For many years, physician groups would distribute all profits at the end of the year to the shareholders, thus avoiding paying corporate level taxes. The profits were distributed as compensation, and thus were deductible at the corporate level, and only taxable at the lower personal rate.
A 2001 Tax Court ruling, Pediatric Surgical Associates P.C. v. Commissioner; T.C. Memo 2001-81; No. 12743-98 (
This case is important because (1) the Pediatric Surgical case was not appealed, (2) physician shareholders of C-Corporations (Not S-Corporations) continue to withdrawal out all corporate profits as shareholder compensation and (3) the resulting exposure is that the
IRScould begin a campaign to audit group practice C-Corporations. While the IRShas not indicated that it will in fact develop an audit initiative for these physician corporations, they should still prepare themselves for such an initiative nonetheless
You should be holding a meeting within the month with your tax advisor to plan to the year end. Not only are you looking to maximize the distribution to the shareholders, but you need to plan and reserve cash for tax obligations and for the ongoing operations of your practice.