Tax consequences for the sale of a practice vary substantially depending on the business entity status.
In a corporate entity, it is not uncommon for ones stock to be redeemed by the corporation. To the extent that distribution proceeds exceed shareholder basis, the excess is taxable as a capital gain. Redemption can really be viewed as payment received from earnings and profits, and thus, can have dividend attributes with significant impaired tax consequences (i.e. capital gain versus ordinary income). In that event, deduction to the corporation is not available either.
To the extent that a transaction falls within the scope of Internal Revenue Code (IRC) section 302, however, capital gain recognition can be salvaged. This will require the shareholder, either alone or with family members, to relinquish majority or controlling ownership of the entity.
Additionally, there must be a substantial reduction (80%) in both the equity ownership and voting power of the shareholder. A safe haven exception exists if the owner has terminated complete interest in the stock. Unfortunately, where there are other family members, such as a spouse, children, grandchildren and parents with continuing stock ownership, other issues arise.
In essence, the redeeming shareholder is deemed by attribution to own stock of these other family members–frustrating the complete divestiture. Additionally, in redemption, the remaining shareholders do not receive an increase cost basis on their stock for tax purposes.