                        T.C. Memo. 2007-124



                      UNITED STATES TAX COURT



              W.W. EURE, M.D., INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12224-05.             Filed May 17, 2007.



     W.W. Eure and Charles P. Copeland (officers), for

petitioner.


     Guy H. Glaser, for respondent.


                        MEMORANDUM OPINION


     KROUPA, Judge:   Respondent determined deficiencies in

petitioner’s Federal income tax for 2002 and 2003 (the years at

issue) of $12,416 and $15,404, respectively.    The sole issue for

decision is whether petitioner is a qualified personal service
                               - 2 -

corporation subject to a special flat income tax rate of 35

percent under section 11(b)(2)1 rather than the graduated income

tax rates for corporations under section 11(b)(1).   We hold that

it is.

                             Background

     This case was submitted fully stipulated pursuant to Rule

122, and the facts are so found.   The stipulation of facts and

the accompanying exhibits are incorporated by this reference.

Petitioner’s principal place of business was Redlands,

California, at the time it filed the petition.

     Werdna Wayland Eure, Jr., M.D. (Dr. Eure), is a medical

doctor who has been a licensed physician and surgeon in

California since 1982.   Dr. Eure incorporated petitioner as a

California professional medical corporation in 1996.   Dr. Eure

has been petitioner’s sole shareholder since its incorporation.

Petitioner operated a radiation oncology treatment facility that

did business under the name Radiation Therapy Medical Group

during the years at issue.

Radiation Therapy

     Radiation is a kind of energy carried by waves or a stream

of particles.   Radiation emitted at sufficiently high levels by

special machines, which are aimed at tumors or areas of a


     1
      All section references are to the Internal Revenue Code in
effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                                 - 3 -

person’s body where there is disease, is used to treat patients

with cancer or other diseases (cancer patients).     Radiation

oncology treatment facilities, like petitioner’s, provide

radiation therapy, the use of radiation to treat disease, to

cancer patients.    Radiation therapy is generally applied in

either an external or an internal form.

     In external radiation therapy, a machine directs high energy

radiation rays or particles at the diseased tissue and normal

tissue near it.    One type of external radiation therapy machine

is called a linear accelerator (LINAC).    LINAC machines

accelerate electrons to produce the high energy radiation used

for treatment.     Another type of external radiation therapy

machine contains a radioactive substance, such as cobalt-60.     Use

of this latter type of machine is referred to as cobalt therapy.

     In internal radiation therapy, a radioactive substance is

sealed in a small container called an implant.    The implant is

inserted into a tumor or, if the tumor has been surgically

removed, is placed in the area near where the tumor was located.

Unsealed radioactive substances are also used.    The material is

either taken by mouth or injected into the patient’s body.

     Only a doctor who has had special training in using

radiation to treat disease, referred to as a radiation

oncologist, is able to prescribe the type and amount of radiation

treatment for cancer patients.    A radiation oncologist typically
                                 - 4 -

supervises a team of highly trained healthcare professionals,

including radiation technicians and radiation therapy nurses, who

assist him or her in providing radiation therapy.

     A radiation technician operates the radiation machines used

for the radiation therapy treatments given to cancer patients.

He or she can operate a LINAC radiation therapy machine or can

perform cobalt therapy.     A radiation technician also maintains

the radiation equipment.     A radiation therapy nurse provides

nursing care and helps cancer patients learn about radiation

therapy treatment and how to manage side effects.

Petitioner’s Staffing

     Petitioner employed eight employees in 2002 and nine

employees in 2003.   In 2002, petitioner employed two radiation

oncologists, Dr. Eure2 and Dr. Ramez Farah (Dr. Farah), as well

as a full-time radiation nurse, three full-time radiation

technicians, one full-time employee who worked as an

administrator and as a radiation technician, and a part-time

administrative assistant.     In 2003, petitioner employed Dr. Eure

and Dr. Farah, a full-time radiation nurse, two full-time

radiation technicians, one part-time radiation technician, one

full-time employee who worked as an administrator and as a

radiation technician, a part-time administrative assistant, and a


     2
      Although Dr. Eure is a radiation oncologist, he performed
only administrative and supervisory services for petitioner in
connection with the radiation therapy treatments provided to
petitioner’s cancer patients during the years at issue.
                                - 5 -

part-time temporary radiation therapist.     All of petitioner’s

employees devoted their time working for petitioner exclusively

to provide radiation therapy treatment to cancer patients or to

provide administrative, supervisory, or support services for such

radiation therapy treatments.

