This chapter is different from the earlier chapters in the book. Instead of analyzing a single set of rules, with examples to illustrate the rules, this chapter will consider at length one example, and some variations. In the process, it will demonstrate the application of many of the principles discussed earlier in the book.
What makes this example particularly interesting is that it is drawn from real life. In fact, there are thousands of situations that mirror the example described here, as it is one of the more popular business arrangements in the medical community. Unless otherwise specified, the issues in this chapter concern the following fact situation:
Dr. Casey operates a family practice medical clinic. He employs two nurses, a billing clerk, and a receptionist. April 1, 1998, he sells all the assets of the practice and transfers the employees to Local Hospital for a deal that includes cash and a .05% interest in the Hospital. Local Hospital is operated as an LLC and taxed as a partnership.
Local Hospital begins operating the clinic under a new name, Local Family Clinic. All four staff members continue to work there as before. However, they are now on the payroll of Local Hospital, attend training meetings there, and participate in the Hospital’s 401(k) plan and health insurance programs. The Hospital’s personnel department will hire their replacements once they leave.
Dr. Casey also continues to work at Local Family Clinic. He has a contract with Local Hospital to operate the Clinic on their behalf, in accordance with the operating guidelines established by the Hospital. They pay him a fixed fee every month and provide his malpractice coverage. His contract also calls for them to pay for him to travel to two continuing education conferences each year. He has no opportunity for profit or loss beyond his salary.
Moreover, the contract says that Dr. Casey is an independent contractor. At the end of the year, Dr. Casey receives a 1099 form from the Hospital.
Dr. Casey wants to establish a defined benefit plan covering his fees from the Hospital. He does not have any other practice. He does not want to cover the staff members at the Clinic.
This chapter will ask the questions that the practitioner setting up the plan would need to ask.
 | Q 16:1 Is Dr. Casey an employee of Local Hospital? |
| Q 16:2 How can we change things to make it more likely that Dr. Casey will be found to be an independent contractor? |
| Q 16:3 Are the staff members at the Clinic common law employees of Casey, MD, Inc? |
| Q 16:4 Are the staff members at the Clinic leased employees of Casey, MD, Inc? |
| Q 16:5 Suppose the staff members are leased employees. Is the Hospital a PEO subject to Rev. Proc. 2002-21? |
| Q 16:6 Suppose the staff members are leased employees. Does Dr. Casey’s corporation need to aggregate the service performed directly for Dr. Casey with the service provided under the lease to the medical corporation? |
| Q 16:7 Are the doctor’s corporation and Local Hospital a management function group? |
| Q 16:8 Are the doctor’s corporation and Local Hospital a traditional affiliated service group? |
| Q 16:9 If there is an ASG, couldn’t Casey’s corporation take advantage of the “free pass” of the participation rules? |
| Q 16:10 Is Dr. Casey a leased employee of the Hospital? |
| Q 16:11 Is Dr. Casey’s corporation a PEO subject to Rev. Proc. 2002-21? |