Why Professional Associations (PAs) Often Default to C-Corporation Status

Professional Associations (PAs) are a specialized type of business entity commonly used by licensed professionals such as doctors, lawyers, architects, accountants, and other state-licensed practitioners. They are often structured in ways similar to traditional corporations, and in many cases a PA ends up being classified as a C-Corporation (C-Corp) by default for tax purposes. This article explores what PAs are, how their legal structure aligns with corporate characteristics, the default IRS and state tax classifications that apply to them, and why they are so frequently treated as C-Corporations automatically. We will also examine the implications of C-Corp status – including taxation, liability, and governance – and discuss whether PAs have options to elect other tax forms (such as S-Corp status or partnership treatment) and what limitations might apply.

What Is a Professional Association (PA)?

A Professional Association (PA) is a type of business entity designed for individuals in certain licensed professions to practice under a formal organization. In many states, the term “professional association” is essentially interchangeable with a Professional Corporation (PC)bizcounsel.com. This means that a PA is often just a professional services corporation that has incorporated for a specific purpose: to provide services that require a state license (for example, medical, legal, dental, engineering, or accounting services)upcounsel.com. PAs allow professionals to form a company and gain the benefits of incorporation (like limited liability and continuity of the business) while complying with state laws that restrict how licensed professionals can organize their practicebizcounsel.combizcounsel.com.

It’s important to note that the exact definition and treatment of a PA can vary by state. In the majority of states, a PA/PC is simply a normal corporation with special rules limiting ownership and practice to licensed individuals in the fieldbizcounsel.combizcounsel.com. For example, a law firm or medical practice might incorporate as "Smith and Jones, P.A." indicating it’s a professional association. However, a few states (such as Texas) recognize Professional Associations as a unique kind of entity, distinct from standard corporations or LLCsbizcounsel.combizcounsel.com. In Texas, for instance, certain medical and health professionals are required to form a PA rather than a traditional corporation, based on the idea that the doctor-patient relationship should not be conducted through a purely commercial corporate formbizcounsel.combizcounsel.com. Even in these cases, PAs function very similarly to corporations – they must register with the state, include identifiers like “P.A.” or “Professional Association” in their names, and follow many corporate formalitiesbizcounsel.combizcounsel.com. Overall, a PA is a vehicle for licensed professionals to do business together in an incorporated or association-like form, rather than as a simple partnership or sole proprietorship.

Common Fields and Uses: Professional Associations or Professional Corporations are used in a wide range of licensed professions. Typical fields include medicine (physicians, dentists, chiropractors, etc.), law (attorneys), accounting (CPAs), engineering and architecture, nursing and other health care professions, among othersupcounsel.comupcounsel.com. State laws usually require that all owners (shareholders or members) of the PA be licensed in the specific profession the entity is engaged in, ensuring that control of the professional practice remains with licensed expertsupcounsel.comupcounsel.com. For example, only licensed physicians can be owners of a medical practice PA, and only attorneys can own shares of a law firm organized as a PA. This restriction is meant to preserve professional standards and comply with regulations that forbid non-professionals from owning or controlling certain professional services businesses. In summary, a PA is a tool to incorporate a professional practice while adhering to the special rules of licensed professions.

Corporate Structure and Legal Attributes of PAs

Structurally, a Professional Association has many of the same legal attributes as a traditional corporation, which is why it aligns closely with corporate frameworks. Ownership and Governance: In a PA, the owners (whether called shareholders or “members” in some statutes) typically elect a board of directors (or an executive committee) to manage the organizationbyrdadatto.comgibsonlawgroup.com. The board then appoints officers (such as a president, secretary, treasurer, etc.) to handle day-to-day management. Often, the law requires that the directors and officers of a PA also be members of the association – in other words, only licensed owner-professionals can serve in those leadership rolesgibsonlawgroup.com. This creates a governance model very similar to a standard for-profit corporation, though it is more tightly controlled since all decision-makers must be part of the profession.

