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CHILDREN'S HOSP. NATL. MED. CTR. v. UNITED STATES

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA


November 24, 1986

Children's Hospital National Medical Center, Plaintiff,
v.
United States of America, Defendant

The opinion of the court was delivered by: SPORKIN

MEMORANDUM

 Judge Stanley Sporkin

 This case is before me on cross-motions for summary judgment. At issue is whether the plaintiff, a not-for-profit hospital, is entitled to a refund of a certain portion of Federal Insurance Contributions Act ("FICA"), 26 U.S.C. § 3101 et seq., taxes paid on behalf of itself and certain of its employees for the years 1980 and 1981.

 The claim for refund arises out of employment taxes paid in connection with plaintiff's operation of a so-called 403(b) tax deferred annuity program. See 26 U.S.C. § 403(b). The Internal Revenue Service ("IRS") has long held that salary reduction amounts used to purchase these tax-deferred annuities were "wages" subject to FICA taxes, although not "wages" for employee income tax purposes. See Revenue Ruling 65-208, 1965-2 C.B. 383. In Rowan Companies, Inc. v. United States, 452 U.S. 247, 68 L. Ed. 2d 814, 101 S. Ct. 2288 (1981), the Supreme Court appeared to overturn this Revenue Ruling by holding that Congress intended the definition of wages for FICA purposes to be the same as the definition of wages for income tax purposes.

 Two years later, Congress reaffirmed that it stood by the Internal Revenue Service's original interpretation of its intention by clarifying that the definition of wages subject to FICA taxes included these types of payments, see 26 U.S.C. 3121(a)(5)(D), and by reiterating that it agreed with the IRS's interpreting "wages" for income tax purposes differently from "wages" for FICA purposes. See 26 U.S.C. § 3121(a)(20). Because there was later some confusion about the effective date of these pronouncements, Congress made it clear that this interpretation had been its intention all along. See Section 2662(g) of the Deficit Reduction Act of 1984, Pub.L. No. 98-369, § 2662(g) 98 Stat. 494, 1160. Nonetheless, Section 403(b) employers began suing, seeking a refund for the time period between the Rowan case and Congress's subsequent 1983 changes in the Code.

 Despite the creativity of plaintiff's argument, it has met with little success. The precise issue presented in this case has been decided in favor of the government by the United States Court of Appeals for the Second Circuit in Canisius College v. United States, 799 F.2d 18 (2d Cir. 1986), and by the United States Court of Appeals for the Third Circuit in the case of Temple University v. United States, 595 F. Supp. 94 (E.D. Pa. 1984); aff'd 769 F.2d 126 (3d Cir. 1985), cert. denied, 476 U.S. 1182, 54 U.S.L.W. 3823, 91 L. Ed. 2d 544, 106 S. Ct. 2914 (1986). In addition, a number of District Courts have also decided the issue in favor of the United States. See e.g., Xavier University v. United States, 633 F. Supp. 15 (S.D. Ohio 1986), appeal pending, No. 86-3328 (6th Cir. 1986); New England Baptist Hospital v. United States, 634 F. Supp. 810 (D. Mass. 1986); Trustees of Mease Hospital, Inc. v. United States, 86-2 U.S. Tax Cas. (CCH) P 9588, 58 A.F.T.R.2d (P-H) 5660 (M.D. Fla. 1986).

 After having thoroughly reviewed the record and the briefs of the parties, I likewise choose to decide the case in favor of the United States. I am particularly persuaded by the reasoning of Judge Rosenn in the Temple University case, supra. Additionally, I think it is important to note that to accept the plaintiff's position would result in the taking away of at least partial social security coverage from certain of plaintiff's employees, a result I am not anxious to reach.

 Accordingly, the United States's motion for summary judgment will be granted and the motion for summary judgment by the plaintiff will be denied. An appropriate order accompanies this opinion.

 ORDER

 Upon consideration of the motions for summary judgment, the oppositions thereto, oral argument on the motions, and the entire record herein, and for the reasons stated in the accompanying memorandum opinion, it is hereby

 ORDERED that the defendant United States's motion for summary judgment be granted and that the plaintiff's motion for summary judgment be denied.

19861124

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