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Help understanding why individual partners form PCs

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  • Help understanding why individual partners form PCs

    I've seen a lot of practices set up where individual partners are PCs and their PCs are either members of a bigger LLC or LLP. I have not been able to figure out why this is the case other than "this is the way we've always done it" or "my CPA recommended it."

    Is there some benefit to this? I know that these individual entities can be S-Corps to save on self employment taxes, but I think a lot of the partners are just C corps that pay all of what they make out as salary so there is no double taxation. Is it a way to be able to write off expenses that they otherwise couldn't as unreimbursed partnership expenses? Why PC and not individual LLC if the state allows it (mine does)?

    This structure just seems like a lot more work, and I can't figure out why it is so common. It has been recommended to me by a couple of CPAs for exactly those reasons (able to write off expenses where partnership agreement doesn't specify URPs, and the S-Corp would result in some savings). It is especially common with older docs, so maybe this was a beneficial structure decades ago that has just stuck around but isn't really relevant anymore?

    Any insight would be much appreciated.

  • #2
    In the olden days it was a lot more common. Our lawyers told us 15 y ago that it was a waste of money and not likely worth the additional costs. A couple of doctors still did had their own Corp but this messed up our 401k calculation for profit sharing.

    i suppose if everyone is an individual each one can get creative, stack retirement plans, employ family members, and maybe avoid paying for a match for all the employees.


    • #3
      Have talked to several thousand docs and reviewed their tax structure. This has not been an entity design I’ve seen even once. Indy S-corps are more common, particularly in CA, but in other states, too. But the PC as C-corp for small docs is out of sync in today’s world. C-corps for groups, even, are dinosaurs, which is why you’ll see older docs hanging on (very hard to transition, tax-wise, once you’ve had one awhile).

      And, yes, these are typically recommended by CPAs who have never gotten out of their ruts (same with CPAs who always use S-corps, SEPs, etc). CPAs are notorious for being THWADI-sts. And those who are embedded in doctor groups are no different - neither are the doctors, who are not interested in thinking independently about taxes and just want to turn everything over to “their guy”, which is anathema to the WCI crowd. It’s ok to do that - as long as you have the right “guy”.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087