Corporate Formalities: Professional Associations must observe typical corporate formalities and regulatory requirements. They generally must file Articles of Incorporation (or an equivalent formation document) with the state and draft bylaws that govern the entity’s operations. PAs are usually required to hold annual meetings (for the members/shareholders and for the board of directors) and to keep minutes of these meetings, just like a regular corporationbyrdadatto.comgibsonlawgroup.com. These formalities ensure that the PA is treated as a separate legal entity, distinct from the individual practitioners, which helps preserve the liability protections of incorporation.

Limited Liability Protection: One of the primary reasons professionals form a PA is to obtain limited liability for the business’s debts and obligations. Like a traditional corporation or LLC, a PA creates a legal separation between the owners and the entity – the PA itself is responsible for its debts, contracts, and other liabilities, and the owners are generally not personally liable for those debts beyond their investment in the companybizcounsel.combizcounsel.com. This means, for example, that if a PA takes out a loan or has business debts, the creditors cannot typically pursue the personal assets of the doctors or lawyers who own the PA. However, there is a critical exception: PAs (and all professional entities) do not shield individual professionals from liability for their own malpractice or professional negligence. If a doctor in a medical P.A. commits malpractice, that doctor can be personally sued by the patient – the PA’s corporate status won’t protect the doctor from their own professional liabilitybizcounsel.combizcounsel.com. The PA structure does protect the other owners from vicarious liability for a colleague’s mistakes. In other words, if one member of the PA is sued for malpractice, the other members’ personal assets are insulated – only the at-fault professional and the entity’s assets can be targeted in that claimbizcounsel.comgibsonlawgroup.com. This limitation on liability protection is a unique feature of professional entities, reflecting the policy that professionals must remain accountable for their own work.

Restriction on Ownership and Transfer: Another attribute aligning PAs with corporate structures (while also tailoring them to professional requirements) is the restriction on who can own shares or membership interests. In a PA, ownership is typically limited to licensed professionals in the same field. Many state laws explicitly require that a professional corporation or association’s shares be owned only by individuals (or sometimes other professional entities) who are duly licensed to render the service in questionupcounsel.comgibsonlawgroup.com. For example, in some states a non-lawyer cannot own stock in a law firm PC or PA, and a non-physician cannot own part of a physician’s practice PA. Additionally, the sale or transfer of ownership interests in a PA may be restricted – state laws or the entity’s bylaws might stipulate that shares can only be transferred to another licensed professional (and often one approved by the remaining members or board)upcounsel.com. These restrictions ensure the practice remains under professional control and complies with ethical rules. From a structural standpoint, this is similar to a closed corporation with transfer restrictions, a concept in general corporate law, but here it’s mandated by professional regulatory considerations.

In summary, a Professional Association mirrors a standard corporation in many ways: it has a separate legal identity, a formal governance structure with directors and officers, perpetual existence beyond the involvement of any one member, and limited liability for business debtsbizcounsel.com. The differences are mostly in the details – PAs must be composed of and run by licensed individuals and have built-in checks to maintain professional responsibility. These structural and legal attributes set the stage for how PAs are treated under tax laws, which we discuss next.

IRS and State Default Tax Classification of PAs

Because Professional Associations are organized very much like corporations, tax law typically treats them as corporations by default. The Internal Revenue Service’s entity classification rules (often called the “check-the-box” regulations) specify that any entity formed under a state law that describes it as incorporated or as a corporation (or a body corporate) is automatically classified as a corporation for federal tax purposesthetaxadviser.comthetaxadviser.com. In other words, if your business is a corporation under state law – and most PAs are created under statutes that make them a kind of incorporated entity – then the IRS will regard it as a corporation, period. There is no flexibility to have it taxed as a partnership or sole proprietorship in that scenariothetaxadviser.com. For example, if a group of doctors organizes as a Professional Association under a state’s professional corporation statute, the IRS will not allow them to simply “elect” partnership taxation – the entity is a corporation in the eyes of the tax law and will be taxed accordingly as a separate corporate taxpayer.

