I have a two part question pertaining to PSLR and future medical practice goals, this question is similar, but different enough to the question “Working at a for profit with a not for profit entity” (http://askheatherjarvis.com/forums/viewthread/8646/) that I posted it in it’s own thread. Please merge if you feel it is appropriate.

Background:

I’m a fourth year medical student who’s going into emergency medicine. Prior to medical school I volunteered as an engineer on a part time basis with various non-profit groups in Latin America. These experiences contributed significantly to me deciding to change careers to become a physician and they are something that I hope to return to in the future. Long term I would like to return to part-time volunteering in developing countries as a physician.

Part 1:

I would like to self fund my volunteer medical work (rather than begging funds from friends, church groups, etc.). As I would like to maximize the amount of resources that I have available, I would like to create a nonprofit corporation, ie a 501 (c) (3), to conduct these efforts under. I would envision myself donating pre-tax income to this 501 (c) (3) so that I might be able to use it while volunteering to cover expenses, ancillary staff, stipends, etc. To be clear, I am not seeking any personal benefit (e.g. private inurement), rather to maximize resources by legitimately reducing my tax obligation. I have read through the 501 (c) (3) registration requirements as given by the IRS (publications 557 and 4220) to familiarize myself with the IRS’s requirements. To my reading I do no see any particular problems with the legitimacy of my overall plan, but I am unaware of others doing the same.

Presuming I set up everything correctly, document appropriately, and otherwise follow the letter of the law - would this work?

Part 2 (the PSLF part):

This part pertains to common employment scenarios for emergency medicine physicians with regards to the terms of the Public Service Loan Forgiveness (PSLF) program that I hope to be using for my student loans. Post residency it is my understanding that I will either be employed directly by a hospital (usually incorporated as a 501 c3) or a via a subcontracted private group (for-profit). In the direct employee case, ongoing PSLF eligibility will be a non-issue. However, I would like to be open to working in a private group as well (ideally a democratic private group), but would like to continue PSLF as my savings will be around $350k (educational debt at graduation will be ~$300k at 7.125%). It is my understanding that within private groups, many physicians elect to work as independent contractors under subchapter-s status. If I were to accept this type of employment after completing my residency, I would not be eligible for PSLF even if the parent hospital were a 501 (c) (3). What I would like to do is broaden the mission of my intended 501 (c) (3) to something like “providing both domestic and international emergency medical to those with and without the ability to pay (perhaps something like the EMTALA language that I will be bound by) and then work as a subcontractor under 501 (c) (3) status, not subchapter-s. The goal would be to maintain PSLF eligibility. To perhaps better explain what I am hoping to achieve, I have diagramed employment setups below as well as my proposed nonprofit employment approach:

Direct Employee Relationship:

Hospital (501c3)—> Emergency Department—> Physician (direct employee, PSLF eligible)

Subcontracted Employee Relationship:

Hospital (501c3)—> Emergency Department—> Private Group (for profit)—> subchapter-s—> Physician (not PSLF eligible)

Desired Employee Relationship - PROPOSED - (either approach):

Hospital (501c3)—> Emergency Department—> Private Group (for profit)—> my 501c3—> Physician (PSLF eligible)

Hospital (501c3)—> Emergency Department—> Private Group (for profit)—> subchapter-s—> my 501c3—> Physician (PSLF eligible)

Again, I want to be clear that my goal is not tax evasion or private inurement, but rather to remain eligible for PSLF by being an employee of a 501 (c) (3) corporation while allowing for greater flexibility in employment. Given these goals, do you have any understanding if one could legitimately setup either of the above employee relationships so that one might be able to have employment flexibility while remaining eligible for PSLF and also maximizing resources for volunteer medical care both domestically and abroad?

Regarding the basic sniff test, I can see this two ways: 1) a 501c3 is being used as a for profit subsidiary to avoid student loans - doesn’t work and 2) a 501c3 is providing the same services that the parent organization is providing (i.e. the Hospital which provides medical care and happens to subcontract out the emergency department while maintaining many other physicians as direct employees) and the parent organization is also a 501 (c) (3) - does pass the sniff test as the presences of a intermediary for profit isn’t relevant.

While I realize that you might not be able to give a detailed answer, I would be grateful for any suggestions or advice that you might have.

Rusty,

The student loan regulations do not call for any inquiry into the sources of funding for the 501(c)(3) non profit.  My thought is that this is likely to turn on the rules regarding non profit tax status and employment law, about which I am not sufficiently knowledgeable to give you any particular insight in addition to your own.  Bear in mind that a borrower must be employed directly by the nonprofit, and many subcontractor arrangements would instead be independent contractor relationships.  I think your analysis is sound.  And remember that Adjusted Gross Income influences the potential for PSLF as well, insofar as it establishes eligibility for and the payments required under an income driven repayment plan.

Best,
Heather