Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-49

1969-1 C.B. 138

IRS Headnote

Benefits provided under a retirement plan pursuant to an agreement between a nonprofit corporation operating a medical and hospital service program and a physicians group are taxable to the physicians in the year received or made available.

Full Text

Rev. Rul. 69-49

A nonprofit corporation engaged in operating a medical and hospital service program entered into an agreement with a partnership composed of physicians (the "Group") whereby the Group agrees to furnish the medical services required to satisfy the medical service obligations provided in the corporation membership contracts. These services are rendered without intervention in any manner by the corporation. There is no contractual relationship between the physicians and the patients. The agreement provides that the corporation shall determine the monthly average number of members entitled to medical services to be provided by the Group and shall pay to the Group an amount equal to such average membership multiplied by the per member price in effect for the month. Thus, the remuneration is not related to any particular service provided to any particular patient. As an additional incentive, the corporation established a retirement plan that provides a monthly pension for life to each physician who retires because of age or disability if the express conditions of the plan have been fully met at the time each monthly payment is due. The plan is not funded by a trust arrangement, or other arrangement, to which the physicians will have any prior or privileged claim.

Held, since there is no contractual relationship between physician and patient and the plan is not funded in any way, a physician covered by the retirement plan does not realize any taxable income by reason of any interest in, or right under, the plan, except when cash or other property is received by or made available to him, whichever is earlier. Compare Revenue Ruling 69-50, page 140, which holds, under the facts therein, that when a nonprofit corporation insuring medical expenses of its subscribers, pursuant to an election made by a cash basis participating physician, withholds a stated percentage of all payments that become due the physician, these amounts must be included in the income of the physician in the taxable year withheld.