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Who's the Employer?

Question 203: Center is a partnership that owns laser surgery equipment. Center has 10 owners, including Dr. A, who has a corporate medical practice. Dr. A (through his corporation) performs laser surgery on some patients referred to Center, as well as on its own patients which use the Center's facility. If the surgery is on Dr. A's patient, the corporation bills for the surgery and pays Center a facility use fee. If the patient is not Dr. A's, Center receives the payment and pays Dr. A's corporation for the surgery. Is the Center in an affiliated service group (ASG) with Dr. A's corporation? Answer: In a word, yes. Two organizations are in an A-Org style affiliated service group if all the following requirements are met: Both organizations are service organizations. The A-Org owns or is deemed to own some interest in the first service organization (FSO), no matter how small. The A-Org regularly performs services for the FSO or is regularly associated with it in performing services for third parties. The FSO is either unincorporated or is a professional service corporation. All four requirements are met here. Both organizations are service organizations. There are several ways to be a service organization. One is to be in the health field. That certainly describes both businesses. An organization isn't treated as being in the health field merely because it manufactures or sells health-related equipment, but that's not your situation. The Center owns equipment it uses on patients, and they are paid for the use of that equipment. In fact, some patients even pay them for the entire course of treatment, suggesting that the Center is providing the surgery. Dr. A's corporation is deemed to own an interest in the Center. Because Dr. A owns 100% of his or her professional corporation, the corporation is deemed to own whatever Dr. A owns, due to the IRC 318 attribution rules; hence, it is deemed to own Dr. A's interest in the Center. Dr. A's corporation regularly performs services for the Center and is regularly associated with it in performing services for third parties. Either way you want to call that test, they satisfy it. The Center is unincorporated and so can be a FSO for the A-Org test. The result: the Center and the corporation are treated as a single employer for most retirement plan purposes under the Code's rules. In fact, just to complicate matters, the Center is treated as a single employer with all its owners (or their corporations), assuming they have similar fact patterns. Rules relating to service organizations and affiliated service groups are discussed more fully in Chapter 13 of my book, Who's the Employer.

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