> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Move money between PC and MSO (the right way)

> The canonical monthly flow, intercompany loans done properly with AFR interest and board consents, and what never to do.

Money moves between the PC and the MSO in exactly two legitimate forms: an **invoiced management fee** and a **documented loan**. Anything else is a transfer with no characterization, which is the most common structural defect in MSO-PC groups.

## Prerequisites

* Separate operating accounts per entity
* An executed MSA specifying the fee and its mechanics
* Board and member consents authorizing the arrangement
* A bookkeeper who will record both sides

## The canonical monthly flow

```mermaid theme={null}
graph TB
    A["1. Payer EFTs and patient payments<br/>→ PC operating account"] --> B["2. PC pays clinical payroll"]
    B --> C["3. PC pays its direct expenses<br/>malpractice, clinical supplies"]
    C --> D["4. MSO issues a management fee invoice"]
    D --> E["5. PC pays the invoice<br/>from the PC account, on the PC's authority"]
    E --> F["6. PC repays scheduled loan principal and interest"]
    F --> G["7. MSO pays all non-clinical costs"]
```

**Order matters.** The PC covers its own obligations first. A fee paid ahead of clinical payroll, leaving the PC unable to pay its clinicians, is not a fee an arm's-length practice would agree to.

## Steps, the monthly fee

<Steps>
  <Step title="Calculate the fee per the MSA">
    Using the contractual method, not a number you'd prefer.
  </Step>

  <Step title="The MSO issues an actual invoice">
    Numbered, dated, stating the period, the calculation, and the services rendered. **Not a journal entry.** For a cost-plus fee, show the cost base and the markup.
  </Step>

  <Step title="The PC pays it from the PC's operating account">
    Initiated on the PC's authority, after clinical payroll and direct expenses.
  </Step>

  <Step title="Both entities book it at identical amounts">
    Management fee expense in the PC; management fee revenue in the MSO.
  </Step>

  <Step title="File the invoice in both entities' records">
    This is the document a regulator, auditor, or acquirer will ask for.
  </Step>

  <Step title="Reconcile the intercompany balances">
    Monthly. They must be equal and opposite.
  </Step>
</Steps>

## Intercompany loans, done properly

Typically MSO → PC, funding the credentialing ramp before revenue arrives.

<Steps>
  <Step title="Write a promissory note before the money moves">
    Not afterward. Required elements:

    * Principal amount, or a revolving facility with a stated maximum
    * Maturity date
    * Repayment schedule
    * **Interest rate**
    * Events of default
    * Governing law
  </Step>

  <Step title="Set the rate at no less than the applicable federal rate">
    **Charge no less than the IRS applicable federal rate (AFR)** for the note's term class, short-term (3 years or less), mid-term (over 3 up to 9), or long-term (over 9). The IRS publishes AFRs monthly.

    Below-AFR related-party loans trigger imputed interest under IRC § 7872 and invite arm's-length recharacterization under IRC § 482.<sup>1</sup>

    See [Intercompany loans between MSO and PC](/reference/legal/intercompany-loan-note) for an annotated interest clause.
  </Step>

  <Step title="Adopt board and manager consents on both sides">
    Each entity independently authorizing the loan.
  </Step>

  <Step title="Make actual payments matching the schedule">
    A note with a repayment schedule that is never followed is evidence the loan was never a loan.
  </Step>

  <Step title="Book it correctly on both sides">
    Loan payable / receivable, with interest expense and interest income recognized as it accrues.
  </Step>
</Steps>

## What never to do

**A standing automated sweep is not a management fee.**

Why it fails:

1. **No invoice** means no evidence of a price for services — it looks like profit extraction, which is the fee-splitting fact pattern
2. **Automation implies control** — an MSO that can pull PC funds without the PC acting has withdrawal authority over the practice's receipts
3. **The amount usually isn't the contractual fee** — sweeps take what's there, which means the MSA doesn't describe what actually happens
4. **It's unauditable**, cash leaving the PC with no supporting document

The fix is not complicated: **invoice, then pay.** The money can move on the same day it always did.

Also never:

* **Pay one entity's expense from the other's account** without recording an intercompany entry the same day
* **Characterize a PC→MSO transfer as a "distribution"** — the MSO is not the PC's shareholder, and calling it one is evidence the parties treat the PC as though the MSO owns it
* **Let a management fee accrue perpetually and never be paid in cash** — it suggests the fee was never a price the PC could support, and it is a standard diligence adjustment
* **Reprice past periods retroactively**, the classic red flag

## When the PC can't pay in full

Common during the ramp. Two legitimate options:

**Defer part of the fee**, in writing, with a stated payment expectation.

**Lend the PC the money**, on a proper note at no less than the AFR.

What you must not do is skip it silently, or have the MSO pay the PC's bills directly with no intercompany entry.

## Verify it worked

* [ ] Every PC→MSO transfer has a matching invoice
* [ ] Fee amount matches the MSA's stated calculation
* [ ] Fee paid **in cash**, from the PC's account, on the PC's authority
* [ ] Paid after clinical payroll and direct expenses
* [ ] Both entities booked identical amounts
* [ ] Invoices filed in both entities' records
* [ ] Intercompany balances reconciled monthly and equal-and-opposite
* [ ] Every loan has a written note, an AFR-or-better rate, and board consents
* [ ] Loan payments actually made per schedule
* [ ] No standing sweep or MSO withdrawal authority

## Common failure modes

| Failure                              | Consequence                                                |
| ------------------------------------ | ---------------------------------------------------------- |
| Automated sweep with no invoice      | The central documentation failure; recharacterization risk |
| Fee paid before clinical payroll     | Not commercially reasonable                                |
| Transfer with no characterization    | Commingling                                                |
| Loan without a note                  | Disguised equity, or a sweep in disguise                   |
| Below-AFR rate                       | Imputed interest under § 7872; § 482 exposure              |
| Loan payments never made             | The loan wasn't a loan                                     |
| Intercompany balances not reconciled | Books don't tie; divergence compounds monthly              |
| Fee accrued, never paid              | Standard QoE adjustment; may not be real revenue           |

## Sources

1. IRC § 7872 (below-market loans); IRC § 482 (allocation among related taxpayers). IRS, [Applicable Federal Rates](https://www.irs.gov/applicable-federal-rates), published monthly. Confirm current rates and treatment with a CPA.


## Related topics

- [Your first month-end close](/start/first-90-days/first-month-close.md)
- [Set the management fee](/guides/agreements/set-the-management-fee.md)
- [Set up bookkeeping and consolidation](/guides/banking/set-up-bookkeeping.md)
- [Structure accounts across your entities](/guides/banking/structure-accounts-across-entities.md)
- [Intercompany money movement](/concepts/banking/intercompany-money-movement.md)
- [Where the profit lives: MSO economics and fee structures](/concepts/finance/where-the-profit-lives.md)
- [Intercompany loans between MSO and PC: structure and example clause](/reference/legal/intercompany-loan-note.md)
- [MSA clause anatomy](/reference/legal/msa-clause-anatomy.md)