Independent Legal Review of MSO Structures: Handler and Wells Hall Memoranda

TECHNICAL BRIEF · INDEPENDENT LEGAL REVIEW

This technical brief summarizes two separate third-party legal reviews relevant to Guardian Tax Consultants®' MSO platform diligence.

By Mike Claudio, Co-Founder, Guardian Tax Consultants®. Published April 9, 2026. Last reviewed: June 25, 2026.

The first is the August 21, 2024 Management Services Organization Educational Memorandum prepared for Guardian Tax Consultants® by Thomas J. Handler, J.D., P.C. (the “Handler Memorandum”).¹

The second is the June 10, 2024 tax memorandum authored by Wells Hall and Danielle Weisman in connection with Mezrah Consulting's MSO-based deferred compensation planning framework (the “Wells Hall / Nelson Mullins Memorandum”).² Mezrah Consulting commissioned that memorandum; Guardian did not author it. Guardian has reviewed it as part of its platform-partner diligence and relies on it only as one supporting platform-partner memorandum within a broader governance and documentation framework.

This brief summarizes what those two memoranda actually conclude, the IRC sections and case authorities each reviewer cites, the scope limitations each memorandum expressly states, and how an institutional reader should weigh a third-party tax memorandum as part of broader diligence. It is written for counsel, multi-family-office wealth planners, and Top-100 CPA tax partners. It is not itself a tax opinion. Where the Handler Memorandum or Wells Hall / Nelson Mullins Memorandum reaches a stated position, we cite the document; where we observe that institutional reviewers should consider additional factors, we say so.

Why an independent tax memorandum matters in MSO diligence

Among institutional advisors who place client capital, refer engagements, or carry advisor liability, one principle is constant: the firm that designs and earns fees on a planning structure should not be the only firm offering the technical authority for it. The fee provider does not grade its own homework. When counsel or a CPA partner evaluates an MSO platform for a closely held business owner or a family-office principal, the question that protects everyone — client, advisor, and referring firm — is whether a separate, independent tax law firm has reviewed the structural elements against the governing IRC and Treasury Regulations.

Two related but distinct documents commonly arise in this diligence: (i) a general educational or structural memorandum, which analyzes a planning framework in the abstract; and (ii) a client-specific tax memorandum, which applies the law to a particular taxpayer’s facts and reaches a stated level of comfort (typically “more likely than not,” “should,” or “will”). The Handler Memorandum is the former. It analyzes the GTC™ MSO framework against federal governing law and concludes that the structural elements are, when properly designed and operated, compatible with that governing law. It does not opine on any specific taxpayer’s implementation. The memorandum is explicit on this point.¹

For a referring CPA or family-office advisor, the institutional value of an educational memorandum at this scope is twofold. First, it establishes that a national tax counsel has independently reviewed the framework and identified the governing legal authorities. Second, it provides a road map of the IRC sections, Treasury Regulations, and case authorities that any subsequent client-specific memorandum will need to address. The educational memorandum does not substitute for client-specific counsel; it informs it.

About Thomas J. Handler and the reviewing firm

The Handler Memorandum is signed by Thomas J. Handler, J.D., P.C., from offices at 191 North Wacker Drive, Suite 2300, Chicago, Illinois.¹ Mr. Handler is widely recognized in the closely held business and family-office tax bar for work on family-office structuring, executive compensation, asset protection, and succession planning matters. The reviewer’s practice profile is the kind that institutional readers expect for a framework of this complexity: substantial experience with C-corporation planning, Subchapter S elections, deferred compensation, life insurance arrangements, and the case law surrounding closely held entities.

