Adverbs and Adjectives in Tax Exemption: Mayo Clinic v. United States and Unrelated Debt Financed Income
Mayo Clinic filed its response brief in its $11.5 million dollar tax refund case last week. This will be the 8th Circuit’s second consideration. It previously rejected Treas. Reg. 1.170A-9(c)’s insistence that only formal instruction – not just any Tom, Dick, or Harry educational organization — is excluded from the tax on real property unrelated debt financed income. But the Court remanded the case and instructed the district court to determine whether the Mayo clinic is primarily educational, even if not via formal instruction.
On remand, the lower court ruled that Mayo is primarily educational for purposes of the unrelated debt financed income tax even though it is also very much engaged in patient care. The government is appealing once again, asserting that the presence of a substantial non-educational purpose, in this case patient care, means Mayo is not an exclusively educational organization. Indeed, the government argues that patient care is Mayo’s substantial primary purpose, not just an insubstantial non-educational purpose. Mayo, having successfully dispensed with the formal instruction requirement, argues that patient care is part and parcel of its teaching and learning activities — that patient care is substantially related to education, in effect, and thus is not a substantial non-educational activity. The simplest way to decide this case is to get out of the adverb and adjective weeds and ask whether patient care is part of Mayo’s pedagogy. From that vantage, I think the government is gonna take an L in this case.
Adverbs and adjectives, that’s why this case has taken more than 20 years. Here is a handy-dandy guide:
1. Exclusively – pretty much everything but not everything; singularly substantial, more substantial than anything else; almost all the time but not quite all the time. As in “the charity is exclusively operated for stray animal care, but it also sells leashes, collars, and dog food.”
2. Primarily — mostly but not literally exclusively. Nothing is literal. See Exclusively.
3. Substantial or substantially — a whole lot relatively speaking, even if neither primarily nor exclusively; not just insubstantial but more than insubstantial; or very necessary as in “substantially related to the charitable purpose.” Pay attention, this will be on the exam.
4. Insubstantial or insubstantially– infrequently, a little bit, every now and again. A non-taxed side hustle, as in “the organization provides transportation to elderly folk, but once in a while it operates a fleet of uber cars and puts on a bake sale.”
5. More than insubstantial or more than insubstantially – greater than insubstantial but not necessarily substantially, which should not be confused with primarily or exclusively. A usually taxed but not necessarily disqualifying side hustle, as in “the organization provides transportation to the elderly but it also provides uber transportation fairly regularly to everyone else.”
6. Regularly — as often as a comparable for-profit. A consistent side hustle, as in “the organization makes extra money every month by offering year-round uber rides.” See more than insubstantial.
There. That oughta clear things up.
darryll k. jones