Dental School and Section 199A (QBID)

Would a private school that teaches certain dental surgery procedures be considered a specified business?

Now this is a question we could really sink our teeth into. I’ll brace myself for responses. Whomever gets this right wins the Crown. It would be nice if we could provide answers to this question orally. Hopefully Gene responds....Hi Gene!!

If you drill down into

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

you'll find the following:

The performance of services in the field of consulting does not include the performance
of services other than advice and counsel, such as sales or economically similar
services or the provision of training and educational courses.

And this:

Proposed §1.199A-5(b)(2)(ii) is informed by the definition of “health” under
section 448 and provides that the term “performance of services in the field of health”
means the provision of medical services by physicians, pharmacists, nurses, dentists,
veterinarians, physical therapists, psychologists, and other similar healthcare
professionals who provide medical services directly to a patient.

And this:
Proposed §1.199A-5(b)(2)(ii) is informed by the definition of “health” under
section 448 and provides that the term “performance of services in the field of health”
means the provision of medical services by physicians, pharmacists, nurses, dentists,
veterinarians, physical therapists, psychologists, and other similar healthcare
professionals who provide medical services directly to a patient.

The final 199A-5 reg reads differently than the proposed reg:

...the performance of services in the field of health means the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals performing services in their capacity as such.

Emphasis added.

From the preamble to the final regs:

One commenter suggested that services are not performed in the field of health unless services are performed directly to a patient. As an example, the commenter argued that a physician who reads x-rays for another physician but does not work directly with the patient would not be performing a service in the field of health. Another commenter stated that defining services in the field of health by proximity to patients could lead to arbitrary results, pointing out that a radiologist who acts as an expert consultant to a physician engages in the same exercise of medical skills and judgment as a physician who sees patients. The commenter suggested that technicians who operate medical equipment or test samples, but are not required to exercise medical judgment should not be considered as performing services in the field of health. The Treasury Department and the IRS agree with the second commenter that proximity to patients is not a necessary component of providing services in the field of health. Accordingly, the final regulations remove the requirement that medical services be provided directly to the patient. The final regulations do not adopt the suggestion that technicians who operate medical equipment or test samples are not considered to be performing services in the field of health as this is a question of fact. However, the final regulations do include an additional example related to laboratory services.

That said, I don't think a dental school is an SSTB as long as the dental school is merely teaching classes and providing instruction, and not reviewing patient x-rays/records, providing consulting to dentists, or providing dental surgery to patients. Filter your fact pattern through the essence of Example 4: 1.199A-5(b)(3)(iv).

Reg. 1.199A-5(b)(2)(ii) states:

(ii) Meaning of services performed in the field of health. For purposes of section 199A(d)(2) and paragraph (b)(1)(i) of this section only, the performance of services in the field of health means the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals performing services in their capacity as such. The performance of services in the field of health does not include the provision of services not directly related to a medical services field, even though the services provided may purportedly relate to the health of the service recipient. For example, the performance of services in the field of health does not include the operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing, or the research, testing, and manufacture and/or sales of pharmaceuticals or medical devices.

A dental school teaches students to become dentists, it doesn’t provide medical services to patients.

Our local dental school provides medical services to patients. That's how the students learn. When supervising trainees' work on patients, are the faculty teaching or engaged in the field of health? I vote for the former.

Dental School for dentist is through a University. Hygienists and assistants may have a separate educational institutions for profit? I know Dentists in school get sent out to help in locations, but if it is the educational location is that not like a not for profit work???

Dental schools charge patients much less because the dental work is performed by trainees. So, even if this work is considered to be “the provision of medical services,” the de minimis exception of Reg. 1.199A-5(c)(1) might apply if the gross receipts from the patients is less than 10% (if gross receipts are $25M or less) or less than 5% (if gross receipts are more than $25M) of the school's total gross receipts.

Meaning of services performed in the field of health. For purposes of section 199A(d)(2) and paragraph (b)(1)(i) of this section only, the performance of services in the field of health means the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals performing services in their capacity as such

I’ve always been annoyed that they included veterinarians in this definition. It’s an outlier and causes us to wonder what “similar healthcare professionals means.” Similar to what: Similar to someone that treats people or similar to someone that treats animals? I’d say that an arborist, or a landscape guy, would be similar since they too treat something that’s living. Anyway, I digress…

A dental school teaches students to become dentists, it doesn’t provide medical services to patients.

It's akin to the FICA/med student issue.

Dental schools charge patients much less because the dental work is performed by trainees. So, even if this work is considered to be “the provision of medical services,” the de minimis exception of Reg. 1.199A-5(c)(1) might apply if the gross receipts from the patients is less than 10% (if gross receipts are $25M or less) or less than 5% (if gross receipts are more than $25M) of the school's total gross receipts.

Agree.

Examine the gross receipts.

Do the "patients" pay? If yes, who do they pay -- the school, the teacher, the student-dentist, some combination of all of the above?

If both the "patients" and student-dentists are paying the school, look to the de minimis exception. If that can't be met, and it's feasible, perhaps the "patients" need to be invoiced by the student-dentists and pay them directly.