ANALYSIS Section 1202(e)(3) excludes various service industries and specified non-service industries from the term “qualified trade or business.” Thus, a qualified trade or business cannot be primarily within service industries, such as restaurants or hotels or the providing of legal or medical services. In addition, § 1202(e)(3) excludes businesses where the principal asset of the business is the reputation or skill of one or more of its employees. This works to exclude, for example, consulting firms, law firms, and financial asset management firms.

Thus, the thrust of § 1202(e)(3) is that businesses are not qualified trades or businesses if they offer value to customers primarily in the form of services, whether those services are the providing of hotel rooms, for example, or in the form of individual expertise (law firm partners).

Company is not in the business of offering service in the form of individual expertiseThe IRS concludes that the Company is not in the business of offering services in the form of individual expertise, which is synonymous with reputation or skill of 1 or more of its employees.. Instead, Company’s activities involve the deployment of specific manufacturing assets and intellectual propertyCompare Pharmaceutical Distributor PLR where the asset of the company is its "distribution rights." assets to create valueCreating value is key to the analysis in this PLR, the Medical Device Fabricator PLR, and the MedTech PLR. Creating value appears to be the what distinguishes these company from companies just providing service in the form of individual expertise. for customers. Essentially, Company is a pharmaceutical industry analogueCompare Medical Device Fabricator PLR where the IRS analogizes the company to one doing custom manufacturing. of a parts manufacturer in the automobile industry.

Thus, although Company works primarily in the pharmaceutical industry, which is certainly a component of the health industry, Company does not perform service in the health industry within the meaning of § 1202(e)(3). Neither are Company’s business activities within any of the prohibited categories set forth in § 1202(e)(3).

Valid trade or business

ANALYSIS Company provides laboratory reports to health care professionals. However, Company’s laboratory reports do not discuss diagnosis or treatment. Company neither discusses with, nor is informed by, healthcare providers about the diagnosis or treatment of a healthcare provider’s patients. Company’s sole functionCompare MedTech PLR where companies "sole function" is to provide tools in the form of software. Compare Online Marketplace CCA where company's webside is "solely" devoted to effectuating agreements between lessors and lesseee. is to provide healthcare providers with a copy of its laboratory report.

Company neither takes orders from nor explains laboratory tests to patients. Company’s direct contact with patients is billing patients whose insurer does not pay all of the costs of a laboratory test.

In addition, [taxpayer represents] that the skills employees bring to Company are not useful in performing X tests and that skills they develop at Company are not useful to other employers.

Further, none of Company’s revenue is earned in connection with patients’ medical care. Other than the laboratory director, Company’s laboratory technicians are not subject to state licensing requirements or classified as healthcare professionals by any applicable state or federal law or regulatory authority.

Although Company’s laboratory reports provide valuable information to healthcare providers, Company does not provide health care professionalsCompare Pharmaceutical Distributor PLR where company's employees do not provide any diagnostic services or medical care to either patients or physicians. with diagnosis or treatment recommendations for treating a healthcare professional’s patients nor is Company aware of the health care provider’s diagnosis or treatment of the healthcare provider’s patients. In addition, the skillsConsider that the "reputation or skill of one or more of" a business's employees is what makes it not a qualified trade or business. The PLR discounts the skills of employees of the Genetic Testing Company as applicable only for that business (not like law firm partners mentioned in the Pharmaceutical Company PLR). that Company’s employees have are unique to the work they perform for Company and are not useful to other employers.

Thus, based on the facts and representations submitted, we conclude that for purposes of § 1202(e)(3), Company is not in a trade or business (i) involving the performance of services in the field of health or (ii) where the principal asset of the trade or business is the reputation or skill of one or more of its employees.In the health field PLRs, beginning with this one issued in 2017, the IRS concludes two-fold that the companies did not engage in a trade or business (i) involving the performance of services in the health field or (ii) where the principal asset of the trade or business is the reputation or skill of one or more of its employees.

Valid trade or business

ANALYSIS The term “brokerage services” is not defined in section 1202 or explained in the legislative history. The dictionary definition of “broker” defines the term as “one who acts as an intermediary: such as a: an agent who arranges marriages, b: an agent who negotiates contracts of purchase and sale (as of real estate, commodities, or securities).”

Business’s role is not that of a mere intermediaryMere intermediary status is key for determining a company is engaged in brokerage services. Compare Online Marketplace CCA where company was simply an intermediary between lessors and lessees.. Contracts with insurance companies require Business to perform a number of administrative services beyond those that would be performed by a mere intermediary facilitating a transaction between two parties.

