"It requires identifying last-known addresses, sending out consent forms, responding to inquiries, tabulating the information you get, that will all go to the IRS," Greenhouse says. "There is a lot of work the academic medical centers are doing either in-house or with outside consultants. These are residents who may no longer be affiliated with these academic medical centers. So identifying their last known addresses takes work." Greenhouse says teaching hospitals need to at least make a "reasonable effort" to contact former residents, using first-class mail, and giving residents 45 days to respond.
"That is an area where hospitals need to be careful. The IRS will look at the reasonableness of their efforts," Greenhouse says. "They don't have to be perfect but they have to have acted reasonably."
Teaching hospitals must also understand that moonlighting by medical residents is not exempt from FICA taxes that Greenhouse says needs to be "scrubbed out" of refund claims. "So, academic medical centers need to review their records and identify potential amounts for moonlighting. The IRS will be looking for that," she says. When the claim is approved, teaching hospitals will get a lump-sum check from the IRS that will include an aggregate amount for the medical students.
"The medical center is going to have to send out individual checks to the former residents and they are going to have to include the appropriate amount of interest," Greenhouse says, adding that the interest rate the IRS pays individuals on claims refunds is higher than the rate it pays corporations.
The teaching hospitals also must submit to the IRS a Form 1099, indicating that taxable interest was paid on the reimbursement, and a Form W-2c, which will be sent to the Social Security Administration to reflect that FICA taxes were not deducted on the medical residents' pay.