153rd IOWA DENTAL
ASSOCIATION ANNUAL SESSION
BrownWinick Law Firm
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Website: www.brownwinick.com
BLOG: www.brownwinick.com/BLOGHealthLaw
BUSINESS ASPECTS OF
PRACTICE
Drew D. Larson: larson@brownwinick.com
Robert D. Hodges: hodges@brownwinick.com
Christopher L. Nuss: nuss@brownwinick.com
Website: www.brownwinick.com
BLOG: www.brownwinick.com/BLOGHealthLaw
SELLING A DENTAL
PRACTICE
Drew D. Larson
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2485
E-mail: larson@brownwinick.com
SELLING A PRACTICE
• All dental practices are going to
transition.
• Hopefully the owner is able to get some
value out of it through a sale.
STANDARD CASE 1: Succession
Buying
Dentist
Time (future)
Selling
Dentist
STANDARD CASE 2: Succession
with Overlap
Selling
Dentist
Buying
Dentist
Selling
Dentist
(Employee)
Time (future)
Buying
Dentist
Standard Case 3: Single to
Group Practice
Buying
Dentist
(member)
Selling
Dentist
(member)
Time (future)
Selling
Dentist
GOALS
•
•
•
•
Clarity regarding obligations.
Meeting each party’s needs and goals.
Managing tax issues and risks.
Transitioning business operations.
GOALS - SELLER
• Get the best price for the business.
• Minimize ongoing obligations and
liabilities.
• Maximize up front cash.
GOALS - BUYER
• Get the lowest price for the business.
• Minimize the risk the seller oversold the
value of the business.
• Ensure you have a remedy if the seller
breached the agreement.
DUE DILIGENCE
• Opportunity for Buyer to research Seller.
• Seller knows its own business better
than the Buyer.
• Buyer wants to know what he/she is
getting into.
• Covers everything.
DUE DILIGENCE – SELLER PREP
• If a Seller does not have good records, it
increases the Buyer’s risk.
• Annually check to make sure corporate
and financial records are in order.
• Buyers (and their financing sources)
abhor risk.
• Poor records can easily sink a deal or
substantially lower the price.
DUE DILIGENCE - DISCLOSURES
•
•
•
•
•
•
•
Financials
Assets and Real Estate
Corporate Documentation
Tax Information
Litigation
Employee Matters
Regulatory/Payer Compliance
ADVANTAGES TO SELLING
DENTAL PRACTICE
• Buyer already knows how business
works.
• If Buyer an employee, already knows the
business.
• Financing generally available.
TWO BASIC STRUCTURES
• Asset Purchase
• Stock Purchase
ASSET PURCHASE
•
•
•
•
Generally preferred by Buyers.
Best limits successor liability.
Provides a stepped up basis.
Requires depreciation recapture for
Seller, if applicable.
• Generally ordinary income up to amount
of depreciation recapture, then capital
gains.
STOCK PURCHASE
• Generally preferred by Sellers.
• Can be simpler, no transfer of contracts,
etc. (may have notice requirements).
• No step up in basis for Buyer.
• Generally all capital gains in excess of
basis.
FINANCING
•
•
•
•
Cash
Bank
Seller Financing
Combination
INDEMNIFICATION AND
REMEDIES
•
•
•
•
•
•
Survival – Protection and Certainty
Indemnification
Defense of Claims
Baskets, Caps
Setoff
Exclusivity of Remedies?
OTHER ISSUES
•
•
•
•
•
Employment Agreement
Non-Compete Obligations
Confidentiality
Earn Out
Transition Assistance
QUESTIONS
Estate Planning: A Basis
Check-Up
Robert D. Hodges
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2465
Facsimile: 515-343-8465
E-mail: hodges@brownwinick.com
Disclaimer
IRS Circular 230 Notice: To ensure compliance with requirements imposed by
the IRS, we inform you that, except to the extent expressly provided to the
contrary, any federal tax advice contained in this communication is not intended
or written to be used, and cannot be used, for the purpose of (i) avoiding
penalties under the Internal Revenue Code or (ii) promoting, marketing, or
recommending to another party any transaction or matter addressed herein.
Please consult your tax advisor for advice specific to your individual situation.
This presentation should be considered general in nature and not specific legal
advice. No attorney-client relationship is intended or implied.
“BIG PICTURE” ENVIRONMENT

