The Law of Tax-Exempt Healthcare Organizations 2017 Cumulative Supplement, Fourth Edition + website

CHAPTER NINETEENOther Health‐Related Organizations

1. § 19.4 HospitalManagement Services Organizations

§ 19.4 HOSPITAL MANAGEMENT SERVICES ORGANIZATIONS

p. 442. Insert following last paragraph of the section:

In another ruling, the IRS considered the ability of a parent business corporation, acting as a manager, to consolidate in its federal income tax return the activities of two wholly owned professional corporations (PCs).³⁵ In the facts of this ruling, a licensed professional acquired legal title to all of the issued and outstanding shares of the PCs.

Each of these entered into a support services agreement for administrative services with a subsidiary of one of the professional corporations. The PCs directly conducted their professional services. Under the terms of the support services agreements, the subsidiary performed all administrative and support services on behalf of the PCs, including financial reporting, billing, and information systems support, in exchange for a fee. The subsidiary also managed the PCs to the extent that such activities did not constitute engagement in the PCs' profession.

The shareholder and subsidiary were parties to a Director Agreement under which the shareholder served as professional director for the PCs, and oversaw and coordinated the subsidiary's business objectives for the PCs. The parties entered into stock transfer restriction agreements that limited ownership transfer rights and the right to make distributions. Neither of the PCs intended ...