ASG rules

[Guest Crystal B Smith]

Does anyone have any experience with affiliated service groups in an audit or a PLR?

We have a client that is a surgical practice (C corp) owned by 13 doctors. The corporation provides medical services to the general public and day call services to all area hospitals (they bill the patients, not the hospital).

12 of the doctors have formed an LLC which will provide trauma call services to patients of one hospital. The LLC will receive a flat monthly fee for daytime trama services, and this will be the only compensation to the LLC for daytime trauma call. It will bill the patients directly for nighttime trauma services. The only other employees of the LLC besides the doctors will be leased from the C Corporation and used for billing. The LLC will not have a new location.

A few patients would receive services from both entities.

We are concerned that if the LLC elects to be taxed as a partnership, attribution rules will cause the new entity to own most of the C corp. (the new entity will be deemed to own the individual doctors' shares of the C corp.) If we do have some cross ownership then we have to deal with the A-Org test of the ASG rules. Neither entity provides services to the other, so that's not a problem. We think the problem will be if the two entities are seen as regularly associated in providing services to third parties.

We think that if the LLC elects to be taxed as a C corp. then we'll have no cross ownership since the attribution rules are different for C corps. BUT the additional FICA cost will be substantial.

We would appreciate any help we could get on this.