Rev. Rul. 69-50

A nonprofit corporation insuring medical expenses of its subscribers in accordance with a list of specified allowances, proposes to enter into deferred payment arrangements with its participating physicians on an elective basis. The physicians are not employees of the corporation. Under the arrangement, a participating physician may elect (irrevocably) to defer a stated percentage of all payments that will become due from the corporation, as compensation for services rendered to its patient-subscribers, for the next five years. The amounts deferred pursuant to this arrangement will be paid (1) in equal monthly installments to the physician upon retirement, or earlier in the case of disability, or (2) upon his death to his beneficiary. The corporation will invest the amounts withheld and all investment gains and losses will be credited or debited to the physician's account payable on the books of the corporation.

Under these arrangements, a participating physician on a calendar year basis, reporting on the cash receipts and disbursements method, elected to defer 30 percent of all such compensation payments that will become due from the corporation for the next five years. Pursuant to the agreement with the participating physician, the corporation withheld $3,000 during the following calendar year.

Held, the participating physician must include the $3,000 in gross income for the year withheld. The participating physician's right to the compensation payments credited to his account by the corporation emanates from the medical services that he has rendered to patient-subscribers. Under the agreement the patient-subscribers have compensated the participating physician for these services by investing him with such right. In effect, they have funded their obligation to the participating physician with the corporation, and, in so doing, they have conferred an economic or financial benefit on the participating physician. See Rev. Rul. 62-74, C.B. 1962-1, 68; Rev. Rul. 55-691, C.B. 1955-2, 21; E. T. Sproull v. Commissioner, 194 F. 2d 541 (1952), affirming 16 T.C. 244 (1951); United States v. Theodore B. Drescher, 179 F. 2d 863 (1950), reversing 84 F. Supp. 228 (1949); J. H. McEwen v. Commissioner, 6 T.C. 1018 (1946); J. Ferd Oberwinder v. Commissioner, 147 F. 2d 255 (1945), affirming Tax Court Memorandum Opinion, entered April 26, 1944; and Renton K. Brodie v. Commissioner, 1. T.C. 275 (1942).