was exempt from certain tax for tax years 2003, 2005, 2006, 2007, 2010, 2011, and 2012. Mayo had paid unrelated business income taxes on certain investments for those tax years and sought a refund, which the government denied. In 2019, Mayo Clinic won summary judgment after the court found that the U.S. Department of the Treasury's regulation defining certain requirements for the tax exemption was invalid. Mayo Clinic v. United States, 412 F. Supp. 3d 1038, 1042 (D. Minn. 2019). In 2021, the Eighth Circuit struck a portion of the Treasury Regulation and then reversed the grant of summary judgment because "[a]pplying the statute to Mayo is not possible on this record." The case returned to the District of Minnesota for trial in front of Judge Eric C. Tostrud in April 2022 to sort out the "difficult and fact-intensive issues of fact and law." Mayo Clinic v. United States, 997 F.3d 789, 802 (8th Cir. 2021) Judge Tostrud's task at trial was to "separate[e] out the wheat from the chaff—the educational from the noneducational"; if he found "a single non-educational purpose" that was "substantial in nature," Mayo would not qualify for the exemption. Id. In his Findings of Fact and Conclusions of Law, Judge Tostrud found that Mayo Clinic is "organized and operated exclusively for . . . educational purposes," and therefore that it is entitled to the full refund claimed.

The case was highlighted as one of the top federal tax cases of 2022.

Mayo Clinic v. United States of America, No. 0-16-cv-03113 (D. Minn.)