Petitioner’s Return and the Deficiency Notice

     Petitioner timely filed Forms 1120, U.S. Corporation Income

Tax Return, for the years at issue.     Petitioner reported that it

was engaged in the practice of medicine and that its taxable

income was subject to the graduated income tax rates for

corporations under section 11(b)(1).     Respondent issued

petitioner a deficiency notice in which he determined that

petitioner was a qualified personal service corporation subject

to the flat 35-percent tax rate under section 11(b)(2).3     The

deficiency amounts represent the increase in petitioner’s Federal

income taxes that result from applying the flat 35-percent tax

rate to the amounts of taxable income shown on the returns for

the years at issue.   Petitioner timely filed a petition.

                            Discussion

     We are asked to decide whether petitioner is a qualified

personal service corporation taxed at a flat 35-percent tax rate

under section 11(b)(2) rather than the graduated rates for



     3
      The flat 35-percent tax rate set forth in sec. 11(b)(2)
equals the highest marginal corporate tax rate set forth in sec.
11(b)(1) for the years at issue.
                               - 6 -

corporations under section 11(b)(1).   A qualified personal

service corporation is any corporation that satisfies a function

test and an ownership test.4   Sec. 448(d)(2)(A) and (B)(i); sec.

1.448-1T(e)(3), (4), and (5), Temporary Income Tax Regs., 52 Fed.

Reg. 22768 (June 16, 1987), as amended by T.D. 8329, 56 Fed. Reg.

485 (Jan. 7, 1991), and T.D. 8514, 58 Fed. Reg. 68299 (Dec. 27,

1993).   Petitioner argues that it is not a personal service

corporation because it fails to satisfy the function test.     We

disagree.

     To meet the function test, 95 percent or more of corporate

employees’ time must be spent providing services in one of

several enumerated fields, including health.   See Rainbow Tax

Serv., Inc. v. Commissioner, 128 T.C. ____ (2007); sec. 1.448-

1T(e)(4)(i), Temporary Income Tax Regs., supra.   The performance

of any activity incident to the actual performance of services in

a qualifying field is considered the performance of services in

that field for purposes of determining whether the function test

is satisfied.   Sec. 1.448-1T(e)(4)(i), Temporary Income Tax

Regs., supra.   Activities incident to the performance of services

in a qualifying field include the supervision of employees

engaged in directly providing services to clients and performing




     4
      Petitioner concedes that it satisfies the ownership test
because Dr. Eure, one of its employees, directly owned all of
petitioner’s stock.
                                - 7 -

administrative and support services incident to such activities.

Id.

      Petitioner makes several arguments why it does not meet the

function test, all of which we reject.      Petitioner first argues

that it is a facility, not a person, and therefore cannot provide

“personal” services.   Petitioner’s literal argument is contrary

to section 448 and the regulations promulgated thereunder.      For

purposes of the function test, a qualified personal service

corporation is a corporation whose employees perform services in

a qualifying field, including health.      See sec. 1.448-1T(e)(3)

and (4), Temporary Income Tax Regs., supra.      Petitioner

stipulated that it was established as a professional medical

corporation and reported on the returns for the years at issue

that it was engaged in the practice of medicine.      Thus, we reject

petitioner’s first argument.

      Petitioner next argues that it operates a treatment

facility, in the business of creating and containing radiation,

rather than a healthcare facility.      We find, however, that the

employees who work at its radiation therapy treatment facility

are rendering services in the field of health.      The treatment

facility is a healthcare facility because its employees treat

patients’ healthcare needs.    Petitioner’s employees provide

radiation therapy to cancer patients, and, petitioner therefore

provides healthcare services.
                                - 8 -

     Petitioner next argues that the time its radiation

technicians spent maintaining and operating the radiation

equipment is not time spent performing services in the healthcare

field.   Petitioner further adds that this time amounted to at

least 10 percent of petitioner’s employees’ total time performing

services for petitioner, so it did not spend substantially all

(95 percent) of its time in the healthcare field.