The default federal tax status for a corporation is the C-Corporation. A C-Corp is the standard corporation defined under Subchapter C of the Internal Revenue Codebizcounsel.com. When a new corporation (including a PA that is treated as a corporation) is formed, it will automatically be taxed under the C-Corp rules unless a special election is made to have it taxed under Subchapter S (an S-Corp)bizcounsel.combyrdadatto.com. This is why PAs are often automatically classified as C-Corporations – because they fall into the corporate bucket by default, and C-Corp is the default tax treatment for that bucket. The IRS explicitly notes that a C corporation is recognized as a separate taxpaying entity, which means it pays its own income taxes on its profitsirs.gov. Only if the corporation’s owners file a timely S-Corporation election (Form 2553) and meet all the eligibility criteria will the corporation be taxed under the pass-through S-Corp rules. If no S election is made, the PA remains a C-Corp for tax purposes, no matter how small the business is or what the owners might have intended.

At the state level, default classifications generally mirror the federal treatment, though there can be some variations. Many states simply accept the federal election of S-Corp status for state income tax, meaning if your PA corporation is an S-Corp federally, it will be treated as such for state tax as well; if it’s a C-Corp federally, the state taxes it as a regular corporation too. Some states, however, might not recognize S-Corp status or might impose a state corporate franchise tax or fee even on S-Corps. In any case, when a PA is formed under state law as a professional corporation/association, the state itself usually considers it a corporate entity. For instance, Texas law treats a Professional Association largely under the same framework as a for-profit corporationbyrdadatto.com, and Florida law includes P.A. entities under its corporate statutes for professional service firms. This means that at the state level the entity will likely have to pay any applicable corporate-level taxes (such as state corporate income tax or franchise taxes) unless a pass-through status is achieved.

In summary, by default a Professional Association is classified as a corporation (and thus a C-Corporation) for tax purposesgibsonlawgroup.combyrdadatto.com. This classification happens automatically because of how the entity is organized under the law. Both IRS rules and state laws generally funnel PAs into the corporate category without any special filings, unless the owners take additional steps to change that status.

Why PAs Are Often Treated as C-Corporations by Default

There are several reasons why a Professional Association ends up as a C-Corp by default, many of which stem from automatic provisions of law rather than an explicit choice by the business owners:

• Entity Formation Dictates Tax Status: As discussed above, if you form your practice as a PA (which is essentially an incorporated entity under most states’ laws), you have essentially chosen a corporate form. The IRS does not give an option to treat a state-law corporation as anything other than a corporation for tax purposesthetaxadviser.com. Therefore, the moment the PA’s articles of incorporation (or certificate of association) are filed with the state, the default tax outcome is locked in as a corporate taxpayer. In practical terms, the IRS default rule is that new domestic corporations start life as C-Corps. The S-Corp is a special election that must be affirmatively made; it’s not the defaultbizcounsel.com. Many professionals may not realize this when they set up their entity. If they do nothing further after forming the PA, the tax classification automatically stays as a C-Corp.
• Automatic Classification and Timing: The classification often happens automatically also because of timing and procedure. An S-Corp election has to be filed with the IRS (generally within two and a half months of formation or by a certain deadline to be effective for the year). If the owners of a new PA forget to file Form 2553, or file it late, the corporation will default to being a C-Corp for that tax year. This is a common scenario – busy professionals may incorporate their new firm and not immediately handle the tax elections, thereby unintentionally remaining a C-Corp. In short, C-Corp status is the path of least resistance, as it requires no action to commence, whereas S-Corp status requires an affirmative election.
• Professional Entity Restrictions: In some cases, the nature of the professional entity might preclude other tax statuses. For example, certain types of businesses or owners are not eligible for S-Corp status. While most professional associations composed of individual doctors or lawyers would meet the S-Corp eligibility (since they typically have U.S. citizen/resident individual owners and one class of stock), if a PA’s ownership structure doesn’t meet these criteria, it cannot elect S status and thus stays a C-Corp. An example might be a multi-state law firm PA that for some reason has a partnership or another corporation as a part owner (though this is rare due to professional rules) – that would violate S-Corp requirements (which disallow corporate or partnership shareholders) and thus the PA must remain a C-Corp. Additionally, historically, some states did not allow certain professional entities to register as LLCs or partnerships, effectively forcing incorporation which in turn forces C-Corp taxation by defaultbizcounsel.combizcounsel.com. Over the decades, professionals formed PAs/PCs to take advantage of corporate benefits (like pension plans and fringe benefits) and because that was the only limited liability option available, and those entities were simply taxed as corporations by the IRS. The law has since provided more flexibility (with PLLCs, LLPs, etc.), but many established practices are still PAs and remain under the corporate tax regime unless they restructure.
• State Law “Default to Corporation” Concepts: Some states explicitly classify professional associations as a type of corporation. For instance, Florida’s statutes refer to P.A.s as professional service corporations under Chapter 621, and Texas’s code governs PAs in the for-profit corporation law contextbyrdadatto.com. This means that even from a state legal standpoint, these entities are supposed to act like corporations. As a result, practitioners and their advisors often default to treating them as such for all purposes, including tax. The administrative steps taken (getting an Employer Identification Number as a corporation, filing corporate reports, etc.) reinforce the default C-Corp treatment unless changed.

