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Understanding Affiliated Service Groups


Carrie
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Still new to ASGs and want to make sure I fully understand the rule. Consider this example from IRS publication on Controlled and affiliated service groups:

Allen Averett, a doctor, is incorporated as Allen Averett, P.C. and this professional corporation is a partner in the Butler Surgical Group. Allen Averett and Allen Averett, P.C. are regularly associated with the Butler Surgical Group in performing services for third parties.

The Butler Surgical Group is an FSO. Allen Averett, P.C. is an A-Org because it is a partner in the medical group and is regularly associated with the Butler Surgical Group to perform services for third parties.

Accordingly, Allen Averett, P.C. and the Butler Surgical Group would constitute an affiliated service group.

My scenario:

Individual owns 25% of medical practice (S Corp). In 2019, the individual created a SMLLC which provides similar services to a hospital. The initial contract was with the medical practice for the individual's services and the income was paid to the medical practice. As the medical practice was essentially just a flow through, the contract was renewed with the SMLLC.

This would not be an affiliated service group because the SMLLC is not the shareholder in the medical practice and the individual is providing services as an employee.

Any guidance would be much appreciated. Thanks.
 

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May just be me, but the facts aren't very clear. Is it as follows:

The individual own 25% of a medical practice that provides medical services to people other than the hospital. The hospital wanted the individual (and only the individual) to provide medical services to the hospital. The hospital contracted with the medical practice for the individual (and only the individual) to provide medical services to the hospital. Then, because the individual was the only person at the medical practice providing services to the hospital, the individual formed a single member LLC to provide those services directly to the hospital without any involvement by the medical practice.

So now the individual (1) owns 25% of the medical practice; (2) the medical practice continues to provide medical services to people other than the hospital; (3) the individual still performs medical services through the medical practice for people other than the hospital; and (4) the individual also provides medical services to the hospital through his/her single member LLC completely unrelated to the medical practice?

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You are correct, the facts were not very clear. I wanted to understand more before asking the client to verify what occurred so that I might ask the correct questions.

So now the individual (1) owns 25% of the medical practice; CORRECT (2) the medical practice continues to provide medical services to people other than the hospital; CORRECT (3) the individual still performs medical services through the medical practice for people other than the hospital; CORRECT and (4) the individual also provides medical services to the hospital through his/her single member LLC completely unrelated to the medical practice?

Number 4 is still unclear if completely unrelated. The hospital in question is in a rural area and it may be possible that the individual visited the hospital to provide services as part of the medical practice and was then asked to provide services to the hospital. My understanding is that the initial contract was with the medical practice, but he was the only one providing services and so he requested that the contract be changed (whether to the LLC or individual is also unclear). After the contract changed, I don't believe there is any involvement by the medical practice for the services provided by the individual. This seems to be the key point?

Thank you! 

 

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