Defeating ASG and CG rules

[Oh so SIMPLE]

A 5 doctor practice that has a 401k plan wants to restructure so that the oldest MD, age 57, can retire in 5 years.

They would like to restructure so that the 57 year old MD sells his interest in the practice, and the other 4 MDs pay him out over that 5 year period. The 57 year old would now form a professional corporation and contract with the practice of the remaining 4 MDs to provide medical services to the practice's patients, and the practice would pay the PC (which would in turn payroll the money to the 57 year old MD). The practice would bill and collect for the 57 year old's medical services. The 57 year old MD's name would continue to be part of the practice's name.

For neither the practice or the PC would derive more than 50% of its gross revenues for providing management services to the other.

The PC would then adopt a DB plan for just the 57 year old MD, not covering any employees of the practice.

Would there be an affiliated service or controlled group problem?

[Mike Preston]

I'm having a hard time understanding how anybody could possibly think that this structure would not be an affiliated service group. Who has suggested that it is NOT an ASG? Do you have it in writing?

[Oh so SIMPLE]

I'm having a hard time understanding how anybody could possibly think that this structure would not be an affiliated service group. Who has suggested that it is NOT an ASG? Do you have it in writing?

The client has a legal opinion that it will work. Basically, it amounts to 401(m)(5) not applying because neither the practice nor the 57 year old MD's new PC will derive more than 50% of its revenues from providing management services to the other. An (A) Org affiliated service group would not apply because neither the practice (an LLC) nor the 57 year old MD's new PC will own any interest in the other (and because that MD will no longer own any interest in the LLC, there is no ownership of either entity to attribute to the other). 414(m)(2)(A)(i). A (B) Org affiliated service group would not apply because no owner of either entity, the LLC or the new PC, will be a highly compensated employee with respect to the other. 414(m)(2)(B)(ii).

But it just doesn't smell right.

[Guest Sieve]

Oh So --

What you decribe will work, IF, under common law principals, the nature of the MD's work for the 4-MD PC is not considered to be the work of an employee. If MD is considered an employee of the larger PC--i.e., comes in at set times, uses all their equipment and their staff (& has none of his/her own), must take vacations based on availability of other docs, patients of MD are billed and payments are collected by the larger PC, has none of his/her own patientys that are billed separately, etc., etc.--then, as an employee of the PC (which is the FSO) who also owns 10% or more of his/her own PC, you would now have a B org relationship.

Even if not a B org, and these are truly separate, unrelated businesses--then, if all of the sole-MD's revenue is from work performed for the larger PC, and he/she uses 20% of staff, etc., then you may well have a shared employee situation, and 20% of their compensation would have to be covered by the DB.