In essence, PAs are often C-Corps by default because that is the built-in outcome of choosing that entity form. Unless a deliberate change is made (like an S election), the classification sticks. This automatic C-Corp classification is not necessarily because PAs inherently “should” be C-Corps for business reasons, but rather because of regulatory design: the law automatically imposes corporate tax status on them. Many professionals find out that their association is a C-Corp only when tax time comes and they or their accountants realize the business must file a corporate tax return (Form 1120) and potentially pay corporate income tax. Next, we will look at what being a C-Corp entails for a professional association.

Implications of Being Classified as a C-Corporation

When a Professional Association is treated as a C-Corporation, it faces all the typical attributes of C-Corp taxation and governance. Taxation (Double Taxation): The hallmark of C-Corp status is that the entity is a separate taxpayer from its owners. The corporation must file its own tax return (Form 1120 in the U.S.) and pay corporate income tax on its profits. Then, if the corporation distributes those profits to the owners as dividends (or in the case of a closely held PA, as bonuses or dividends to the doctor or lawyer owners), the owners must report that income on their personal tax returns and pay personal income tax on it. In other words, the income can be taxed twice – once at the corporate level and once at the individual levelirs.govupcounsel.com. The IRS clearly explains that a corporation’s profit is taxed to the corporation when earned, and then taxed to shareholders again when distributed as dividends, and that this “creates a double tax” because the corporation cannot deduct the dividend paymentsirs.gov. This double taxation is often seen as a disadvantage compared to pass-through entities (like S-Corps or partnerships) where income is only taxed once at the owner level. For PAs, this means if they remain a C-Corp, careful tax planning is needed – many try to minimize dividends and instead pay most of the earnings out as salaries or bonuses to the professional owners (since salary is deductible to the corporation, reducing the corporate profit) to mitigate the double tax. However, the IRS imposes rules against unreasonably high compensation, so one cannot zero out profits in a large corporation without justification.

It’s worth noting that some professional corporations may fall under the category of “Personal Service Corporations” (PSC) in the tax code. A Personal Service Corporation is a C-Corp that is owned by and conducts certain services (health, law, engineering, accounting, etc. – many of the same fields PAs cover) and meets an ownership test (e.g. more than 50% owned by employee-owners). In the past, PSCs were penalized by being taxed at a flat high rate (35%) with no graduated brackets. As of 2025, the corporate tax rate for all C-Corps is a flat 21% under current law, so the distinction is less about the rate and more about some special rules (for instance, PSCs generally must use a calendar year for taxes unless they meet an exception). The key point is that a professional association taxed as a C-Corp is often considered a personal service corporation by the IRS, which historically had some unique tax treatment. Now, with the flat corporate tax, the main tax implication remains the double taxation of profits if not handled carefullyupcounsel.com.

