Recessions Call For Career Changes, Right?
January 27, 2009 by Tax Blog
Filed under Questions & Answers
A gynecologist had become fed up with malpractice insurance and HMO paperwork and was burned out. Hoping to try another career where skillful hands would be beneficial, he decided to become a mechanic.
He went to the local technical college, signed up for evening classes, attended diligently, and learned all he could. When the time for the practical exam approached, the gynecologist prepared carefully for weeks and completed the exam with tremendous skill. When the results came back, he was surprised to find that he had obtained a score of 150%.
Fearing an error, he called the instructor, saying, “I don’t want to appear ungrateful for such an outstanding result, but I wonder if there is an error in the grade.”
The instructor said, “During the exam, you took the engine apart perfectly, which was worth 50% of the total mark. “You put the engine back together again perfectly, which is also worth 50% of the mark.”
After a pause, the instructor added, “And I gave you an extra 50% because you did it all through the muffler, which I’ve never seen done in my entire career.”
Courtesy of Floyd Greenman, EA in Northridge, CA
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Doctor’s Malpractice Insurance
A self-employed doctor may deduct the premium costs of malpractice insurance. However, a doctor who is not self-employed but employed by someone else, say a hospital, may deduct the premium costs only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor. Whether malpractice premiums paid to a physician-owned carrier are deductible depends on how the carrier is organized. If there is a sufficient number of policyholders who are not economically related and none of whom owns a controlling interest in the insuring company, a deduction is allowed provided the premiums are reasonable and are based on sound actuarial principles.In one case, physicians set up a physician-owned carrier that was required by state insurance authorities to set up a surplus fund. The physicians contributed to the fund and received nontransferable certificates that were redeemable only if they retired, moved out of the state, or died. The IRS and Tax Court held the contributions to the fund were nondeductible capital expenses.In another case, a professional corporation of anesthesiologists set up a trust to pay malpractice claims, up to specified limits. The IRS and Tax Court disallowed deductions for the trust contributions on the grounds that the PC remained potentially liable. Malpractice claims within the policy limits might exceed trust funds and the PC would be liable for the difference. Since risk of loss was not shifted to the trust, the trust was not a true insurance arrangement.