Per the memorandum’s own language, the scope of the engagement was to “evaluate the key components of the Management Services Organization (‘MSO’) structure and provide an educational overview and analysis of its compatibility with federal governing law.”¹ The memorandum explicitly is “intended for the exclusive use of Guardian Tax Consultants®” and its affiliated strategic partners.¹ The reviewer also notes that the analysis is current as of August 2024 and should be revisited if the governing law changes.¹

Scope of the Handler Memorandum — what was reviewed

The Handler Memorandum analyzes four structural pillars of the GTC™ MSO framework and the supporting governance and exit considerations. The reviewer’s explicit scope, taken from the memorandum:¹

• Trade or business purpose — whether the MSO is a bona fide trade or business under IRC § 162 and the case law defining a trade or business, principally Commissioner v. Groetzinger, 480 U.S. 23 (1987), and the entity-separateness framework of Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943).
• Reasonable compensation — both the reasonableness of compensation paid by the MSO to its employees, and the reasonableness of the management fee paid by the operating company to the MSO, under IRC § 162(a)(1) and Treas. Reg. § 1.162-7.
• Life insurance utilization — including split-dollar arrangements under Treas. Reg. § 1.61-22, the loan regime of IRC § 7872, and employer-owned life insurance (“EOLI”) under IRC § 101(j).
• Succession and exit planning — including the corporate-distribution and Subchapter S provisions of IRC § 1361 et seq., special-purpose LLC buy-sell design in light of Connelly v. United States, 144 S. Ct. 1406 (2024), and estate-planning step-up under IRC § 1014.

The memorandum also expressly addresses three collateral risks every institutional reviewer should expect to see in MSO analysis: the accumulated earnings tax under IRC § 531, the personal holding company rules of IRC § 542, and the 12-month rule for prepaid expenses under Treas. Reg. § 1.263(a)-4(f).¹

Key legal conclusions of the Handler Memorandum

Below we summarize the stated positions of the Handler Memorandum, citing the IRC sections and case authorities on which the reviewer relies. These are characterized as positions of the reviewer, not promotional claims of GTC.

1. The MSO can be a bona fide trade or business under IRC § 162

The Handler Memorandum concludes that a properly structured MSO — meaning one that performs genuine services for the operating companies it serves, documents its business purpose, conducts itself in a businesslike manner, and avoids commingling of assets — can satisfy the trade-or-business standard articulated in Commissioner v. Groetzinger, 480 U.S. 23 (1987).¹ Establishing a trade or business is the gateway to deducting ordinary and necessary business expenses under IRC § 162; absent that status, the structure is exposed to the limitations of IRC § 212 and the hobby-loss rules of IRC § 183.¹

The reviewer addresses head-on the IRS’s historical scrutiny of common-ownership service entities — the line of sham “management” and “marketing” entity cases from the mid-twentieth century — and the more recent challenge in Lender Management, LLC v. Commissioner, T.C. Memo 2017-246. The court in Lender Management concluded that the family-office vehicle there at issue did conduct a trade or business notwithstanding the familial relationships involved. The Handler Memorandum reasons that the analogous factors in Lender Management — professional conduct, distinct legal entities, employment of non-related staff, arm’s-length engagement with outside service providers — provide useful guidance for MSO operation.¹

2. Entity separateness is supported by Moline Properties

For the MSO to be respected as a separate entity, the Handler Memorandum points to the two-pronged test of Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943): (i) a legitimate non-tax business purpose served by the corporate form, or (ii) sufficient business activity.¹ Treatment as a separate entity requires at least one prong to be satisfied. The reviewer emphasizes the parallel importance of corporate formalities — board meetings, annual reports, separate accounts, arm’s-length intercompany loans documented with promissory notes — and concludes that an entity is at risk of being collapsed into its owners only where these formalities are absent and the corporation functions as the “alter ego” of its owners.¹

3. Reasonable compensation is the central operational discipline

The Handler Memorandum treats reasonable compensation as the most important ongoing operational test, citing IRC § 162(a)(1) and Treas. Reg. § 1.162-7. The reviewer notes that courts most often apply the objective “amount” test of Treas. Reg. § 1.162-7(b)(3), comparing the compensation in question to compensation paid “for like services by like enterprises under like circumstances.”¹ The four traditional factors are: the employee’s qualifications, the employee’s contributions to the success of the business, comparison to compensation paid to other employees, and comparison to others in the industry. Several circuits have held the fourth factor the most significant.¹

