*§ 1.1 DEFINITION OF NONPROFIT ORGANIZATION
(a) Nonprofit Organization Defined
p. 5. Insert as fourth paragraph, before heading:
Use of the word corporation in the law context usually means both nonprofit and for-profit ones, unless clearly stated otherwise. This point was nicely illustrated in the case of a tax-exempt teaching hospital that is organized as a nonprofit corporation under state law and is tax-exempt under the federal tax law as a charitable corporation. It is required to pay Federal Insurance Contributions Act (FICA) taxes. An exclusion is available from the FICA taxes for students at educational institutions.6.1 An IRS regulation, promulgated in 2005, basically states that medical residents are not students for this purpose. The hospital sued for a refund of FICA taxes it paid before the effective date of the regulation; the IRS eventually conceded this point. The parties disagreed, however, as to the interest rate that applies with respect to the tax refund.6.2 A lower interest rate applies to corporations. The hospital asserted that it was entitled to a higher rate of interest on its tax refund, on the grounds that the statutory reference to corporations in this context is inapplicable to nonprofit organizations that happen to be organized as corporations. The ...