In calculating the reduction in the 100% of compensation limit for a DB plan under IRC 415, what are the requirements for a year of service. The plan requires 1000 hours of service for a year of vesting service but only 500 for a year of accrual service. The owners daughter worked 700 hours.

I believe it's based on the plan document. If your document states that you get a YOS for benefit accruals after 500 hours, than for your plan it's 500 hours. I'd say based on the limited amount of information, the daughter gets the YOS if she works more than 500 hours.

I have seen plans that use a 1 hour rule.

I agree.

There is guidance which answers this. I believe that it agrees with the above responses. Don't quote me but it may be something like Rev Rul 87-21.