Although charity may begin at home, two different physician groups, one on the east coast and one on the west, have learned that charity stops at the office.

Tax Deductions For Contributing Good Will

In Derby v. Commissioner, TC No. 10930-02, the United States Tax Court rejected the attempts by 12 physicians to deduct “contributed good will” arising out of the sale of their medical practices to Sutter Health in 1994. The physicians tried to argue that the value of their practices, as established by a third-party appraisal, exceeded the actual acquisition price paid by Sutter Health and the shortfall was a charitable donation to Sutter Health.

The Court rejected the arguments on the basis that the physicians were wholly compensated under the terms of the employment agreements, that the transaction lacked any donative intent because it was a tightly negotiated deal entered into for significant consideration, and the long-term employment contracts entered into by the physicians could not be ignored in establishing the actual value of the acquisition price. 

Charitable Immunity Statutes Does Not Protect Practice Group From Malpractice Liability

A faculty practice group affiliated with the University of Virginia attempted to claim charitable immunity from malpractice suits under the states charitable immunity laws. In University of Virginia Health Services Foundation v. Morris, the Virginia state high court held that Virginia law confers such immunity only on organizations organized and operated for charitable purposes, and that University of Health Services Foundation, although organized as a charitable organization, did not operate in accordance with those principles. Instead, the Court concluded the Foundation operated like a for-profit business with extensive assets and revenues paid to the member physicians, despite the charitable care provided by the group.