Top Legal and Tax Considerations When Selling a Medical Practice in Colorado

In the high-stakes world of Colorado healthcare transactions, a single overlooked regulatory detail or tax election can erode hundreds of thousands, or even millions, of dollars in practice value before the ink dries on the closing documents. Sellers who treat a medical practice sale like a regular business risk losing significant money and may face audits, lawsuits, or deal complications due to Stark Law, Anti-Kickback rules, Colorado certificate-of-need requirements, and corporate practice of medicine restrictions.

Mastering these interconnected legal and tax landmines upfront transforms a complex, risky process into the most lucrative and secure wealth event of a physician’s career.

Key Legal and Structural Considerations

Below are the essential legal and structural elements that shape a smooth practice sale, protect value, reduce risk, and support a confident transition.

1. Compliance With Healthcare Laws

A medical practice sale must follow strict federal and state rules. The Stark Law and anti-kickback statutes require that all pricing decisions reflect fair market value. The number cannot reflect the value of future referrals. Third-party valuations help document a fair result and support clean records for the ownership transfer of a practice sale.

2. Corporate Structure and Licensing

The current entity structure guides how an ownership change occurs. This can involve an LLC, S corporation, or C corporation. Each setup creates different steps for an asset sale vs a stock sale, so legal review is essential. Buyers must also confirm proper licensing and accreditation. Many facilities need approval by the Colorado Department of Public Health and Environment, so early preparation helps avoid delays.

3. Patient Notification and Medical Records

Colorado requires clear patient notifications during a sale. Patients must receive notice 60 days before closing to the CO AG under the Colorado Hospital Transfer Act: C.R.S. § 6-19-101 et seq. Medical records cannot be transferred without patient consent. Buyers usually handle ongoing custodial duties for records, but patient privacy rules remain entirely in effect during a sale.

4. Colorado Non-Compete Rules

Colorado places strong limits on non-compete clauses for physicians. SB 25 083, effective August 6, 2025, further restricts these agreements. Only narrow exceptions apply to the sale of a business involving majority owners. Since these rules can affect long-term practice plans, a healthcare attorney should review any proposed restrictions.

5. Due Diligence Preparation

Buyers perform detailed reviews of a practice before closing. They study compliance issues, financials, contracts, and operational details. Sellers can protect their practice’s value by clearing old issues early. Clean books, updated agreements, and organized records reduce risk and support smoother negotiations.

Tax Considerations When Putting Your Practice on Sale

Below are key tax considerations that can influence your final proceeds and shape how you structure your healthcare practice sale effectively.

1. Choosing Sale Structure: Asset Sale vs. Stock Sale

When you sell a practice, you often have two paths. One is an asset sale, where you sell tangible items like equipment and intangible items such as patient goodwill. The other is a stock sale, in which you sell ownership shares in the legal entity itself.

• In an asset sale, the buyer becomes the owner of the assets and takes a fresh start. This appeals to many buyers because it helps them avoid inheriting past liabilities or potential lawsuits.
• In a stock sale, the buyer acquires the existing legal entity, including all its assets, liabilities, and history. For a seller, this often means a cleaner exit because you do not have to oversee a messy dismantling of assets.

Here’s a brief comparison table of asset sales vs. stock sales.

This choice affects more than paperwork. It influences who takes on past liabilities, who retains responsibility for contracts or potential litigation, and how smoothly operations continue post-sale.

2. Purchase Price Allocation

The way prices are divided among assets shapes the tax bill. Goodwill often receives the largest share and may qualify for long-term capital gains treatment. Colorado applies a flat 4.4 percent tax on all capital gains. Equipment values are usually taxed as ordinary income because of depreciation recapture. Values linked with non-compete agreements are also taxed as ordinary income.

3. Personal Goodwill Planning

Personal goodwill describes the physician’s reputation and patient trust. In some cases, placing part of the value under personal goodwill may reduce double taxation for C corporation sellers. Strong documentation is required, and this approach should be reviewed by a tax strategist.

Below is a table from Akura that highlights the clear difference in tax impact between a medical practice sale with and without personal goodwill.

Hence, personal goodwill reduces the overall tax burden in a practice sale. It shifts part of the value away from corporate taxation and toward individual taxation, lowering total taxes and increasing the seller’s final payout.

Specific Tax and Legal Pitfalls to Watch Out For

• Consider depreciation recapture when selling equipment, as it can shift part of the proceeds into ordinary income and increase your tax bill.
• Review non-compete or consulting payments carefully, since they are generally taxed as ordinary income and can reduce net proceeds.
• Check state residency rules, because multi-state arrangements may significantly change your overall tax obligations.
• Structure earn-outs and deferred payments thoughtfully to ensure proper tax treatment and avoid unexpected ordinary income taxation.
• Plan the sale timing and payment allocation early to preserve net value and avoid last-minute tax complications.

Why Legal Structure and Planning Are Critical for a Clean Exit

When transferring ownership and enlisting your practice for sale, you want clarity on liabilities, licensing, patient records, and compliance. A stock sale walks away from a fragmented asset list. An asset sale demands clarity on which assets transfer, and leaves open what liabilities remain with the seller. Many buyers prefer asset sales to avoid past liabilities.

Having proper legal representation ensures that contracts, indemnification clauses, non-compete agreements, and patient record transfers are handled in a way that protects you after closing. Many states have strict rules governing medical records, malpractice liability, and business licensing; failing to comply with these requirements can result in legal headaches after the sale.

Clear documentation, careful negotiation of purchase price allocation, and honest disclosure of any known liabilities are essential. Doing this right helps avoid surprises that could erode the sale’s value.

Best Practices For Selling a Medical Practice in Colorado

• Engage legal and tax advisors early to review the sale structure, evaluate an asset sale vs. a stock sale, and plan the allocation strategy.
• Run detailed practice sales tax estimates to project net proceeds, including capital gains, ordinary income, state taxes, and depreciation recapture.
• Negotiate purchase price allocation and sale terms carefully, file IRS Form 8594 accurately, and address earn-outs or deferred payments.
• Confirm compliance with Colorado licensing, patient record transfer, and regulatory requirements to ensure a smooth ownership transition.
• Work with a qualified broker or sales advisor to vet buyers, manage negotiations, and navigate legal, tax, and compliance challenges.

Connecting with trusted medical practice business brokers can help you access serious buyers and receive professional guidance throughout the sale process.

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