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January 11, 2011
Supreme Court Action Today
The Supreme Court released two opinions today, one of which is the first opinion written by Justice Kagan since her elevation to the Court. That case is Ransom v. FIA Card Services, N.A (09-907). Ransom declared bankruptcy in 2006. The Bankruptcy Code allows for certain exemptions in calculating disposable income to be used to pay down creditors. These are derived from various tables specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for categories specified as Other Necessary Expenses issued by the IRS for the area in which the debtor resides. The IRS has a supplemental guideline called the Collection Financial Standards which is a guide to the tables and how to use them, though this document was prepared to help calculate a taxpayer's ability to pay overdue taxes.
One of the costs listed in the Local Standards is for transportation costs related to automobile ownership. There are two different exemptions. One is for ownership costs, which cover monthly loan or lease payments; the second is for operation costs. The Collection Financial Standards make this distinction. Ransom owned a vehicle worth $14,000 which he owned outright. He claimed both the ownership and operational exemptions. The lower courts held he was not entitled to the ownership exemption as he did not owe any money on the car. The Court took this case to settle the split in the Circuits as the law of three others held otherwise.
The Court made its determination that Ranson was not entitled to the ownership exemption by looking at the language of the statute and the word "applicable" in particular. The statute reads:
“The debtor’s monthly expenses shall be the debtor’sapplicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] for the area in which the debtor resides.” §707(b)(2)(A)(ii)(I).
Ransom's interpretation suggested that the term "applicable" meant anything listed in the tables would apply. Justice Kagan said that Congress meant the word as a filter, meaning if he didn't owe any money on the car, then he would be ineligible to to use that category of exemption. The decision was 8-1 with Justice Scalia dissenting. His dissent is notable because he - say it ain't so Nino - uses foreign law to illustrate his point:
I disagree. The canon against superfluity is not a canon against verbosity. When a thought could have been expressed more concisely, one does not always have to cast about for some additional meaning to the word or phrase that could have been dispensed with. This has always been understood. A House of Lords opinion holds, for example, that in the phrase “‘in addition to and not in derogation of’” the last part adds nothing but emphasis. Davies v. Powell Duffryn Associated Collieries, Ltd.,  A. C. 601, 607.
This should should send a few shudders through some in the political class. I mean, the opinions of the three American Circuits that held otherwise weren't good enough?
The second case involves whether "doctors who serve as medical residents are properly viewed as “student[s]” whose service Congress has exempted from FICA taxes under 26 U. S. C. §3121(b)(10)." The case is Mayo Foundation for Medical Education and Research v. U.S. (09-837). The residency program at Mayo can last three to five years and trains doctors through hands-on experience. Mayo pays these residents stipends ranging between $41,000 and $56,000 and provides them with health insurance and vacation benefits. The residents are also required to attend lectures, read textbooks, articles, take exams, and undergo physician evaluations. The bulk of their time, however, is spent working with patients.
Congress excluded “service performed in the employ of . . . a school, college, or university . . . if such service is performed by a student who is en-rolled and regularly attending classes at such school, college, or university” from FICA and Social Security taxes. The Treasury Department and the Social Security Administration both had regulations which handled situations on a case by case basis. The Treasury Department changed its rules in 2004 and specifically changed its regulations to account for residents who put in more than 40 service hours per week as not incident to pursuing a course of study and therefor not exempt from FICA. The trial court held that the rules were inconsistent with the statute. The Eighth Circuit Court of Appeals reversed, holding that under Chevron v. Natural Resources Defense Council, the regulation is a permissible interpretation of the statute.
The bulk of the opinion covers whether Chevron, or National Muffler Dealers Assn., Inc. v. United States applied to whether the regulation was a reasonable interpretation of a statute that does not define "students" or apply the law in a medical resident context. National Muffler offers a less deferential standard to regulations that change long standing practices. The Court resolved this in favor of Chevron, stating that a review of tax regulations can be guided to the same extent as other regulations. The regulation in this litigation was promulgated as a "gap-filling" regulation under general authority. In this case, the change was a reasonable interpretation of the statute and a reasonable exercise of authority under the statute. [MG]