Justices Hear Case on Taxing of Students

WASHINGTON — “How do you draw the line,” Justice Sonia Sotomayor asked at a Supreme Court argument on Monday, “between a student who is working and a worker who is studying?”

The case concerned medical residents, who work long hours as part of their studies, providing care to hospital patients. They are often paid more than $50,000 a year.

Under a 2005 Treasury Department regulation, residents are subject to Social Security taxes, notwithstanding a statutory exemption for work performed by students who regularly attend classes, as residents do. The regulation says that students who would otherwise qualify for the exemption lose it if they work more than 40 hour per week, even if they learn from what they do.

According to a brief filed by residency programs that are seeking tax refunds, there are about 100,000 residents in 8,000 programs nationwide. According to a government brief, medical residents are subject to about $700 million in Social Security taxes each year.

Theodore B. Olson, a lawyer representing the programs seeking refunds, told the justices that they are fundamentally educational, including “a rigorous core curriculum” with “hundreds of classes, conferences, lectures, laboratory research, written exams, grades and intensive, hands-on clinical patient training under the supervision of faculty members.”

But Matthew D. Roberts, a lawyer for the government, said residents were “workers who are working between 50 and 80 hours a week over many years for substantial salaries” and so “are precisely the kind of workers whose employers should be supporting the Social Security system and who should be earning credit towards disability and survivor benefits.”

The fact that residents may learn something in the process should not be determinative, Mr. Roberts added.

“Many, many individuals pursue their jobs for the primary purpose of learning, like judicial law clerks, like other apprentices,” he said. “But they are not covered by this exemption.”

Justice Ruth Bader Ginsburg responded that the law only allows the exemption to students enrolled and regularly attending classes at schools, colleges and universities.

Mr. Roberts said that helped his case. Since there is no general exemption for wages paid to apprentices, he said, the Treasury Department made a reasonable judgment in interpreting the law so as not to create “a special exemption for apprentices who happen to be employed by schools, colleges and universities.”

The argument in the case, Mayo Foundation v. United States, No. 09-837, also included questions about Supreme Court clinics at law schools, architectural apprentices and work-study programs.

Chief Justice John G. Roberts Jr. said the difficulty of distinguishing among them was a reason to allow the Internal Revenue Service to decide the matter.

“This is basically a very familiar situation of an apprentice who is both an employee and both a student, and to try to draw the line in some categorical way doesn’t make sense,” he said. “The only way you can draw the line is to have somebody say: This is going to be the line. And if anybody is going to say it, it ought to be the I.R.S.”

But Mr. Olson said the particular regulation at issue was arbitrary and counterintuitive. “If you are too much of a student, you are not a student,” he said. “It is backwards.”

Justice Sotomayor, the argument’s most active questioner, said many jobs have an educational component. “Aren’t we learning in every case that we’re hearing?” she asked, referring to the members of the court.