Common Ownership Options

[rexbanner]

Situation:

Physician's Group (A) has 25 owners.
Hospital (B) has 16 owners. All 16 owners of the hospital are also owners of the Physician's Group. Is this currently a controlled group or an affiliated service group?

In April 6 owners are leaving the Physician's Group, leaving 19 owners. 16 of the 19 still own 100% of the hospital. Is this currently a controlled group or an affiliated service group?

Up until now, these two groups have been treated as separate entities regarding their retirement plans.
Group A has a 401k PS with a 50% match of the first 4% and a 7% PS contribution.
Group B has a 401k PS with a 100% match of the first 3%. They are given cash bonuses instead of PS contributions.

If the groups are found out to be controlled or affiliated, what are the possible repercussions on self-reported basis?

Thanks in advance!

My opinion is that they are currently an ASG and that they will become a controlled group in April. As for repercussions, the plans will have to be made equal retroactively....

[Young Curmudgeon]

Need more information to determine CG status. What are the common ownership percentages by individual?

[rexbanner]

Need more information to determine CG status. What are the common ownership percentages by individual?

The 25 owners of group A each own 4%. Each owner of group B owns a 6.25% share. So 16 of A's 25 owners own 100% of B. Shares are all equal.

[Young Curmudgeon]

I think you're off the hook for a controlled group. I don't have the reg. in front of me, I've attached some wording from the Vogel Fertilizer case below, but for a controlled group, wouldn't you need to establish 80% common control with 5 or less owners?

Section 1561(a) of the Internal Revenue Code of 1954 limits a "controlled group of corporations" to a single surtax exemption. Section 1563(a)(2) provides that a "controlled group of corporations" includes a "brother-sister controlled group," defined as "[t]wo or more corporations if 5 or fewer persons . . . own . . . stock possessing (A) at least 80 percent of the total combined voting power . . . or at least 80 percent of the total value . . . of each corporation, and (B) more than 50 percent of the total combined voting power . . . or more than 50 percent of the total value . . . of each corporation . . ., taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation." An implementing Treasury Regulation interprets the statutory term "brother-sister controlled group" to mean two or more corporations if the same five or fewer persons own "singly or in combination" the two prescribed percentages of voting power or total value. One shareholder, Vogel, owned 77.49% of the outstanding stock of respondent Vogel Fertilizer Co. Another shareholder, Crain, owned the remaining 22.51%. Vogel also owned 87.5% of the voting power in Vogel Popcorn Co. and 90.66-93.42% of the value of its stock. Crain owned no stock in Vogel Popcorn. Respondent claimed refunds for taxes paid in certain tax years for which it did not claim a full surtax exemption, asserting that respondent and Vogel Popcorn ed., Supp. III). Now members of a controlled and respondent was therefore entitled to a full surtax exemption for each taxable year. When the Internal Revenue Service disallowed the refund claims, respondent filed suit for refund in the Court of Claims, which held that respondent was entitled to a refund.

ASG is another matter. You'll have to combine the plans for testing if you have either a CG or an ASG.

[rexbanner]

I think you're off the hook for a controlled group. I don't have the reg. in front of me, I've attached some wording from the Vogel Fertilizer case below, but for a controlled group, wouldn't you need to establish 80% common control with 5 or less owners?

Section 1561(a) of the Internal Revenue Code of 1954 limits a "controlled group of corporations" to a single surtax exemption. Section 1563(a)(2) provides that a "controlled group of corporations" includes a "brother-sister controlled group," defined as "[t]wo or more corporations if 5 or fewer persons . . . own . . . stock possessing (A) at least 80 percent of the total combined voting power . . . or at least 80 percent of the total value . . . of each corporation, and (B) more than 50 percent of the total combined voting power . . . or more than 50 percent of the total value . . . of each corporation . . ., taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation." An implementing Treasury Regulation interprets the statutory term "brother-sister controlled group" to mean two or more corporations if the same five or fewer persons own "singly or in combination" the two prescribed percentages of voting power or total value. One shareholder, Vogel, owned 77.49% of the outstanding stock of respondent Vogel Fertilizer Co. Another shareholder, Crain, owned the remaining 22.51%. Vogel also owned 87.5% of the voting power in Vogel Popcorn Co. and 90.66-93.42% of the value of its stock. Crain owned no stock in Vogel Popcorn. Respondent claimed refunds for taxes paid in certain tax years for which it did not claim a full surtax exemption, asserting that respondent and Vogel Popcorn ed., Supp. III). Now members of a controlled and respondent was therefore entitled to a full surtax exemption for each taxable year. When the Internal Revenue Service disallowed the refund claims, respondent filed suit for refund in the Court of Claims, which held that respondent was entitled to a refund.

ASG is another matter. You'll have to combine the plans for testing if you have either a CG or an ASG.

Thanks for the response!

[rexbanner]

I think you're off the hook for a controlled group. I don't have the reg. in front of me, I've attached some wording from the Vogel Fertilizer case below, but for a controlled group, wouldn't you need to establish 80% common control with 5 or less owners?

Section 1561(a) of the Internal Revenue Code of 1954 limits a "controlled group of corporations" to a single surtax exemption. Section 1563(a)(2) provides that a "controlled group of corporations" includes a "brother-sister controlled group," defined as "[t]wo or more corporations if 5 or fewer persons . . . own . . . stock possessing (A) at least 80 percent of the total combined voting power . . . or at least 80 percent of the total value . . . of each corporation, and (B) more than 50 percent of the total combined voting power . . . or more than 50 percent of the total value . . . of each corporation . . ., taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation." An implementing Treasury Regulation interprets the statutory term "brother-sister controlled group" to mean two or more corporations if the same five or fewer persons own "singly or in combination" the two prescribed percentages of voting power or total value. One shareholder, Vogel, owned 77.49% of the outstanding stock of respondent Vogel Fertilizer Co. Another shareholder, Crain, owned the remaining 22.51%. Vogel also owned 87.5% of the voting power in Vogel Popcorn Co. and 90.66-93.42% of the value of its stock. Crain owned no stock in Vogel Popcorn. Respondent claimed refunds for taxes paid in certain tax years for which it did not claim a full surtax exemption, asserting that respondent and Vogel Popcorn ed., Supp. III). Now members of a controlled and respondent was therefore entitled to a full surtax exemption for each taxable year. When the Internal Revenue Service disallowed the refund claims, respondent filed suit for refund in the Court of Claims, which held that respondent was entitled to a refund.

ASG is another matter. You'll have to combine the plans for testing if you have either a CG or an ASG.

The 5 person rule applies for a brother-sister controlled group; what about a parent-subsidiary controlled group?

[Kimberly S]

If you've already determined that it is an ASG, what difference does it make if it is also a CG? Either way it must be tested as one employer.

[rexbanner]

If you've already determined that it is an ASG, what difference does it make if it is also a CG? Either way it must be tested as one employer.

It has not been "officially" determined. I believe it to be an ASG, but my opinion on the matter is not very qualified. The current plan provider has no determination letter on record; the provider before them does not have on either. There is potential for a lot of backlash if the groups are determined to be ASG. I'm trying to get a handle on what could happen.