The Handler Memorandum draws an important distinction between two related but separate analyses: (i) the reasonableness of the management fee paid by the operating company to the MSO, and (ii) the reasonable compensation paid by the MSO to its employees.¹ Both analyses must be performed and contemporaneously documented; benchmarking against independent reasonable-compensation studies and licensed valuation work is described as integral to the GTC™ process.¹

4. Accumulated earnings tax is a real risk that must be documented around

The accumulated earnings tax under IRC § 531 imposes a 20 percent tax on accumulated taxable income where a C corporation accumulates earnings beyond the reasonable needs of the business with the purpose of avoiding shareholder-level income tax.¹ The Handler Memorandum identifies this as a structural risk and concludes it can be mitigated by clear, contemporaneous documentation of the business purpose for retained earnings — including future business needs, planned acquisitions, debt repayment, and succession funding — with the documentation supported by “specific, definite, and feasible plans” under Treas. Reg. § 1.537-1(b)(1).¹ Amounts exceeding reasonable reserves should be distributed as dividends.

The reviewer also addresses the personal holding company rules of IRC § 542 and concludes the MSO should not generally qualify because its income is service fee income, not personal holding company income, and because the MSO is not generally a holder of stock in other entities.¹

5. Life insurance, split-dollar, and EOLI compliance

The Handler Memorandum analyzes the use of cash-value life insurance, split-dollar arrangements (under the two mutually exclusive regimes set forth in Treas. Reg. § 1.61-22), and employer-owned life insurance under IRC § 101(j).¹ For split-dollar loan-regime arrangements, the reviewer notes the interest must be set at or above the applicable federal rate pursuant to IRC § 7872 to avoid imputed gift treatment.¹ For EOLI, the reviewer notes that the employee-notice and reporting requirements of IRC § 101(j)(4), including annual filing of Form 8925, must be satisfied for death benefit proceeds to be received income-tax-free by the employer-policyholder.¹

6. Buy-sell architecture after Connelly v. United States

The Handler Memorandum specifically addresses Connelly v. United States, 144 S. Ct. 1406 (June 6, 2024), in which the Supreme Court held that life insurance proceeds payable to a corporation for the purpose of redeeming a deceased shareholder’s stock are includible in the corporate value used for estate-tax purposes and are not offset by the redemption obligation.¹ The reviewer’s position is that this decision affects buy-sell architecture and that business owners should consider special-purpose LLC (“SPLLC”) structures or individually owned cross-purchase policies rather than corporate-owned redemption funding.¹ The memorandum analyzes the SPLLC framework in detail, including its joint ownership, split-dollar funding from the operating C corporation, and buy-sell mechanics.¹

7. Exit and succession planning

For exit, the reviewer discusses three principal pathways under the Subchapter S, accumulated earnings, and corporate-distribution provisions of the Internal Revenue Code, including succession by sale of the stock and estate-planning alternatives.¹ The Handler Memorandum also addresses succession via estate planning, with the death of an MSO owner triggering a fair-market-value basis step-up under IRC § 1014 at the stock level, which can allow heirs to liquidate without immediate gain recognition.¹

The Wells Hall / Nelson Mullins Memorandum — Platform-Partner Cross-Validation

The Wells Hall / Nelson Mullins Memorandum was not authored by GTC™ and should not be described as a Guardian tax opinion. It was authored by Wells Hall and Danielle Weisman in connection with Mezrah Consulting's MSO-based deferred compensation planning framework. Mezrah Consulting had the memorandum prepared for its platform and planning use; GTC™ has reviewed the memorandum in connection with its platform-partner diligence and treats it as one corroborating legal analysis within the broader MSO governance file.

The Wells Hall / Nelson Mullins Memorandum’s explicit issues addressed are:²

• Deductibility of fees paid to the MSO as ordinary and necessary business expenses under IRC § 162;
• Treasury allocation authority for commonly controlled organizations under IRC § 482 and the transfer-pricing methods of Treas. Reg. § 1.482-9;
• Application of the accumulated earnings tax under IRC § 531 to the MSO structure; and
• Treatment of corporate-owned life insurance under IRC § 101.

