Effective Control

[Guest Buzzman]

We have a client medical practice corporation. There are two shareholders, each owns 50% and each is a member of the board of directors (only two members on the board). Upon termination of employment, the shareholder physician employment agreements provide that the employee (shareholder physician) is entitled to receive the A/R directly attributable to his physician services as it is collected during the 180 days after termination. Payments of the A/R collected will be made as it is received but not less than monthly beginning 60 days after termination. The issue it seems to me is whether this arrangement meets the requirements of 1.409A-3(i)(1)(iii), in particular -3(i)(1)(iii)(B), as to whether employee has effective control of the corporation. I have not seen any guidance as to what constitutes "effective control" for this purpose. It is clear that with two 50% shareholders, neither has voting control and all decisions require unanimity but I am not sure what criteria might come into play for the "effective control" analysis under this provision of the 409A regs.

Any thoughts would be greatly appreciated.