$5,430,000 for unified credit 2015

Increased rate to 40%

“Portability” permanent

GST mirrors unified credit

Annual exclusion gifting still viable
“CHOPPING BLOCK” ITEMS

$5,430,000 for unified credit

Minority/Marketability Discounts

“File and suspend” for Social Security

“Rolling GRATs”

Death Tax?
NON-TAXABLE ESTATES

Income tax efficiency may drive decisions

Portability return part of standard practice

Planning for non-involved children

Right of first refusals
COMMON MISTAKES

Incorrect beneficiary designations

No powers of attorney

Reluctance to use trusts

No periodic “check ups”
BENEFICIARY PROBLEMS

The will NOT “figure it out”

“Fair” vs. Equal

Fix a valuation formula in the plan

Be explicit regarding property distribution

Fiduciary designations
PROBATE AVOIDANCE

Pitfalls of probate
•
Public, Slow, and Expensive
•
Not a catastrophic result in Iowa

“All or nothing” approach

Non-attorney involvement
QUESTIONS
Uncle Sam “Needs” More Cash – Recent
Tax Law Changes Affecting You and Your
Business (And More …)
Christopher L. Nuss
666 Grand Ave, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2432
E-mail: nuss@brownwinick.com
RECAP OF 2014 FEDERAL
LEGISLATIVE ACTIVITY AT
ELEVENTH HOUR