The memorandum also addresses additional succession provisions specific to Mezrah Consulting’s planning framework. The detailed mechanics of that framework are proprietary to Mezrah Consulting and outside the scope of this brief.

Notably, the Wells Hall / Nelson Mullins Memorandum addresses IRC § 482 — the Treasury’s allocation authority for commonly controlled organizations — directly, citing the regulatory transfer-pricing methods of Treas. Reg. § 1.482-9, including the comparable uncontrolled services price method, the gross services margin method, the cost of services plus method, the comparable profits method, the profit split method, and the services cost method.² This is the central authority by which the IRS may reallocate income between a brother-sister MSO and an operating entity if the management fee is determined not to be at arm’s length.

At a general level, the memorandum concludes that, properly structured and documented, (i) management fees set at arm’s-length levels supported by a reasonable-compensation study should be deductible under § 162; (ii) the Treasury allocation authority of § 482 supports the transfer-pricing methods listed in Treas. Reg. § 1.482-9; and (iii) the accumulated earnings tax of § 531 can be managed through documented business purposes for retention.² The memorandum also addresses additional planning provisions specific to Mezrah Consulting’s framework. The detailed mechanics of that framework are proprietary to Mezrah Consulting and outside the scope of this brief.

Where the Handler and Wells Hall / Nelson Mullins analyses overlap — principally on § 162 deductibility, reasonable compensation, § 531 accumulated earnings tax, and the treatment of COLI — the two firms reach consistent conclusions while applying the same governing IRC and Treasury Regulations. That consistency is the institutional value of a two-memorandum framework.

What an institutional reviewer should look for in any third-party tax memorandum

Counsel, family-office wealth planners, and CPA tax partners performing diligence on any planning structure should evaluate any third-party memorandum against the following criteria. The Handler and Wells Hall / Nelson Mullins memoranda are general framework reviews; client-specific memoranda should be evaluated against an even more rigorous version of the same standards.

• Independence of the reviewer. The reviewer should not be a captive function of the firm earning fees on the structure. The Handler Memorandum and the Wells Hall / Nelson Mullins Memorandum were each prepared by tax counsel separate from the commissioning party.
• Stated scope. The scope section should clearly identify which structural elements are reviewed and which are excluded. The Handler Memorandum’s scope is the four pillars listed above; tax components outside that scope are expressly not addressed.¹
• Authorities cited. A serious memorandum cites IRC sections, Treasury Regulations, Revenue Rulings, and case law. Both the Handler and Wells Hall / Nelson Mullins memoranda do so, with citations to dozens of authorities including Groetzinger, Moline Properties, Lender Management, Connelly, and the relevant Treasury Regulations.
• Identified risks. A credible memorandum identifies the risks the structure faces — it does not pretend they do not exist. The Handler Memorandum identifies the accumulated earnings tax, personal holding company rules, § 482 transfer-pricing risk, the Connelly buy-sell issue, and the unresolved S-corporation wage-attribution question.¹
• Qualifications and limitations. Educational and framework memoranda almost typically state that they are not client-specific. Readers should expect — and respect — that limitation.
• Currency of the analysis. Tax law changes. The Handler Memorandum is dated August 21, 2024; the Wells Hall / Nelson Mullins Memorandum is dated June 10, 2024. Both predate any 2025 or 2026 legislative changes. Material changes in governing law require revisiting.

How GTC™ uses the Handler Memorandum in ongoing engagements

The Handler Memorandum is one component of the governance file GTC™ maintains for institutional engagements. It is paired with: (i) a client-specific reasonable compensation study, prepared by an independent valuation firm, supporting the management fee level; (ii) a Management Services Agreement (“MSA”) memorializing the services the MSO provides; (iii) accumulated earnings tax documentation supporting the business purpose for retained earnings; and (iv) annual sign-off by tax counsel on continued compliance with applicable law. The Handler Memorandum itself notes that “[t]ax attorneys are also involved in the procedures, providing their sign-off annually to ensure continued compliance with applicable laws.”¹

Disclosures

This brief is published by Guardian Tax Consultants® for general informational and educational purposes. It summarizes the stated positions of the August 21, 2024 Handler Memorandum prepared for Guardian Tax Consultants® and the June 10, 2024 Wells Hall / Nelson Mullins Memorandum authored in connection with Mezrah Consulting's MSO-based deferred compensation planning framework.

