Rev. Rul. 56-23

Advice has been requested whether an association of doctors which formerly operated as a partnership may be treated as a corporation for Federal income tax purposes and further whether a doctor-member of the former partnership was an employee of the partnership for the purpose of the requirements for establishing a pension plan under section 401(a) of the Internal Revenue Code of 1954, corresponding to section 165(a) of the 1939 Code.

These questions are posed because of the decision in United States v. Arthur R. Kintner et ux. , 216 Fed.(2d) 418. In that case, on the authority of Ora L. Pelton, Sr. et al., Trustees v. Commissioner , 82 Fed.(2d) 437, the court held that the association had more of the criteria of a corporation than of a partnership under T. A. Morrissey et al., Trustees , v. Commissioner , 296 U.S. 344, Ct.D. 1064, C.B. XV-1, 264 (1936), and it distinguished Mobile Bar Pilots Association v. Commissioner , 97 Fed.(2d) 695, Ct. D. 1417, C.B. 1939-2, 244, relating to the performance of pilotage services by an association of pilots. Having determined that the clinic in the Kintner case is an association which is treated for tax purposes as a corporation, notwithstanding the State does not include the practice of medicine in the listing of purposes for which a corporation may be formed, the court further held that the pension plan established by the association satisfies the requirements of section 165(a) of the 1939 Code. In reaching this conclusion, the court credited the doctor-members with prior years of service as partners as constituting qualifying years of employment for purposes of the pension plan of the association.

It is held that a group of doctors who adopt the form of an association in order to obtain the benefits of corporate status for purposes of section 401(a) of the Internal Revenue Code of 1954 is in substance a partnership for all purposes of the Internal Revenue Code. It follows that the doctor-members are employers and therefore not employees. Rev. Rul. 33, Part 2(a)(1), C.B. 1953-1, 267, at 269. Furthermore, any period of service as members of a prior partnership will not be credited as a period of employment for purposes of the above section. The contrary position expressed in the case of United States v. Arthur R. Kintner et ux. , 216 Fed.(2d) 418, will not be accepted by the Internal Revenue Service as a precedent in the disposition of other cases involving similar fact situations.