Mid-Atlantic Health Law TOPICS

Many professional corporations that were once taxed as C corporations have subsequently elected to be taxed as "pass though" S corporations to avoid paying taxes on corporate profits and then having the corporate owners pay a second level of tax on their corporate dividends or when the practice is sold. However, even after a C corporation converts to an S corporation, it must still wait 10 years until it may sell its assets generally free of "double" taxation.
Now, however, there is some short-term relief. Under the American Recovery and Reinvestment Act of 2009 (ARRA), the 10-year recognition period has been reduced to seven years, to the extent that the disposition of assets occurs in 2009 or 2010.
This means, for example, that if a medical practice were formerly a C corporation and made its S election for 2003 or earlier, then 2010 would be a good time for the owners of that practice to consider selling the practice to a hospital, or other buyer, without a corporate level tax on the practice's "built-in gain" as of the S election in 2003. ("Built-in gain" is the unrealized and untaxed appreciation of the practice's assets from the practice's inception to the time of its S election.)
After 2010, the law reverts back to the pre-ARRA 10-year recognition period.