Liability and Legal Implications: From a liability standpoint, being a C-Corp does not change the analysis we discussed earlier – the PA’s owners have limited liability for the entity’s debts, and they remain personally liable for their own malpractice. The C-Corp status mainly affects taxation rather than the liability shield. One thing to be aware of, however, is that corporations (including PAs) often carry corporate formalities requirements to maintain that liability protection. Failing to adhere to corporate governance (like neglecting to hold meetings or commingle personal and corporate funds) could risk “piercing the corporate veil,” potentially exposing owners to personal liability. PAs are expected to uphold these formalities just like any corporationbyrdadatto.com. In a PA, because all owners are also practitioners, there is usually a strong incentive to maintain formal separation of personal affairs from the company (for instance, keeping a separate bank account for the PA, signing contracts in the PA’s name, etc.). Maintaining C-Corp status also means complying with any state corporate law requirements specific to professional entities (such as providing annual reports, renewing licenses for the firm if required, and so on).

Corporate Governance: Being classified and run as a corporation means a PA must implement a formal governance structure. This includes having a board of directors or equivalent governing body, adopting bylaws, issuing some form of shares or membership certificates to the owners, and following voting procedures for major decisionsgibsonlawgroup.comgibsonlawgroup.com. For many professionals, this is a new layer of complexity compared to a simple partnership. Decision-making might be subject to votes and quorum requirements, and records of decisions must be kept. However, because PAs are usually closely held (owned by a small group of professionals), in practice the governance is often straightforward – the owners themselves are the directors and officers, so they can manage the business directly, albeit with the formal titles and paperwork in place. The implication is that corporate governance can be more rigid than the alternative (for example, an LLC operating agreement can be more flexible), but it also provides a clear hierarchy and continuity. If one owner leaves or dies, the corporation and its board can continue the business, and shares can be transferred to a new licensed owner (subject to approval), meaning the practice has perpetual existence beyond the original foundersbizcounsel.com. This stability can be an advantage of the corporate form. It does, however, require careful succession planning because new owners must always be licensed professionals and may need to be approved by the remaining members or meet state criteria.

Benefits and Drawbacks of C-Corp Status for PAs: Aside from double taxation, there are some potential benefits that come with being a C-Corp. For instance, a corporation can deduct the cost of certain fringe benefits (like health insurance or retirement plan contributions for employees/owners) as a business expense, potentially more liberally than a pass-through entity canupcounsel.comupcounsel.com. This was one reason historically many professional firms incorporated – to create pension plans and have the contributions be deductible at the corporate level (which effectively allowed the owners to set aside pre-tax money for retirement). Additionally, C-Corps are not subject to the self-employment tax on their earnings (owners who draw salaries pay FICA taxes on wages, but dividends are not subject to payroll taxes – though they are subject to income tax). On the other hand, pass-through income from an S-Corp or partnership might avoid corporate tax but still could be subject to self-employment taxes (depending on the situation). These factors mean that in certain cases, some professional associations might willingly stay as C-Corps if the calculus of salaries, dividends, and benefit deductions works out in their favor. However, for many small professional practices, the S-Corp route is chosen to avoid the straightforward double-tax hit on any distributed profits.

In summary, the implications of being a C-Corp for a Professional Association include dealing with double taxation of profits, adhering to formal corporate governance and record-keeping, and enjoying standard corporate benefits and burdens (like possible tax-deductible benefits and the need for separate tax filings). The liability protections remain strong (with the noted exception of personal professional liability), and the entity gains continuity and structure, which can be positive for establishing a lasting practice. Many of these implications are similar to those any small corporation would face, but they are heightened by the professional context (since all shareholders are actively working in the business).

