Less than a month after announcing its intention to convert to a limited partnership, Community Psychiatric Centers said Wednesday that it has abandoned the plan because of shareholder opposition.
The Santa Ana-based corporation, which operates psychiatric hospitals and kidney dialysis centers throughout the United States and in the United Kingdom, had hoped the move to a limited partnership would remove its obligation to pay corporate income taxes.
Under a limited partnership, profits are distributed among the partners and taxed as the ordinary income of those individuals.
However, Community Psychiatric executives said J. P. Morgan & Co., the banking firm which holds 10% of the company's stock as a pension fund administrator, opposed the conversion because it would have required some of the tax-exempt pension funds to pay some taxes.
Converting to a limited partnership has become an increasingly popular ploy among corporations looking to minimize their tax bills and maximize the amount of money they distribute to their owners, whether they are called shareholders or limited partners. But such moves have raised a few eyebrows among Internal Revenue Service officials, and some accountants have cautioned that the agency may soon crack down on conversions.