I have previously discussed eight things to consider when selling your medical practice, and warned of the dangers of relying on the “hospital fairies” to maintain your income as an employed physician in the face of increasing costs and declining reimbursement. I have also had a good rant on the joys of hospital negotiations. But however you may have reached your decision, this post will discuss the nitty gritty of actually closing your practice after accepting employment at a hospital.
I’m assuming that you sold to a hospital, rather than simply stopping practice. Accordingly, I will assume that you won’t need to notify patients to avoid charges of abandonment – you’re seeing those patients in your new role as employed physician.
Of course, the most important thing you will have to accomplish is to pay all the bills of the practice incurred before the sale, and collect the income from services rendered before the sale. I generally counsel physicians to allow at least six months after the sale to collect what you can (and potentially deal with insurance companies’ claims for reimbursement, etc.). If your practice was on a calendar year, it may make sense to close it at the end of the current year.
Before the end of the year, close out all your accounts, so the practice’s final tax return will show zero assets. It usually makes sense to pay your healthcare attorney and accountant in advance as a fixed fee for everything that needs to be done in closing the medical practice. For example, the CPA will need to file the final tax return, generally several months after the corporation has been closed. You will want to make sure that is accomplished at a flat fee, paid out of the practice’s account before closing the account. Your attorney will also have to do things after closure (discussed below), so make a deal to pay the attorney a flat fee out of the practice’s assets as well.
I have frequently been informed by my clients that their CPA is telling them that filing the final tax return closes the corporation, and nothing else needs to be done. That isn’t correct. Filing the final tax return informs the Pennsylvania Department of Revenue (“Revenue”) and the IRS that the corporation is closed, but the Pennsylvania Department of State (“State”) has exclusive jurisdiction over opening and closing corporations in Pennsylvania.
In order for State to approve the dissolution of a corporation, you must file Articles of Dissolution with State. State has to ensure that all employee and income taxes have been paid before it allows the corporation to dissolve. To ensure that these taxes have been paid, State requires a Tax Clearance Certificate (“Certificate”) from both Revenue and the Pennsylvania Department of Labor and Industry (“L & I”).
There is a form that must be filed with both Revenue and L & I to get them each to issue a Certificate. The good news in this regard is that it is the same form, so you just need an original and a copy to file with the two agencies. L & I usually produces the Certificate in a few weeks – Revenue sometimes takes as long as a year to cough up its Certificate.
Once your attorney has both Certificates in hand, Articles of Dissolution can be filed with State, and your corporation will be officially closed. Your long career as a business owner will finally be over, and you can devote yourself exclusively to the practice of medicine (assuming your employer isn’t beating you up too badly on administrative duties).