Rev. Rul. 75-35

A physician incorporated his practice by forming a professional corporation and became its sole employee. Concurrently, he formed a service corporation whose stated purpose was to engage in the business of providing services to physicians. This corporation hired all the employees who worked for the physician just prior to the incorporation of his practice. The two corporations entered into a contract under which these employees continue to provide substantially the same services for the professional corporation as they performed for the physician. The service corporation, since its inception, has not provided services to other physicians or made efforts to solicit additional business. Supervision and control of the employees of the service corporation is exercised by the professional corporation.

Held, the individuals hired by the service corporation are employees of the professional corporation for purposes of determining whether a deferred compensation plan established by the professional corporation meets the coverage requirements of section 401(a)(3) of the Internal Revenue Code of 1954. See Rev. Rul. 68-303, 1968-1 C.B. 165, which reached a similar conclusion in a case where the professional practice was not incorporated, and in which it was held that the service contract did not change the realities of the situation. Compare Rev. Rul. 75-41, page 323, which holds under the facts in that case that the individuals assigned by a service corporation to its subscribers remained subject to the control of the service corporation.