• Physicians Not Entitled to Charitable Deductions in Sale of Practice to Nonprofit
  • July 17, 2008 | Author: Nicholas K. Lagina
  • Law Firm: Krieg DeVault LLP - Schererville Office
  • A group of individual physicians were not entitled to claim charitable tax deduction for the sale of intangible assets of their group practice to a tax exempt organization, the U.S. Tax Court ruled on February 28, 2008.  (Derby v. Comm'r, T.C. Memo 2008 - 45.)  Each physician claimed to have donated the value of intangible assets in conjunction with sale of tangible assets to Sutter Medical Foundation.

    The tax court, looking at the facts and circumstances, described the sale as an "integrated transaction in which petitioners also agreed to provide future services... and transfer tangible assets... in exchange for... [an] agreement to pay them cash and to employ them... pursuant to specified terms."  Because of the integrated nature of the transaction, the court reasoned the intangible assets functioned as leverage during negotiations and resulted in an increase in the total benefit conferred upon the physicians.  Further, the physicians failed to show that the value of what they transferred to the Foundation exceeded the value of what they received in return, which included above average compensation, a $35,000 "access" bonus, a "free-to-compete" clause in the event employment ceased, greater economic security in the managed care environment, and a role in management.