Affiliated Service Groups

[Guest Kevin1]

Happy 4th of July to all. Take a minute to appreciate what a great country we live in.

We have a group of doctors-emergency room docs. They form a corporation (Corp) to negotiate with the hospital. Each doc or his/her corp owns a part of Corp. Hospital pays Corp providing a detail of which doc performed the service. Corp pays this money to performing doc after a small administrative fee. Corp issues 1099 to doc.

I've looked at Sal's EOB and also Watson's "Who's the Employer". The conclusion is that Corp is not A FSO. However, in EOB the last sentence on page 1A.4 and in 6.f.1)a on page 1A.7 there is an aguement that this is not the case.

Any experience or thoughts on this??

If part of the definition of a FSO is that it is "organized for the purpose of providing professional services" does that mean the that Corp has to actually perform the services or is its activity of negotiations etc an act of providing the service?

There are a couple of DB plans involved in this.

[Guest Sieve]

I don't have the new Tripodi set, so I can't read the sentence you point to. But I suspect that the discussion is around the provision in the ASG rules that to be an A-org ASG, then the FSO, if a corporation, must be a professional service corporation. Basically, a corp. is a professional service corp if it performs professional services--which the regs indicate are the services of accountants, MDs, DDSs, attorneys, actuaries, etc., etc. And, most states require professional service corps. to include a specific designation in their name, such as P.A. or P.C. (although that would not be determinative for ASG purposes).

Here, if the Corp is being paid by the hospital for services being performed by MDs or MD corps, which it certainly appears to be doing (it clearly isn't simply negotiating), then you have a professional service corporation, and the A-org rules are in play. Or, another way to analyze it would be for the Corp to be seen as providing services (placement, negotiation, scheduling, etc.) for a fee to the various MD corps (which would certainly be professional service corporations), and then perform the analysis in that manner.

But, even if the facts do not fit into the A-org rules because the Corp is not a professional service corporation or some other test of A-org status is not met, the ASG anlaysis does not stop. There still is a completely different set of ASG rules to review. The B-org rules are not so restrictive and do not require that a corporation must be a professional service corporation to be an FSO. (And then there are the "management function" ASG rules, which probably are not present here.)

The ASG rules require that services be performed by a service organization (which includes a larger group of entities than those who are treated as a professional service organization), but only the A-org rules specify that a corporation cannot be an FSO unless it is a professional service corporation. So, if Corp performs services to the various MD corps (as I suspect it does), there still could be an ASG under the B-org rules.

The various ASG determinations are very fact specific.

[Guest Kevin1]

Sieve: Thanks for the response.

What is says, as part of the definition of A Professional Service corporation, on page 1A.4 is:

"...... The governing state statute will not necessarily designate the corporation as a professional corporation or similar designation. What is important is that the corporation is formed for the purpose of providing at least one of the types of professional services listed. In other words, IRS apparently will characterize a corporation as a professional service corporation for puposes of the A-Org test, if it satisfies the definition in this paragraph, even if the corporation is not formally recognized as a professional service corporation under applicable State Statute."

OK. They can call Corp a PSC even if the state requirements for PSC are not met.

I suspect the arguement agains that is that Corp is only acting as a conduit for the monies. Although the contract to supply hospital coverage is between Corp and Hospital.

One place I'm getting hung up on is who, specifically, has to actually perform the service? Corp? If this is the case, obviously it doesn't they negotiate, collect, disburse etc. The doctor actually performs the required service you cited.

However, if the IRS can paint Corp with the PSC brush you've got an AFS. On what basis would there be, do you think, to do this?

[Guest Sieve]

Ask yourself this question: what service is Corp providing to the outside world? I'd say they are providing medical services, albeit the medical services are being provided by supposed (?) independent contractors (whose corps just happen to own the Corp, by the way). After all, Corp. is being paid by the Hospital for the MDs' services, not just a "finder's fee". At best, I'd say you've inserted another layer in the structure, but I don't think it makes a difference. My opinion. It would be a facts & circumatances determination by the Service.

The old common law rule was that corps (including entities such as hospitals) could not perform professional services, because those services could only be performed by individuals. That's the argument you're making. But, that fiction is now gone, and in its place is the permissive incorporation of professional service corps under state law--all done, I believe, in an effort to permit injured individuals to sue and recover not just from the professionals but also from the corp that provides the professional services.

Is an A-org analysis the only way ASG status can arise in your facts? Are you saying there is no ASG if the IRS uses the B-org rules? How about if the IRS turns it around, and treats the MDs' corps the FSOs?

[Guest Kevin1]

Sieve:

I agree with you that they' an affiliated service group and told my client that. I also told them that they should have their situation reviewed by an ERISA attorney. They did and he said they were not an ASG.

I was terminated for raising the question because "it cost thousands of dollars to refute my contention". (Must not have been a simple answer). Good. No more worries for me. Thanks for your thoughts.

[Guest Sieve]

Those are great clients, ehh? -- those who don't want you to do your job and raise issues that might cause problems.

You did exactly what you should have, and paid the ultimate price--loss of the client. That'll learn ya', huh?

[BG5150]

I would have asked for the attorney's reasoning in writing so you might see where your analysis differed. Plus, take heart, the attorney could be wrong, also. As in any profession, there are good ERISA attorneys and bad ERISA attorneys.

[Guest Kevin1]

Sieve and BG 5150:

Thanks for your input. I have a request in for the reasoning. Actually I was not upset to loose the client. I did my job. He's got a DB plan and if they draw an audit there's a real train wreck comming.