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