Can PAs Elect Other Tax Classifications? (S-Corp Status or Partnership)

Given the potential downsides of default C-Corp status, professional association owners often ask if they can choose a different tax classification for their entity – such as electing S-Corporation status or being treated as a partnership or disregarded entity. The options here are influenced by both tax law and the nature of the PA:

• S-Corporation Election: Yes, a Professional Association that qualifies can elect to be treated as an S-Corporation for tax purposes, instead of a C-Corp. Electing S-Corp status means the corporation’s income “passes through” to the owners’ personal tax returns (avoiding corporate-level income tax), and the entity generally won’t pay federal income tax itself. This can eliminate the double taxation issue, as profits are only taxed once at the shareholder levelbizcounsel.combizcounsel.com. Most PAs are in fact eligible to be S-Corps because they typically have a small number of individual shareholders who are U.S. citizens or residents (common S-Corp requirements). If the PA has 100 or fewer owners, one class of stock, and no ineligible shareholders (for example, no corporate owners or partnerships owning shares), it can file the Form 2553 with the IRS to become an S-Corp. There is usually a deadline (generally 2½ months into the tax year) to make the election for it to apply for that year. Once the S-Corp election is in place, the PA is no longer taxed under Subchapter C but under Subchapter S of the Code, meaning it will file an informational tax return (Form 1120-S) and the profits/losses will flow through to the owners’ K-1 forms. Many professional corporations do choose S-Corp status after forming; in fact, it’s quite typical for small firms like medical practices or law offices to be S-Corps so that they can avoid double taxation while still enjoying the legal benefits of a corporate entitygibsonlawgroup.com. One should remember, however, that even as an S-Corp, the entity is still a corporation in legal form – it must still follow the corporate formalities and it still provides limited liability the same as before. The S-Corp status is purely a tax election. Also, an S-Corp can sometimes have tax drawbacks of its own (such as restrictions on allocating income or fringe benefit deductibility for owner-employees), but those are usually outweighed by the single level of tax for most small firms.

• Partnership or Disregarded Entity Treatment: Here the answer is generally no in the context of a PA, with an important caveat. As discussed, if your entity is organized as a corporation or professional association under state law, the IRS will not allow you to simply opt to be treated as a partnership or a sole proprietorship (disregarded entity) for tax purposesthetaxadviser.com. The “check-the-box” regulations give flexibility to eligible entities (typically LLCs or other unincorporated entities) to choose their classification, but a state-law corporation (including a professional corporation/association) is not an eligible entity that can check the box to be a partnershipthetaxadviser.comthetaxadviser.com. Therefore, a PA with multiple owners cannot elect to be a partnership for tax – it is stuck as a corporation (C or S) unless it undergoes a legal change. Similarly, a single-member PA could not be a disregarded entity; it would still be a corporation that has to file taxes (technically if it’s one owner and they don’t elect S, it’s just a C-Corp with one shareholder; there’s no concept of a disregarded regular corporation). The only way to get partnership taxation for a group of professionals would be to form a partnership-type entity in the first place, such as a Professional Limited Liability Company (PLLC) or a Limited Liability Partnership (LLP) if allowed. For instance, many states now allow PLLCs for professionals, which can by default be taxed as partnerships (or even disregarded if one owner) or can elect S-Corp status as wellbyrdadatto.comgibsonlawgroup.com. In contrast, a PA by definition is not an LLC, so it doesn’t have the same flexibility. If a PA had owners who later decide they’d prefer partnership taxation, they would likely have to convert or merge the PA into a PLLC or similar entity – a process that can have tax consequences (conversion from a corporation to an LLC is treated as a liquidation of the corporation for tax purposes, which may trigger taxes on appreciated assets or retained earningsthetaxadviser.com).

