In preparing for my recent course on the topic of this post, I came across a Technical Advice Memorandum from the IRS – 200244009 – dealing with a Physician Practice Management Company Transaction that cited Martin Ice Cream as the basis for part of the decision – which was highly favorable to the taxpayer. Well worth the read if you happen to be structuring such a transaction, or in any event if you have an interest in the area.
In connection with an upcoming piece (TBA) I have also been giving some thought to the implications of the 8th Circuit’s decision in Exacto Spring on reasonable compensation under an independent investor test. At least for medical practices, service businesses in general and many small businesses, reasonable compensation is the key factor in determining the value of the business. The difference between personal and enterprise goodwill should be a key factor in reasonable compensation; it is also a key factor (Martin Ice Cream and Norwalk) in allocating sale proceeds. An Exacto Spring reasonable comp analysis should also consider who owns the underlying goodwill – the corporation or the key employee.
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