“Extenders” bill passed and signed effective
December 19, 2014, retroactive to January 1.
Most relevant common provisions:
• Cost recovery/depreciation – bonus and § 179
• Credits – research activities, hiring certain
individuals
• Others – “BIG” period & “small business stock”
gain
What to expect during the 2015 legislative session?
Update on “Tax Freedom Day” for 2015
EXAMPLE OF FEDERAL TAX
INCREASE FOR 2014 (AND
CONTINUING)
Assumptions: Married filing jointly (w/o dependents)
with mixture of salary ($65K), investment income
($90K), pass-through income from S corporations or
LLCs ($400K), and pension/social security ($200K),
and various itemized deductions and exemptions.
For illustrative purposes only.
EXAMPLE OF FEDERAL TAX
INCREASE FOR 2014 (CONT.)
2012
2013/2014
Increase
AGI (before
deductions)
$825,000
$825,000
___
Taxable Income
768,000
792,000
$24,000
Income Tax
219,000
243,000
24,000
FICA/Medicare
on W-2
3,700
5,000
1,300
3.8% Medicare
on NII
___
3,500
3,500
$222,700
$251,500
$28,800
(or 12-13%)
Total Taxes
WHY INCREASE IN TAXES FOR
2014?
• Increase of top tax rate on dividends, capital
gain, & ordinary income.
• Increase in FICA & Medicare on earnings.
• Quicker phaseout of itemized deductions &
loss of exemptions. How change effective tax rates?
• New 3.8% Medicare on net investment
income.
• Alternative minimum tax (AMT).
PLANNING POINTS GOING
FORWARD
• Estimated tax payments & wage withholding even
more important (avoid large tax bill & penalty).
• Basic choice-of-entity considerations (C corp, S corp,
LLC, etc.)
• Defer recognition of income and gain, while
accelerating deductions.
•
•
•
•
•
Basic deferral mechanisms w/in accounting method
Section 179 expense & bonus depreciation
Utilize tax credits?
Equity interests in LLCs/partnerships
Other miscellaneous tools
PLANNING POINTS GOING
FORWARD (CONT.)
• Gifts & distributions from trusts to family
members or other taxpayers in lower tax
brackets.
• Revise mix of investment assets.
• Consider change in business entity form?
• Others?
OTHER TAX PLANNING
CONSIDERATIONS
• “Active” participation in S corporation – NII
tax and employment taxes.
• Health insurance arrangement w/ employees
or shareholders of S corporations.
• Possible exit strategy - personal goodwill for
C corporation shareholders.
STATE TAX PLANNING ISSUES
• “Beware of multi-state operations, especially
for pass-through entities – Compliance!!
• New Iowa business property tax exemption –
(http://www.brownwinick.com/news-blogs/legal-news/state-of-iowa-propertytax-reform.aspx)
• Imposition of sales and use tax – collection
and payment responsibilities.
CYBERSECURITY CONCERNS
• Identity theft is on the rise, for filing false tax
returns.
• Scams acting as the IRS.
• Outside payroll agents.
• Document retention and destruction.
• Potential Board of Director liability.
WHAT IS UPCOMING? POSSIBLE
FUTURE CHANGES (OR MORE OF THE
SAME)
• Keep radar on Congress throughout the
year, many key provisions set to expire
(again) – likely to extend (again).
• Each quarter, review year-to-date tax
situation.
• Any questions?
QUESTIONS
YOUR FACILITY:
A PRACTICE’S SMILE TO THE
WORLD
Drew D. Larson
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2485
E-mail: larson@brownwinick.com
WHY FACILITIES MATTER
• Your facility is the public face of your
practice.
• You want the facility to be clean, in a
good location, and welcoming.
• Besides labor, facilities are often one of
the largest expenses of a dental
practice.
WORK WITH PROFESSIONALS
• Commercial real estate is different than
residential.
• Lots of variables related to liability and
costs
• Lease agreements are complicated.
WORK WITH PROFESSIONALS
(CONT.)
• Commercial Broker, Lawyer, and
Architect.
• Worth paying up front to protect yourself
on a contract you will be paying on for
years.
DO IT RIGHT UPFRONT
• Negotiating is like a dental cleaning. Not
exactly fun, but important.
• Fighting with a landlord later is like
getting your wisdom teeth removed. It
isn’t fun, and in this case you are
conscious the whole time.
MAKING A LONG TERM
COMMITMENT
• You will likely be here a long time. Make
sure you like it.
• Are you sure that this is the last place
you will want to be? Demographic shifts,
etc.
OPTIONS – BUY OR LEASE
• Advantages and disadvantages to each
option.
• Buyers tend to view the facility as an
investment.
• Tenants tend to view the real estate as
an operational cost.
BUYING A FACILITY
• Purchase Agreement
• Key Provisions (check the teeth)




Price
Closing Schedule
Prorations, warranties, etc.
Financing Contingency?
BUYING A FACILITY (CONT.)
• Due Diligence







Free Look (Due Diligence): inspections, etc.
30-60 Days
Zoning
Survey
Environmental (Phase I)
ADA
Appraisal
LEASING A FACILITY
• While not quite as long term as buying,
leasing is still a big commitment.
• Lots of technical provisions, need to
make sure terms are fair at the
beginning and in the long term.
NEGOTIATING THE LEASE
• Many terms may seem straight forward,
but still call your attorney.
• The danger is often in the boilerplate
regarding defaults, termination, etc.
• Landlord will generally provide form.
KNOW YOUR POSITION
• Landlord will often say no one has negotiated
the lease form before. Don’t buy it.
• Be willing to walk away, or at least let the
landlord think you can.
• You will likely be an excellent tenant
(professional, low default rate, keep facilities
clean). That is valuable to a landlord.
NEGOTIATE UP FRONT
• Knowing the landlord is great. But in 1020 years, may not be the same person.



