Contracting with a "corporation"

Bmarrs

We are an ASO for a group of Mental Health Organizations and we are trying to help one of them with an employment situation. They have a Doctor on staff (who is legally considered a contractor) who has no other practice outside of this organization. The Mental Health Center provide the doctor's office, supplies; and even the contract between them provides for benefits i.e vacation days, health insurance.

Additionally all the benefits are the same as the employees' benefits. The doctor has set himself up as a corporation and the Center technically does business with the corporation. The Doctor wants this arrangement because he gets more tax benefits this way.

We've tried to convince the Executive Director of the Center that this is not likely to fly with the IRS. However, he is concerned that since it's a rural area that he could not find another doctor and has to play by the doctor's rules. The main argument that they have is that the doctor is a corporation and that since the Mental Health Center is doing business with a corporation, they aren't subject to these laws.

Do you know anything about businesses successfully using the corporation thing to get around the contract employee thing?

I think the Executive Director would listen to what you have to say. Thanks!

TN HR

It matters not if he has set himself up as an individual, corporation or LLC. The IRS would love to get their hands on this one. So would the DOL.

If I were the Executive Director I would be more concerned with the potential exposure if the "corporation" one day decided that a funded 401K would sure be nice, along with other perks and benefits available to employees, awarded retroactively, of course.

The other potential risk here is if the "corporation" does not file taxes properly. The terms "implied liability" and "retroactive liability" for taxes owed should ring a bell to the Director.

I think a lawyer needs to get involved.

I would offer him his last rites, do like the Pope does then wash your hands of it.

Gene

Don D

Hold on here....."Do like the Pope does?" El Papa only appears at windows and gurgles and moves a hand and then has people wheel him to the pottie. What's the disposition of that?

My question for the poster is why in the world is Human Resources involved in this scenario in the first place? This is a legal matter between a corporation and the Internal Revenue Service.

Shadowfax

I think you may be able to do what you are doing, only it needs to be done differently - sounds contradictory doesn't it. Your problem is that your organization is providing some of the things the IRS looks at as being definitive of 'control' for purposes of determining emp/ee vs IC. If your org simply paid the PC an agreed upon rate for the physicians services, and the PC divvied up the contract amount into vacation, insurance, benefits, etc at the DRs direction, I think you may have solved your problem. Gene is right that it doesn't really matter if the contractor is a corp if the corp is sufficiently controlled by the master. But, truth is, the IRS will not look as closely when it is a corp, and if the corp charges an annual rate, daily rate or whatever for the services it provides to the master - which may include the services of a physician - then I think you are OK.

marc

[font size="1" color="#FF0000"]LAST EDITED ON 03-29-05 AT 11:11AM (CST)[/font][br][br]I agree with Shadowfax - most of these provisions sound like they can be worked out in the terms of the contract. Some of the items can be spelled out a bit differently - such as how to schedule the down time associated with vacation etc.

I would have felt stronger about this possibility except for the recent heavy fines paid by the nations largest retailer.

I believe Walmart had the same idea with it's janitorial subcontractor - we all have recently read how that turned out.