If you’re an accounting professional or advisor to privately held businesses, the Management Services Organization (MSO) strategy may feel unfamiliar. This is a common reaction, but there are clear reasons why the MSO has remained under the radar. Understanding these reasons will not only help you gain confidence in the structure but also equip you to offer innovative solutions to your clients—particularly high-income earners, pass-through entities, and growing enterprises.

1. Historical Use in Specific Industries

The MSO model has a long history, dating back to its origins in the healthcare sector. MSOs were primarily designed to help medical practices manage administrative burdens while staying compliant with legal requirements. Due to regulatory constraints specific to healthcare, the MSO structure was largely confined to this industry for decades. Only recently has its application expanded to other sectors like manufacturing, real estate, and professional services. Privately held businesses, especially those generating significant revenue, are now exploring this structure as they seek to streamline operations and reduce liabilities.

As the use of MSOs has expanded beyond healthcare, it has opened doors for high-income privately held businesses to reap its benefits.

2. A Perfect Fit for High-Income, Privately Held Businesses

Privately held businesses with high income or significant cash flow often face unique challenges in managing retained earnings, reducing tax burdens, and planning for growth. For pass-through entities like S Corporations, LLCs, and partnerships, the MSO offers a way to strategically separate management functions while optimizing tax efficiency. By utilizing the MSO to handle administrative operations, owners can reduce taxable income at the personal level and shift earnings to the MSO, which is taxed at the favorable 21% corporate rate.

The impact of changing tax laws further enhances the appeal of MSOs for these businesses.

3. The Impact of Changing Tax Laws

One of the main reasons you haven’t heard of MSOs is the transformative effect of the 2017 Tax Cuts and Jobs Act (TCJA). Before the TCJA, the corporate tax rate of 35% made the MSO a less attractive option for tax planning. The reduced corporate tax rate of 21% revitalized interest in the MSO for privately held businesses seeking to retain more earnings for reinvestment and long-term growth. This tax shift has sparked a renewed focus on MSOs among advisors and businesses alike.

Beyond favorable tax laws, MSOs also align well with the unique operational needs of growing enterprises.

4. Tailored for Growing Enterprises

Growing enterprises often struggle to balance operational needs with strategic planning. The MSO provides a flexible framework for centralizing human resources, IT, accounting, and compliance, creating operational efficiencies that allow businesses to scale without adding unnecessary complexities. For businesses that anticipate rapid growth or expansion into multiple entities, the MSO provides the governance and financial clarity necessary for success.

Despite these advantages, some in the accounting industry have been slow to adopt MSOs.

5. Conservative Adoption by the Accounting Industry

Accounting professionals tend to adopt new strategies cautiously, favoring well-tested solutions with clear regulatory precedents. While MSOs are compliant with IRS guidelines (including IRC Sections 162 and 482), their adoption outside healthcare is still relatively recent. Many accountants are only now becoming aware of the MSO’s low-risk structure and its significant tax and operational advantages.

This cautious adoption underscores how MSOs are designed for specific, high-value business needs.

6. Designed for Specific Needs

The MSO isn’t a one-size-fits-all solution. Its benefits are most pronounced for businesses with high incomes, complex structures, and specific needs like tax efficiency, asset protection, and operational centralization. This specialization means it’s less commonly discussed in broad industry training or advisory conversations. However, for privately held businesses and high-income pass-through entities, it can be a game-changer.

Misconceptions about MSOs have also contributed to their limited awareness.

7. Misconceptions About MSOs

Some professionals mistakenly view the MSO as a niche or overly complex structure. In reality, when implemented correctly, it is straightforward and highly beneficial. By focusing on legitimate business purposes such as improving operational efficiencies, enhancing liquidity, and reducing liabilities, the MSO avoids the pitfalls of being perceived as a “tax shelter” or overly aggressive strategy.

These misconceptions overlook the proactive tax and compliance benefits that MSOs offer.

8. Proactive Tax and Compliance Benefits

Growing businesses and pass-through entities are often concerned about audit risks, especially as revenues increase. MSOs are designed to minimize audit exposure by adhering to corporate governance standards, maintaining proper documentation, and centralizing management fees in a transparent manner. Unlike more aggressive tax strategies, the MSO focuses on legitimate operations that withstand scrutiny.

In addition to these compliance benefits, MSOs integrate seamlessly with estate and succession planning.

9. Integration with Estate and Succession Planning

For privately held businesses, succession planning is critical but often overlooked. MSOs provide a seamless way to incorporate life insurance, buy-sell agreements, and other tools into a business structure. This not only ensures continuity during leadership transitions but also maximizes tax efficiency and protects the business for future generations.

Despite these many advantages, the limited industry awareness of MSOs has contributed to their underutilization.

10. Lack of Broad Industry Awareness

Unlike LLCs or S Corporations, the MSO hasn’t been a primary focus in most accounting or advisory training programs. This limited exposure, combined with its niche application to high-income and complex businesses, means it has remained underutilized. As its benefits become more widely recognized, the MSO is quickly gaining traction as an essential tool for modern tax and operational planning.

Now is the perfect time to embrace the opportunities that MSOs present.

A Timely Opportunity

If the MSO is new to you, it’s not because it lacks effectiveness or legitimacy—it’s because its resurgence is tied to recent tax law changes and its application to specific business scenarios. For privately held businesses, GTC’s design, execution, and annual compliance capabilities, along with its independent tax and corporate attorneys for an audit-ready experience, GTC should be reviewed as a strategic partner for businesses looking to leverage the MSO’s full potential.