For example, Business must promptly report all known incidents, claims, suits and notices of loss to the insurance company or its designated claims adjuster and cooperate fully to facilitate any investigation, adjustment, settlement and payment of any claim. It also must keep true and complete records and accounts of all transactions and correspondence with the insureds at its principal office, which records and accounts must be open to examination, inspection, verification and audit by the insurance company upon reasonable notice.

Valid trade or business

ANALYSIS Taxpayer provides valueCompare Pharmaceutical Company PLR and MedTech Company PLR discussions of value. to its customers primarily in the form of a tangible product such as Class of Products. Taxpayer manufactures these products for individuals as prescribed by health care providers who are not employed by Taxpayer. While Taxpayer may directly interact with referred individuals and their respective diagnoses, the interaction is incidental in ensuring these individuals receive a Form of Product as provided by their prescription.

Taxpayer’s business is more analogousCompare Pharmaceutical Company PLR which was the analogue of a parts manufacturer in the automobile industry. to the business of custom manufacturing than to offering services based on individual expertise.

Although the Products produced by Taxpayer are associated with the health industry, we conclude that for the purposes of § 1202(e)(3), Taxpayer is not in the trade or business (i) involving the performance of services in the field of health or (ii) where the principal asset of the trade or business is the reputation or skill of one or more of its employees.

Valid trade or business

ANALYSIS Company is a technology company which develops software for medical providers and patients to utilize as a tool in optimizing the patient’s treatment.

The softwareThe Online Marketplace CCA states that even though the company’s services are provided by software, the use of such software does not change the functional nature of the services. and reports do not diagnose or recommend treatment. These aspects of Company’s software illustrate that Company is not in the business of providing health services but rather creating an assetCompare Pharmaceutical Company PLR which used its manufacturing assets and IP assets to create value for customers. to be utilized by their customers in the healthcare industry.

Furthermore, Company is not a business that provides value to customers primarily in the form of individual expertise. Company is not licensed to issue prescriptions and perform medical tests. Company is not aware of and does not discuss the diagnoses or treatment by healthcare providers. The healthcare providers make all medical decisions. As such, it is the customers of Company who use their expertise to provide services in the healthcare industry.

Company’s sole functionCompare Genetic Testing Company PLR where the company's sole function was to provide lab reports and the MedTech PLR where the company's sole function was to provide tools int he form of software, applications, and reports. is to provide tools in the form of software, applications, and reports to create value for healthcare providers and their patients. Company is not a business whose principal asset is the reputation or skill of one or more employees. Although the software and applications developed by Company are allied or associated with the healthcare industry, we conclude that for the purposes of § 1202(e)(3), Company is not in the trade or business of performing services in the field of health or where the principal asset of the trade or business is the reputation or skill of one or more of its employees.

Valid trade or business

ANALYSIS While Corporation states that it does not provide brokerage services but instead provides advertising services, it is our view that the actions and services provided by Corporation support our position that Corporation is a broker for purposes of § 1202(e)(3)(A).

A broker serves as an intermediaryCompare Insurance Agent PLR where the business did more than serve as a mere intermediary. between a buyer and a seller, and Corporation does this. Corporation does not just passively publish advertisements on its website that are provided to it from potential lessors desiring to lease property. Unlike a search engine that provides content to users and also sends targeted advertisements to those users based on their search history, Corporation’s website is solely devoted to effectuating agreements between potential lessors and potential lessees of certain property.

Corporation charges a minimum flat fee to lessors irrespective of whether a potential lessor succeeds in entering into lease agreements as a result of the use of Corporation’s website. However, Corporation is also compensated on a commission basis based on leasing transactions that are entered into as the result of the use of Corporation’s website.

Corporation does not have the authority to enter into leasing agreements on behalf of lessors that use its services. Corporation only provides a vehicle for potential lessees to transmit non-binding reservation requests to potential lessors. Only the potential lessor and lessee have the authority to enter into a binding lease agreement. However, brokerage activity can include simply bringing a potential buyer and seller together to work out the transaction.

The fact that Corporation’s services are provided by softwareCompare Medtech PLR where development of software was integral to showing that company was not in the health field. created by people rather than directly by people does not change the functional nature of the services. Because Corporation provides brokerage services within the meaning of § 1202(e)(3)(A), taxpayer is not entitled to exclude any of the gain from the sale of stock in Corporation under § 1202.