Landlord sells building.
Dies.
Bank Forecloses.
• Better off negotiating harder up front
than trying to deal with a new aggressive
landlord later.
LEASE TERM
• Given investment in build out, need a
long enough term to recoup investment.
• Base Term – Usually 3-5 Years
LEASE TERM (CONT.)
• Optional Extension Terms (usually
tenant option)



Rent on Extension (predetermined, market, or
CPI)
Make sure you note when exercise required.
Before exercising, look around. Negotiate
down the price if rents have declined
substantially.
RENT – GROSS LEASE
• In a gross lease, the landlord is
responsible for:



property taxes
insurance (on the building)
common area maintenance (CAM) expenses
• Rent payments higher because landlord
covers more costs and risks.
RENT – TRIPLE NET
• Tenant pays base rent, plus pro-rata
share of property taxes, insurance, and
CAM.
• Most common structure.
• Risk is on the tenant.
CAM
• All operational costs of property,
excluding structural components. Can
include:







Snow Removal / Lawn Care
Interior Hallways / Shared Restrooms
Heating / Cooling
Roof Repair / Replacement
Parking Lot Maintenance / Replacement
Management Fees (cap at 4%)
Depreciation (i.e. roof fund)
CAM (CONT.)
• Estimated Payments
• Reconciliation (limit to band around
estimate)
• Audit Rights
LEASE IMPROVEMENTS
•
•
•
•
Ready for Move In (unlikely)
Landlord Pays?
Tenant Pays? Hard to finance.
Mix? - Build-Out Allowances
SIGNAGE AND WINDOWS
• May seem unimportant, but provisions
regarding the placement and payment
for signage is important. How often are
there new signs?
• Who is responsible for damage to
windows? Imagine being in a mixed use
development in a college town. Bound
to happen someday.
TERMINATION OF LEASE
• Ongoing obligations?
• Fixtures – Anything attached to the
premises.


Generally stay with the real estate.
Need carve out for equipment, such as x-ray
equipment, dental stations, specialized lights,
etc., that you would want to take with you at
end of lease.
PLANNING FOR GROWTH AND
TRANSITION
• What happens if you add a dentist as a
partner or employee?
• Do you need an option to increase the
amount of space if you need to grow?
• Right of first refusal on neighboring
space.
• Think of how the real estate will factor
into your growth and transition planning.
USE RESTRICTIONS
• Are there restrictions on the use of the
property? Offices, noisy neighbors?
• Could another dental office move in next
door?
• Limits on hours of operation?
ASSIGNMENT
• Generally, leases can’t be assigned
(transferred) or sublet without landlord
consent.
• May request right to assign as party of
sale of practice.
• If receiving assignment, request a
landlord estoppel showing that there are
no defaults, confirming lease terms.
LANDLORD’S LENDER
• What happens if a lender forecloses on
landlord?
• If mortgage predates your lease, the
mortgage has priority and can terminate your
lease.
• Most lenders want to keep the leases, unless
the rent is below market or someone wants
to buy the whole building.
LANDLORD’S LENDER (CONT.)
• Non-Disturbance Agreement – landlord’s
lender agrees lease will remain in place if
there is a foreclosure.
• Important when tenant spent a lot of money
on leasehold improvements.
OTHER TIDBITS
• If substantial deferred maintenance, ask for
bigger build out allowance or ask for it to be
replaced before moving in.
• If you buy and then lease to yourself, make
sure you meet the Stark and Anti-Kickback
exemption requirements.
QUESTIONS
Website: www.brownwinick.com
Toll Free Phone Number: 1-888-282-3515
OFFICE LOCATIONS:
666 Grand Avenue, Suite 2000
Des Moines, Iowa 50309-2510
Telephone: (515) 242-2400
Facsimile: (515) 283-0231
616 Franklin Place
Pella, Iowa 50219
Telephone: (641) 628-4513
Facsimile: (641) 628-8494
DISCLAIMER: No oral or written statement made by BrownWinick attorneys should
be interpreted by the recipient as suggesting a need to obtain legal counsel from
BrownWinick or any other firm, nor as suggesting a need to take legal action. Do not
attempt to solve individual problems upon the basis of general information provided
by any BrownWinick attorney, as slight changes in fact situations may cause a
material change in legal result.