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Title:

Physician Buy In

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When Was the Last Time the Practice's Buy/Sell Agreement Was Reviewed? ... Non-Death: Immediate Full Buy Out Payment or Installment Payments ... – PowerPoint PPT presentation

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Title: Physician Buy In


1
Physician Buy In Buy Out Arrangements
  • Reed Tinsley, CPA, CVA, CFP
  • Houston, Texas

2
Topics for Discussion
  • Financial Aspects of a Buy In
  • Financial Aspects of a Buy Out
  • Tax Issues
  • Non Financial Contract Issues

3
A Good Starting Point
  • When Was the Last Time the Practices Buy/Sell
    Agreement Was Reviewed?
  • A Ticking Time Bomb for a lot of Practices
  • Should be an Annual Review
  • With Review of Buy Out Calculations with the
    Owners
  • Vote to Admit a New Owner

4
Physician Buy In Special Issues
  • Characteristics of a Potential Partner
  • When Should the Buy In Occur
  • After 1 year, 2 years, 3 years?
  • Idea At Time of Financial Self Support
  • Should the Buy In Include an Intangible Factor
    (i.e. Goodwill)
  • Others?

5
Calculating the Buy In
  • FMV Appraisal
  • Depends on Owner Compensation Formula
  • Fixed Formula
  • A/R of Buy In Physician
  • FMV of Fixed Assets, Net of Related Liability
  • Intangible
  • Fixed Amount
  • Percentage of Physicians Prior 12 Mo. Collections

6
Paying for the Buy In
  • Third Party Loan
  • Practice Financed Loan (co-signator)
  • Reduced Compensation
  • Fixed Assets with After Tax Dollars
  • Others?

7
Buy Out Events
  • Death
  • Retirement
  • Disability
  • How is Temporary Disability Handled
  • Should Overhead Disability Insurance be
    Purchased?
  • Employment Termination

8
Calculating the Buy Out
  • Should Buy Out Mirror the Buy In Formulary?
  • Buy Out Calculation
  • FMV Appraisal
  • Formula Approach
  • Restricted Formula Approach if Departing
    Physician Competes (assuming no competition
    clause)
  • Separating Physicians A/R From Total Buy Out
    Amount

9
Paying For the Buy Out
  • Life Insurance Proceeds if Death
  • Non-Death Immediate Full Buy Out Payment or
    Installment Payments
  • Issue If Corporation, Allocation of Payments to
    Treasury Stock
  • Will It Create Phantom Income?

10
Tax Issues
  • Section 1060
  • Reporting requirements for acquisitions of
    interests in entity from 10 owner.
  • If a 10 owner with respect to an entity
    transfers an interest in the entity and, in
    connection with the transfer, that owner (or a
    related person) enters into
  • ... an employment contract,
  • ... a covenant not to compete,
  • ... a royalty or lease agreement,
  • ... other agreement, with the transferee, the
    owner and the transferee must furnish, at a time
    and in a manner to be specified by IRS, whatever
    information IRS may require.
  • Constructive Receipt Issues

11
Non Financial Issues
  • Restrictive Covenant
  • Involuntary Removal of an Owner
  • Temporary Disability
  • Divorce
  • Timing of Voluntary Retirement
  • Side Bar Issue When can a doctor get off the
    call schedule (and at what price)?

12
Questions
  • Reed Tinsley, CPA
  • reedt_at_rtacpa.com
  • www.rtacpa.com
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