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

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

> The canonical monthly flow, intercompany loans done properly with AFR interest and board consents, the In re OCA bank-account lesson, and what never to do.

Money moves between the PC and the dental support organization (DSO) 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 DSO-PC groups.

## Prerequisites

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

## Why dentistry polices this so hard

The OCA litigation illustrates why bank-account authority matters in a corporate-practice analysis. Orthodontic Centers of America billed patients, hired non-dental staff, and controlled the operating bank account. **The orthodontists could not withdraw their own funds.** In OCA's bankruptcy, the Fifth Circuit held the agreements **void for illegality**. The dentists "were essentially only left with control over diagnosing and treating their patients," which the court found insufficient.<sup>1</sup> Review account authority as one part of the full agreement stack. See [DSO case law](/reference/legal/dso-case-law).

Enforcement runs the same way. The New York Attorney General's 2015 settlement with Aspen Dental Management required, among other terms, that the practices **control their own revenue and bank accounts**, and it barred percentage-of-profit fees.<sup>2</sup> That settlement was the de facto national compliance checklist for a decade. See the [DSO enforcement tracker](/reference/legal/dso-enforcement-tracker).

The discipline on this page is how you stay on the right side of both.

## 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<br/>dentists and hygienists"]
    B --> C["3. PC pays its direct expenses<br/>malpractice, lab fees, dental supplies"]
    C --> D["4. DSO 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. DSO 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 dentists and hygienists, 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">
    Use the contractual method rather than choosing a preferred number after the fact. Percentage-of-revenue fees raise separate state-law questions in dentistry. See [Set the management fee](/guides/agreements/set-the-management-fee).
  </Step>

  <Step title="The DSO 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 DSO.
  </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 DSO → PC, funding the credentialing ramp or a de novo buildout 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>3</sup>

    See [Intercompany loans between DSO 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** leaves no contemporaneous evidence of the price charged for services. That may look like profit extraction and raise a fee-splitting concern.
2. **Automation can create evidence of control.** A DSO that can pull PC funds without the PC acting has withdrawal authority over the practice's receipts, a fact the *In re OCA* court considered.<sup>1</sup>
3. **The amount may differ from the contractual fee.** A sweep takes the available balance, which may not match the MSA's calculation.
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→DSO transfer as a "distribution."** The DSO is not the PC's shareholder. That label may suggest the parties treat the PC as though the DSO owns it.
* **Let a management fee accrue indefinitely without payment.** A perpetual balance may suggest the PC could never support the fee, and buyers may treat it as a diligence adjustment.
* **Reprice past periods retroactively**, the classic red flag

## When the PC can't pay in full

Common during the ramp, when the hygiene book is still building and payer credentialing is incomplete. 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 DSO pay the PC's bills directly with no intercompany entry.

## Verify it worked

* [ ] Every PC→DSO 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 DSO withdrawal authority

## Common failure modes

| Failure                              | Consequence                                                                  |
| ------------------------------------ | ---------------------------------------------------------------------------- |
| Automated sweep with no invoice      | The central documentation failure; recharacterization risk                   |
| DSO control of the PC's bank account | A central fact in *In re OCA*, where the agreements were void for illegality |
| 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. *In re OCA, Inc.*, 552 F.3d 413 (5th Cir. 2008). [Opinion](https://caselaw.findlaw.com/court/us-5th-circuit/1452605.html). Annotated in [DSO case law](/reference/legal/dso-case-law).
2. NY AG, [settlement with Aspen Dental Management](https://ag.ny.gov/press-release/2015/ag-schneiderman-announces-settlement-aspen-dental-management-bars-company-making) (June 18, 2015). Full terms in the [DSO enforcement tracker](/reference/legal/dso-enforcement-tracker).
3. 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.