     The time petitioner’s radiation technicians spent

maintaining and operating the radiation equipment, however, is

not only incident to, but integral to, the overall provision of

radiation therapy to petitioner’s cancer patients.   Petitioner’s

radiation technicians operated petitioner’s LINAC radiation

therapy machines and provided cobalt therapy to treat

petitioner’s cancer patients.   Accordingly, the time petitioner’s

radiation technicians spent operating the radiation equipment is

time spent performing services in the healthcare field.    In

addition, the time they spent maintaining the radiation equipment

is time spent providing support services incident to the

performance of their services in the healthcare field.    We

therefore find that all of the time spent by petitioner’s

radiation technicians was time spent performing services in the

healthcare field or performing services incident to the

performance of services in the healthcare field.
                                - 9 -

     Petitioner also argues, on another ground, that the time the

radiation technicians spent rendering services should not be

considered in determining whether substantially all of its time

is spent providing healthcare services.     Petitioner urges us to

ignore the time they spent because in its view radiation

technicians are not among the professionals who provide medical

services, according to the applicable regulations; namely,

“physicians, nurses, dentists, and other similar healthcare

professionals.”   See sec. 1.448-1T(e)(4)(ii), Temporary Income

Tax Regs., supra.   We disagree.

     The enumerated list of professionals, i.e., physicians,

nurses, and dentists, is not exclusive.     The term “similar

healthcare professionals” for these purposes conveys the need for

advanced education and intellectual training “similar” to what is

required of physicians, nurses, and dentists.      Id.; see also

Chickasaw Ambulance Serv., Inc. v. United States, No. C97-2094,

(N.D. Iowa May 21, 1999).   The regulations require that the

corporation employ at least one healthcare professional who

provides healthcare services to patients.      Sec. 1.448-1T(e)(4),

Temporary Income Tax Regs., supra.      The regulations do not

require that administrative and support services performed

incident to such services be performed by corporate employees who

are healthcare professionals.   Healthcare services may be

performed by non-healthcare professionals so long as at least one
                               - 10 -

healthcare professional is employed to perform healthcare

services.    Moreover, incidental services may be performed by

secretaries, administrative assistants, office managers, or other

non-professionals.

     In addition, the taxpayer in Chickasaw proved that its

emergency medical technicians (EMTs) could perform their jobs

without high school diplomas, while petitioner fails to prove

that its radiation technicians can perform their jobs without

advanced education and intellectual training similar to what is

required of physicians, nurses, or dentists.     Petitioner also

stipulated that radiation technicians are highly trained but

failed to show what level and type of education is required of

them.    Moreover, even if petitioner’s radiation technicians were

not healthcare professionals, the function test is applied by

considering the activities of all a corporation’s employees.

Sec. 1.448-1T(e)(4), Temporary Income Tax Regs., supra.      Unlike

Chickasaw, where the only employees of the corporate taxpayer

were EMTs who could perform their services without a high school

diploma, petitioner provides radiation therapy that only a doctor

who has had special training in using radiation to treat disease

can prescribe for cancer patients.      Petitioner had such an

employee, Dr. Farah.5   Dr. Farah is highly trained and educated.


     5
      Petitioner also employed Dr. Eure, who is highly educated
and specially trained, but he did not provide healthcare services
during the years at issue.
                             - 11 -

He has a medical degree and received the special training

required of radiation oncologists.

     We therefore find that petitioner satisfies the function

test by having 95 percent or more of its corporate employees’

time spent providing healthcare directly to patients or in

performing incidental services.   In addition, the parties agree

that petitioner satisfies the ownership test.   Accordingly,

petitioner is a qualified personal service corporation subject to

the flat tax rate under section 11(b)(2) for the years at issue.

     To reflect the foregoing,


                                          Decision will be entered

                                     for respondent.
