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

CHAPTER TWENTY‐FIVEPhysician Recruitment and Retention

1. § 25.5 Specific Recruitment and Retention Techniques
   1. (b) Income Guarantees

§ 25.5 SPECIFIC RECRUITMENT AND RETENTION TECHNIQUES

(b) Income Guarantees

p. 667. Insert following the first full paragraph:

A common hospital practice has been to treat forgiven amounts (including interest) as taxable income for the physician only when the amounts are forgiven (e.g., monthly or annually), with the treatment of the remaining income guarantee balance as a loan. Since the physician could leave the hospital service area during the term of the agreement and thereby trigger a full repayment provision, which is consistent with characterization of the guarantee as a loan rather than as current income, it is reasonable to report income to the physician only upon forgiveness of guaranteed amounts.

However, in 2013, a federal district court upheld an IRS ruling position that in cases where an employer provides a loan with no real expectation of repayment (other than through the provision of services) or of treatment of the payment as a loan, then the payments are instead an advance of wages and appropriate withholding and payment of taxes must occur.^34.1 In this case, the Vancouver Clinic, which was organized as a professional services corporation, entered into “associate physician loan agreements” with newly hired physicians. The purpose of the agreements was to enhance physician recruitment and retention by the clinic. Under the agreements, ...