Pediatric Surgical Associates IRS Case

July 24, 2015

Summary of important tax case applicable to any C-Corporation group practice.

To download the rest of this case, click here: Pediatric Surgical Associates IRS Case


IRS RECLASSIFIES PHYSICIAN BONUSES AS NONDEDUCTIBLE DIVIDENDS IN RECENT TAX CASE

Physicians have routinely paid themselves bonuses and classified these payments as officer’s compensation on their corporate returns without often taking into consideration the deductibility of such payments. This is particularly true at year end when most physicians take out enough compensation to avoid paying corporate level income taxes. In recent ruling, Pediatric Surgical Associates P.C. v. Commissioner; T.C. Memo. 2001-81; No. 12743-98 (2 Apr 2001), the tax court held that profits earned from non-shareholder physicians allocated to shareholder physicians in the form of bonuses and classified as deductible officers compensation on the Clinic’s corporate return were in fact a distribution of earnings and profits or nondeductible dividends.

The pediatric surgical clinic (“the Clinic”) consisted of shareholder surgeons, who received monthly salaries and cash bonuses, and non-shareholder surgeons, who received only monthly salaries. The Clinic deducted the amounts paid to the shareholder surgeons as officer compensation. The IRS disallowed part of those deductions, finding they should have been characterized as dividends instead. The tax court agreed with the Service’s interpretation.


To download the rest of this case, click here: Pediatric Surgical Associates IRS Case

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