NYT: Court Rules on Debtors and Doctors in Training

By ADAM LIPTAK

WASHINGTON — Medical residents must pay Social Security taxes, the Supreme Court ruled on Tuesday.

In a second decision, this one featuring the first opinion from Justice Elena Kagan, the court ruled that some bankrupt debtors who own their cars outright are not entitled to shield a standard monthly amount for the “ownership costs” of their vehicles.

The case concerning medical residents considered a federal law that exempts students from paying Social Security taxes. Allowing residents to take the exemption would cost the federal government $700 million a year, the Justice Department said.

In announcing the decision, Chief Justice John G. Roberts Jr. said the question it presented boiled down to whether residents were “workers who study or students who work.”

Residents often work 50 to 80 hours a week, the chief justice wrote. They can make $50,000, and they often receive health insurance and paid vacations. But they work under the supervision of more senior doctors who also instruct them, and they attend lectures and take exams.

Chief Justice Roberts, writing for a unanimous eight-member court, said the law itself did not clearly answer whether residents were mainly workers or students. But he said a 2004 Treasury Department regulation had drawn a reasonable line.

The regulation says that students who would otherwise qualify for the exemption lose it if they work more than 40 hours per week, even if they learn from what they do.

“Regulation, like legislation, often requires drawing lines,” the chief justice wrote. “Focusing on the hours an individual works and the hours he spends in studies is a perfectly sensible way,” he went on, of drawing the line between students and workers.

Justice Kagan recused herself from the case, Mayo Foundation v. United States, No. 09-837, because she had worked on it as United States solicitor general.

But she wrote the majority opinion in the day’s second decision, Ransom v. FIA Card Services, No. 09-907, and she announced it from the bench in a crisp and conversational style.

The dispute in that case also concerned the meaning of a federal law, this one allowing some debtors a standard monthly allowance for car-ownership costs.

Jason M. Ransom, a Nevada man, claimed the applicable $471 allowance for a 2004 Toyota he owned outright. A credit card company seeking repayment objected, saying that only people making loan or lease payments should qualify for the deduction.

Over the course of his five-year repayment plan, the deduction would have allowed Mr. Ransom to shield $28,000 from creditors.

Justice Kagan, writing for the eight-justice majority, said “a debtor who does not make loan or lease payments may not take the car-ownership deduction.”

She acknowledged that the ruling could give rise to occasional curious outcomes. For instance, a debtor with only a single loan payment remaining would be entitled to the entire deduction.

“But this kind of oddity,” she wrote, “is the inevitable result of a standardized formula.”

She added that allowing Mr. Ransom to take advantage of the deduction could produce even odder results. “On Ransom’s view, for example, a debtor entering bankruptcy might purchase for a song a junkyard car” to take advantage of the deduction, Justice Kagan wrote.

Justice Antonin Scalia dissented, saying his colleagues had misread the law and misunderstood their own roles. “The point of the statutory language is to entitle debtors who own cars to an ownership deduction,” he wrote.

He was scornful of the majority’s effort to avoid odd practical results. “Our job, it seems to me, is not to eliminate or reduce those oddities,” he wrote, “but to give the formula Congress adopted its fairest meaning.”

And he countered what he called the “imagined horrible” of a wreck bought just to take advantage of the ownership deduction with one of his own.

“A debtor entering bankruptcy might purchase a junkyard car for a song plus a $10 promissory note payable over several years,” Justice Scalia wrote. “He would get the full ownership expense deduction.”

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