• Limitations on S-Corp Elections for PAs: While PAs can usually elect S-Corp, there are a few limitations to keep in mind. First, not all states recognize the concept of an S-Corp for state taxes – a handful of states might tax an S-Corp like a C-Corp or impose a fee. This doesn’t stop the federal S election, but it means the PA could still face some double tax at the state level (this is more of a state tax planning point). Second, the S-Corp election could be inadvertently terminated if the PA violates the shareholder rules. For example, if one of the owners of a PA transfers shares to an ineligible shareholder (say, someone creates a living trust for their shares and the trust is not a “qualified S corporation shareholder,” or someone tries to transfer shares to a non-U.S. citizen), the S-Corp status would end and the PA would revert to a C-Corp. Professional associations tend to have individuals as shareholders which fits S-Corp rules, but it’s important to maintain that compliance. Lastly, some older professional corporations that were formed decades ago and have large retained earnings might hesitate to become S-Corps because there is a tax on built-in gains if a C-Corp with appreciated assets or untaxed earnings switches to S-Corp and then sells assets within 5 years. This is a complex corporate tax issue, but it can be a factor for some larger professional firms converting to S status. For most small PAs, this is not a major issue.

In conclusion, the main alternative tax classification available to a PA is the S-Corporation election, which many PAs do utilize if they meet the criteriagibsonlawgroup.combizcounsel.com. Electing S-Corp status allows the income to flow through and be taxed once, addressing the double-taxation drawback of C-Corps. However, PAs cannot simply elect to be a partnership or sole proprietorship for tax purposes due to their incorporated naturethetaxadviser.com. If partnership taxation is highly desirable, professionals might choose an entirely different entity type (like a PLLC or partnership) from the outset rather than a PA. Each choice comes with trade-offs in liability, governance, and tax flexibility, so professionals should consider their priorities and possibly seek legal/tax advice when choosing how to organize their practice.

Conclusion

Professional Associations (PAs) serve as a vital business structure for licensed professionals, combining the benefits of incorporation with the special requirements of regulated professions. By design, PAs share most characteristics of traditional corporations: they have a formal governance structure, provide limited liability (apart from personal malpractice), and exist as separate legal entities. Correspondingly, tax law almost invariably treats PAs as corporations. In most cases, a PA will default to C-Corporation status automatically, simply because it is formed under laws that make it a corporation and the IRS defaults every corporation to a C-Corp absent an S electiongibsonlawgroup.combyrdadatto.com. This automatic classification can surprise some business owners, but it is rooted in clear IRS rules that state a corporation under local law must be taxed as a corporation for federal purposesthetaxadviser.comthetaxadviser.com.

Being taxed as a C-Corp means the PA is subject to corporate income tax rules, potentially leading to double taxation of income distributed to ownersirs.govupcounsel.com. It also means the PA must follow corporate formalities and filings diligently. On the flip side, corporate status can offer benefits like the ability to deduct certain benefit expenses and to retain earnings at a flat corporate tax rate for growth. For many small professional firms, the S-Corp election is an attractive option to eliminate the double tax while retaining the corporate form, and it is often available as long as the ownership is structured to meet the S-Corp requirementsbizcounsel.combizcounsel.com.

However, except for the S-Corp route, PAs have limited flexibility to be treated as anything other than a corporation for tax purposes – they cannot be partnerships or disregarded entities without fundamentally changing their legal structurethetaxadviser.com. State default classifications generally align with the federal treatment, reinforcing the corporation status unless an alternate election is recognized.

As of 2025, the landscape for professional entities offers more choices (such as PLLCs and LLPs) that can provide pass-through taxation from the startbyrdadatto.com. Yet, the Professional Association remains a common form, especially in states that require certain professions to use it. When a PA is chosen, one should be mindful that the default tax identity will be a C-Corp and plan accordingly – either by accepting the C-Corp status with its implications or by timely electing S-Corp if appropriate. Understanding these rules and the reasons behind the automatic classification helps professionals avoid unintended tax consequences and leverage the legal frameworks to their advantage. With proper planning, a Professional Association can provide the needed liability protection and operational structure for a practice, while also allowing some flexibility through tax elections to optimize the financial outcomesgibsonlawgroup.comupcounsel.com.