United States Court of Appeals For the Eighth Circuit ___________________________ No. 19-3189 ___________________________ Mayo Clinic, a Minnesota Corporation lllllllllllllllllllllPlaintiff - Appellee v. United States of America lllllllllllllllllllllDefendant - Appellant ____________ Appeal from United States District Court for the District of Minnesota ____________ Submitted: October 20, 2020 Filed: May 13, 2021 ____________ Before SMITH, Chief Judge, LOKEN and GRUENDER, Circuit Judges. ____________ LOKEN, Circuit Judge. Mayo Clinic (“Mayo”), a Minnesota nonprofit corporation, oversees healthcare system subsidiaries and operates the Mayo Clinic College of Medicine and Science (“Mayo College”). Mayo is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (IRC), 26 U.S.C. § 501(c)(3).1 After an audit in 2009, the Internal Revenue Service concluded that Mayo owed unrelated business income tax (“UBIT”) on certain investment income it received from the investment pool it manages for its subsidiaries. The IRS issued a Notice of Proposed Adjustment and reaffirmed its position in a 2013 Technical Advice Memorandum. At issue is $11,501,621 in UBIT for tax years 2003, 2005-2007, and 2010-2012. Mayo2 paid the tax and brought this refund action. The issue, briefly stated, is whether Mayo is a “qualified organization” exempted from paying UBIT on “unrelated debt-financed income” under IRC § 514(c)(9)(C)(i). Qualified organizations include “an organization described in section 170(b)(1)(A)(ii) . .” Section 170(b)(1)(A)(ii) describes “an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” The IRS denied Mayo the exemption because it is not an “educational organization” as defined in 26 C.F.R. § 1.170A-9(c)(1), that is, an organization whose “primary function is the presentation of formal instruction” and whose noneducational activities “are merely incidental to the educational activities.” Ruling on cross motions for summary judgment, the district court held that the Treasury Regulation is invalid “because it adds requirements -- the primary-function and merely-incidental tests -- Congress intended not to include in the statute.” Mayo Clinic v. United States, 412 F. Supp. 3d 1038, 1This opinion traces the evolution of the IRC over more than a century. Unless specified in the text, we refer to the Revenue Code as of the date of this dispute. 2The taxpayer for refund years 2003 and 2005-07 was the Mayo Foundation, which merged with Mayo Clinic Rochester in 2010. Mayo, the plaintiff in this case, is the successor by merger to the Mayo Foundation and was the taxpayer for refund years 2010-2012. The reorganization is irrelevant to the issues on appeal. -2- 1042 (D. Minn. 2019). The court granted judgment for Mayo, concluding it is an educational organization as defined in the statute. The United States appeals, arguing, first, the Treasury Regulation is a valid interpretation of the statutory term “educational organization,” whether that term is considered unambiguous (as both parties contend) or ambiguous; and second, applying the regulation, the government is entitled to summary judgment because Mayo is not an educational organization as a matter of law. We review the interpretation of the IRC and Treasury Regulations de novo. Mayo Found. for Med. Educ. & Rsch. v. United States, 568 F.3d 675, 676 (8th Cir. 2009), aff’d, 562 U.S. 44 (2011). We conclude the regulation is valid, but only in part, and that application of the statute as reasonably construed by the regulation to Mayo’s tax years in question cannot be determined as a matter of law on this summary judgment record. Accordingly, we reverse and remand. I. The Regulation’s Validity The principal question on appeal is whether the Treasury Regulation at issue is a valid interpretation of complex, interwoven provisions of the Internal Revenue Code. Our analytical path to resolving this difficult question is well established: When a court reviews an agency’s construction of the statute which it administers, it is confronted with two questions. First, applying the ordinary tools of statutory construction, the court must determine whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. But if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute. [T]he question . is always, simply, whether the agency has stayed within the bounds of its statutory authority. -3- City of Arlington v. FCC, 569 U.S. 290, 296 (2013) (quotations omitted; emphasis in original); see Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984); cf. Kisor v. Wilkie, 139 S. Ct. 2400, 2416 (2019). The Supreme Court has expressly held that judicial review of Treasury Regulations is governed by this “uniform approach.” Mayo Found., 562 U.S. at 55. “Generally speaking, the language in the Revenue Act, just as in any statute, is to be given its ordinary meaning.” Commissioner v. Brown, 380 U.S. 563, 571 (1965) (Clay Brown). As with other complex statutes, words in the IRC are read in the context in which they are used and in the context of the statute as a whole. It is often essential to understand “the regulatory background against which a [tax statute] was enacted” to determine “the limited nature of the problem the provision was enacted to address.” United States v. Quality Stores, Inc., 572 U.S. 141, 151 (2014). “Treasury Regulations interpreting the Internal Revenue Code are entitled to substantial deference.” Mayo Found., 568 F.3d 675, 679 (8th Cir. 2009), aff’d, 562 U.S. 44 (2011). We first set forth the relevant portions of the statute and regulation at issue: 26 U.S.C. § 170(b): (1) Individuals. the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs. (A) General rule. -- Any charitable contribution to -- (ii) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on; (iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research . -4- shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer’s contribution base for the taxable year. 26 C.F.R. § 1.170A-9: (c) (1) Educational organization. An educational organization is described in section 170(b)(1)(A)(ii) if its primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. It does not include organizations engaged in both educational and noneducational activities unless the latter are merely incidental to the educational activities. Section 170 permits a tax deduction for charitable contributions made to certain organizations. Subsection (b) allows a deduction up to “50 percent of the taxpayer’s contribution base” for contributions to some organizations (“50% limit organizations”), including organizations listed in § 170(b)(1)(A)(ii). Meanwhile, “other contributions” are limited to “30 percent of the taxpayer’s contribution base.” IRC § 170(b)(1)(B)(i). This includes a contribution to or for the use of an organization “organized and operated exclusively for religious, charitable, . or educational purposes.” IRC § 170(c)(2)(B). Section 170(b)(1)(A)(ii) limits the enhanced deduction to contributions to educational organizations that meet its criteria of faculty, curriculum, students, and place. This does not include all organizations that engage in tax exempt educational activities. See IRC §§ 501(c)(3), 170(c)(2)(B). In concluding that Treasury Regulation § 1.170A-9(c)(1) invalidly adds conditions Congress did not intend, the district court primarily relied on the established principle that, “[w]hen Congress includes particular language in one section of a statute but omits it in another -- let alone in the very next provision -- this Court presumes that Congress intended a different meaning.” Loughrin v. United States, 573 U.S. 351, 358, (2014) (cleaned up), quoting Russello v. United States, 464 U.S. 16, 23 (1983). Comparing the two classes of 50% limit organizations in -5- subsections (ii) and (iii), the district court determined that under the Russello principle, Congress unambiguously intended to exclude from subsection (ii) the primary purpose or function test it included in subsection (iii). “In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose.” Nat’l Muffler Dealers Ass’n v. United States, 440 U.S. 472, 477 (1979).3 To determine whether the statute the agency interpreted is unambiguous, we turn to the statutory history and other “traditional tools” of statutory construction. “It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” Davis v. Mich. Dept. of Treasury, 489 U.S. 803, 809 (1989). Although relevant, the Russello principle is not controlling, and we conclude the district court failed to give sufficient consideration to the origins of the statutory charitable exemption and the Treasury Regulation at issue, and the manner in which the current statutory provisions have been added to the IRC and modified over more than a century.