Not valid trade or business – activities constitute brokerage services

ANALYSIS Taxpayer's employees are not engaged in the provision of medical services. Other than the pharmacists, such employees are not certified healthcare providers and are not otherwise regulated under state or Federal law. Taxpayer's pharmacists fill prescriptions provided by health care professionals, and other employees help manage the insurance process and occasionally communicate with patients regarding prescription issues and timely refill requests. Any interaction with patients regarding their prescriptions is merely incidental to ensuring receipt of their required prescriptions or answering a patient’s question about them. Taxpayer’s employees do not provide any diagnostic services or medical care to either patients or physicians, and all revenues are generated by the sale of the drugsNote that no other PLR references the source of revenue as a factor in determining whether the company is a valid qualified trade or business.. Also, Taxpayer’s principal asset is not the reputation or skill of one or more employees, but its exclusive pharmaceutical distributionCompare Pharmaceutical Company PLR where the company created manufacturing assets and IP rather than simply had an exclusive distribution right. rights.

We conclude that for the purposes of section 1202(e)(3), Taxpayer is not in a trade or business (i) involving the performance of services in the field of health or (ii) where the principal asset of the trade or business is the reputation or skill of one or more of its employees.

Valid trade or business

ANALYSIS The Company's employees possess technical skills and knowledge due to training receivedCompare to PLR 201717010 where a genetic technology company's employees' skills are unique to the work performed for the company and are not useful to other employers. Here, the technical skillset acquired by employees does not rise to the level in the form of individual expertise. on one or more of the Company's proprietary service delivery processes and methodology packages. Such processes and packages are unique to Company and may not be utilized by the employees at other similar companies. The Company can recruit and train new employees with the required technical skillset to perform substantially identical services using its methodology packagesPLR 201436001 explained that companies providing value to customers primarily in the form of individual expertise, like a law firm partner, are not qualified trades or businesses. This PLR explains that where employees acquire technical skills and knowledge through training provided by the company, those skills and expertise do not taint qualified trade or business status.. Therefore, the principal asset of the Company is not the reputation or skills of one or more employees, but the intellectual property held by the Company itself in its proprietary service delivery processes and methodology packages.

Valid trade or business

ANALYSIS Company’s employees provide advice and counsel as part of the process of determining a client’s data management needs but the advice and counsel is ancillary toAlthough a company provides services in the form of advice and counsel when implementing data management solutions, such services are merely ancillary or incidental to the software company's software implementation work. and supports the sale of the implementation work Company’s employees perform. Company does not separately bill for advice and counsel, but only for its final product of implementing data management solutions. Therefore, Company does not engage a trade or business involving the performance of services in the field of consulting.

Valid trade or business

ANALYSIS Company operated a temporary staffing business that focused on placing experienced professionals with its clients. Company’s clients engaged Company to provide professionals to implement business plans or fulfill other business needs. Once professionals were provided to clients, the clients were considered the employers of the professionals. The clients were responsible for the supervision of assigned professionals, and the provision of all resources, workstations, and other tools to assigned professionals.

Company billed clientsCompare PLR 202342014 where the data migration company billed for implementation services and embedded advice, but did not separately bill for advice and counsel. at an agreed upon rate for the time the temporary professionals spent on clients’ projects. Company also billed for engagement oversight and project communication services provided by its own employees. For permanent executives placed with clients, Company billed a total fee equal to a percentage of the executive’s actual first year compensation, with Company entitled to a portion of the total fee upon signing of the agreement prior to performance of search services.

Therefore, with respect to its temporary staffing business, Company was not engaged in a trade or business (i) involving the performance of services in the field of consulting or (ii) where the principal asset of the trade or business was the reputation or skill of one or more of its employees.

Valid trade or business

ANALYSIS Company engages in medical testing services and provides physicians with a report of the results generated by the testing. Company's sole function is to conduct medical testing services and provide a report to its customers' physiciansThis overlaps with PLR 201717010 in which the laboratory testing company’s sole function was to provide healthcare providers with a laboratory report.. Company does not treat or diagnose any customer, nor can Company provide medical advice.

Company employees exercise no independent judgment in conducting medical testing services, and follow specific Company procedures in conducting such services. Although Company contracts with medical physicians to serve as Company medical directors, the physicians' roles are to help develop Company policies and procedures, review quality assurance data, and review incoming orders to ensure that Company can accommodate the requested medical testing services. In their capacity as medical directors, the physicians do not interact with customers, and they provide no diagnoses, medical advice or treatment on Company's behalf.

Valid trade or business