Charles A. and Marian L. Derby, et al. - Page 17




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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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