United States v. Basye

Permanente Medical Group (Permanente) was a limited partnership operated by Basye and his partners (partners) (plaintiffs). Permanente entered into a contract with Kaiser Foundation Health Plan (Kaiser), a medical-services membership organization, whereby Permanente agreed to provide medical services to Kaiser’s members. In exchange for the services, Kaiser paid base compensation to Permanente comprised of (1) monthly payments and (2) contributions to a retirement trust. The retirement trust maintained separate tentative accounts for each of its beneficiaries, all of whom were Permanente partner and non-partner physicians. Participating physicians who completed a required minimum period of continuous service and met other requirements could begin receiving trust payments upon retirement. The tentative accounts of physicians failing to meet certain requirements would be forfeited and redistributed among the retirement trust’s other beneficiaries. Under no circumstances could the trust-fund payments be altered or recouped by Kaiser. Neither Permanente nor its partners reported the trust income on their federal tax returns. The federal tax commissioner assessed deficiencies against each of the partners for their proportionate shares of the funds that Kaiser had paid into the trust. The partners paid the assessments and then filed suit against the United States government (government) (defendant) in federal district court, seeking a refund. The district court entered judgment in favor of the partners, and the court of appeals affirmed. The United States Supreme Court granted certiorari.