Who Sold That Goodwill – The Corporation or The Shareholder?


Today most physicians, dentists, accountants and other professionals practice in entities established under state law as professional limited liability companies (“PLLCs”), limited liability partnerships (“LLPs”) or professional corporations (“PCs”). PLLCs, LLPs and PCs that have elected S Corp status under the Internal Revenue Code generally enjoy pass-through tax status. This allows all profits and losses of the business entity to pass-through to the individual(s) owning the entity, i.e., a single tax is paid.

However, on occasion attorneys and accountants are in a position to represent physicians, dentists, accountants or other professionals who are selling their practices, which were established as a C Corp for tax purposes. This usually triggers a double tax that can consume well over 50 percent of the sale proceeds. Unless handled thoughtfully, the sale proceeds will first be taxed at the corporate level of 35 percent (federal) and 8 percent (state). If the Corporation liquidates and distributes the remaining sale proceeds to the shareholder(s) of the C Corp, that distribution will be taxed at the personal level at about 15 percent (federal) and 9 percent (state).

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