Doctors-in-training tax-refund blunder?

Philip Kousoubris, a Boston neuroradiologist who did his residency training at Bryn Mawr Hospital from 1993 to 1997, heard through the grapevine recently that doctors who trained during that era and until 2005 were getting tax refunds.

The payments were settlements of a long-running dispute between medical-residency programs and the IRS over whether residents were students or employees. At issue was withholding for FICA, taxes used for Social Security and Medicare.

Compared with what full-fledged doctors make, the settlements do not amount to much. Kousoubris, who made $30,000 to $40,000 while a resident, might be owed refunds of about $2,300 to $3,100 per year.

But he did not see any point in leaving money on the table.

"Not to get a rebate from the government seems silly in this economy," he said.

To his irritation, Kousoubris, who now works in Boston, learned that former Bryn Mawr residents are eligible for refunds for only one quarter of 2005 unless they personally filed paperwork with the government contesting the tax. Kousoubris, who had no idea as a resident that there was a tax dispute, did not. Many hospitals filed claims for themselves and their residents. Doctors who trained at those hospitals are getting refunds almost automatically.

Kousoubris and Tom Gallagher, a New Jersey radiologist who was a resident at Bryn Mawr from 2000 to 2004, have tried - unsuccessfully - to find out how the ball got dropped at Bryn Mawr. Both know doctors who trained at other hospitals who have been notified that they will get money back.

Kousoubris said Thomas Jefferson University Hospital, where he did a fellowship, and Wills Eye Hospital, where his wife was a resident, have both notified the couple that they may be eligible for refunds.

In response to questions from The Inquirer, Cecilia Cummings, a spokeswoman for Main Line Health, which owns Bryn Mawr, said only: "We are aware of this issue, and we are reviewing it internally."

The health system currently has 115 medical residents. Nationwide, there are 100,000.

Employers make matching contributions to FICA. Hospitals that contested the old filing rules are also receiving refunds.

The Association of American Medical Colleges (AAMC) estimates that residents and their training programs pay $700 million in FICA taxes annually. In November, the U.S. Supreme Court is scheduled to hear a case brought by the Mayo Clinic and the University of Minnesota contesting the current FICA rules for residents, said Ivy Baer, director and regulatory counsel for AAMC. Those rules continue to classify residents as employees who must pay the tax.

The IRS announced in March that it had made an "administrative determination" to give medical residents a "student exception" for periods before April 1, 2005. The catch was that they or the institution they had worked for had to have already filed quarterly refund claims.

Judith Kindell, a tax-law specialist made available by the IRS, said she did not know how many hospitals, medical schools, or individuals had applied for refunds or how much money would be returned.

She said the tax regulations were "clarified" after April 1, 2005.

Baer said the tax dispute was well-known among teaching hospitals before 2005. "Everybody knew about it," she said, "and filing a protective claim is not a big deal." She said AAMC also did not know how many hospitals or residents had filed claims. The association has estimated that there were outstanding claims from 100 institutions, she said.

Before 2005, the IRS determined who was eligible for a student exemption with a "facts and circumstances" test, Baer said. The new rules call every resident who works at least 40 hours a week an employee. All residents work that much. AAMC argues that residents at many hospitals spend large amounts of their time learning and cannot get independent jobs as physicians until they have completed the training. At Mayo and Minnesota, residents paid tuition and enrolled in classes, she said.

Kousoubris and Gallagher said they were unaware of the tax controversy until recently. Both said that, while they were residents, they worked hard, but also attended lectures twice a day.

Asked if he thought of himself as a student, Kousoubris said with a laugh, "I saw myself as slave labor, but literally, whatever I was doing, I had my nose in a book all day."