The Wells Hall / Nelson Mullins Memorandum was not authored by GTC, was not commissioned as a Guardian tax opinion, and should not be described as GTC™ legal advice. Mezrah Consulting had the memorandum prepared for its planning framework, and GTC™ has reviewed it as part of its platform-partner diligence. Neither memorandum is a client-specific tax opinion, penalty-protection opinion, audit-defense engagement, or legal recommendation for any particular taxpayer.

Frequently asked questions

How independent is the Handler Memorandum?

The memorandum was prepared by Thomas J. Handler, J.D., P.C., a tax counsel separate from Guardian Tax Consultants®. GTC™ commissioned the engagement. As with any commissioned legal review, the reviewer’s independence is reinforced by the professional standards of the bar, the reviewer’s own reputational stake, and the citation discipline of the document itself. Institutional readers should evaluate independence on the face of the memorandum: stated scope, identified risks, authorities relied upon, and qualifications. The Handler Memorandum meets each of those tests.

What does the Handler Memorandum not cover?

By its own terms, the memorandum does not address: (i) any specific taxpayer’s facts or implementation, (ii) state and local tax consequences (which vary by jurisdiction), (iii) future changes in governing law, or (iv) every tax component of the MSO structure. It is a general framework analysis of the principal federal authorities. Its scope is limited to the four structural pillars and the supporting governance considerations enumerated in its scope section.¹

Can a CPA rely on the Handler Memorandum for a client?

Does the memorandum survive an IRS audit?

No tax memorandum “survives an audit” in the colloquial sense; the IRS makes its own determinations on the facts of the particular taxpayer. What a properly designed structure, supported by contemporaneous documentation and independent reasonable-compensation analysis, can do is establish the substantive and procedural record that tax law calls for. The Handler Memorandum identifies the authorities the IRS would look to in any examination and the documentation that supports the structural positions.¹ Audit defense remains a separate engagement.

Why is there a second memorandum from Mezrah Consulting?

The Wells Hall / Nelson Mullins Memorandum was prepared independently and earlier in 2024 in connection with Mezrah Consulting’s deferred-compensation deferral planning, which uses an MSO structure for parallel purposes. The two firms reach consistent conclusions on the overlapping authorities — § 162 deductibility, reasonable compensation, § 531 accumulated earnings tax, and COLI treatment. Cross-validation across two unaffiliated reviewers strengthens the institutional record.

What case law does the Handler Memorandum rely on most heavily?

The most load-bearing case authorities are Commissioner v. Groetzinger, 480 U.S. 23 (1987), for the trade-or-business standard; Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943), for entity separateness; Lender Management, LLC v. Commissioner, T.C. Memo 2017-246, for the analogous family-office trade-or-business analysis; and Connelly v. United States, 144 S. Ct. 1406 (2024), for the recent Supreme Court decision affecting corporate-owned buy-sell life insurance.¹

What if the law changes after 2024?

The Handler Memorandum expressly states that “[s]hould the laws discussed herein change at any point in the future, their application to the MSO structure should be revisited.”¹ Institutional readers should treat the August 2024 date as a meaningful cutoff. Annual counsel sign-off is the mechanism by which material legislative or regulatory developments are incorporated into a continuing engagement.

How does this fit with the rest of GTC’s documentation?

The Handler Memorandum is the framework-level authority anchor. It is supported by client-specific reasonable-compensation studies, the Management Services Agreement, accumulated-earnings-tax documentation, and ongoing annual counsel sign-off. For closely held businesses considering coordinated MSO, premium-financed estate liquidity, or dynasty-trust planning, the framework memorandum is the starting point of the governance record — not the conclusion.