S-Corporation Distributions From Health Care Practices

Watch OUT, the IRS is Watching

Most health care practices are structured as S-corporation. The justification is that, once the practice owner is paid a fair-market-value wage, the remaining distributions are treated as investment income and not subject to Social Security and Medicare tax. With no pricing elasticity in Payer reimbursements and strapped practice cash flows, the temptation to reduce the owner compensation paying the difference as a dividend is great. The risk for a struggling practice is that, the IRS can step in and recharacterize the profit distribution as compensations.

The IRS wields a big stick with a rather strong position which is tied to a succession of favorable court rulings. Penalties and interest can make it an expensive lesson, that can financial bury the practice.

So, take a close look at your S-corporation compensation before you make any distributions of profits. Make sure compensation is supported by relevant health care surveys, to support that the salary paid is “reasonable.”

For more information download the article for Reed Tinsley, CPA website … http://www.rtacpa.com/