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the noncompete agreements. Petitioners were determined to avoid
that possibility.
At some point in the negotiations, petitioners and the other
UHMG physicians decided to pursue exclusively an affiliation with
Sutter Health. Thereafter they retained an attorney, Peter
Grant, to advise them with respect to the transaction with SMF.
Mr. Grant, whose fees were paid by SMF, was experienced in
matters affecting health care organizations, including
acquisitions of physician practices. Mr. Grant recommended that,
in light of Sutter Health's unwillingness to pay cash for
goodwill or similar intangible assets associated with the
physicians' practices, petitioners should consider donating their
practice intangibles to SMF and claiming charitable contribution
deductions for their values.
Mr. Grant recommended that petitioners structure the
transfers of the intangibles as donations because that technique
had been used in connection with an acquisition of a group
medical practice by a nonprofit medical foundation (Friendly
Hills Healthcare Foundation), for which Mr. Grant had served as
an adviser. Mr. Grant had received a written determination in
the form of a determination letter granting section 501(c)(3)
tax-exempt status to Friendly Hills Healthcare Foundation, where
it had been represented that the medical group physicians would
make donations of an aggregate portion of the transferred assets
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