20 CFR 404.1004 and 404.1026
The State of Arizona had timely requested a review of three assessments of contributions under its agreement regarding a resident physician performing services for the Maricopa County General Hospital in the years 1970 through 1974.
The hospital had reported both its resident physicians and interns as employees until July 1, 1970. At that time, the hospital entered into written contracts with these individuals describing them as independent contractors. The State's position was that: (a) the individuals were independent contractors and not employees of the hospital; (b) they were students whose services were excluded from coverage under the student exclusion; and (c) the amounts they received were scholarships or fellowships within the meaning of Section 117 of the Internal Revenue Code and not wages.
The Commissioner found on review that the resident physicians and interns were subject to the hospital's control as to the manner and means of performance of their services and were, therefore, employees under the common-law rules. They worked full-time at the hospital under the supervision of a staff physician who could change the manner in which they administered medical treatment to patients. Moreover, in the written contracts, they agreed to abide by hospital policies and procedures, medical staff rules and regulations.
The Commissioner further found that their services were not excluded from coverage under the student exclusion. The 1965 Amendments to the Social Security Act provided that effective January 1, 1966, the services of medical and dental interns would no longer be excluded from coverage. These individuals would be covered on the same basis as other employees working for the same employer. The Social Security Administration has always held that resident physicians are not students. This position was supported by a decision of the U.S. Court of Appeals (St. Luke's Hospital Association of Cleveland, Ohio, of the Methodist Church v. U.S., 333 F.2d 157 (6 Cir. 1964), cert. denied 379 U.S. 963 (1965)). The court held that the residents-in-training were not exempt, under 26 U.S.C. 3121(b)(13), from the statutory definition of employment and thus the hospital was required by pay Federal Insurance Contributions Act taxes on their wages.
The Commissioner also found that the amounts paid to the interns and residents constituted wages. While the question of whether a payment is a scholarship or fellowship under Section 117 of the Internal Revenue Code is a matter for determination by the Internal Revenue Service, it appeared clear in this case that the payments represented compensation for services. As such, these payments would be wages as defined in section 209 of the Social Security Act.
The Commissioner therefore affirmed the assessments and the basis on which they were made.
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