401 Chaos Posted October 7, 2005 Share Posted October 7, 2005 I do not work with SEPs very often and am always confused by controlled group questions so am hoping others can help me out. Two unrelated business partners each establish their own single member LLCs and each establish a SEP in the name of their single member LLC. (Obviously the single member LLC is disregarded so the SEPs, I assume, are basically treated as if established by a sole proprietor?). The two business partners, in turn, use their single member LLCs to each take a 50% interest in an S corp. which is their principal business venture. The S corp has no employees--just the two owners--and has been operating for several years in this form. In addition, the two individuals recently decided to each take a 36% individual interest (not through the S Corp or their LLCs) in another, well-established corporation that has several employees. Although the 2 individuals each individually own 36% of the company, the remaining 28% is owned by various unrelated individuals or entities. Accountant seems to think that the employees in the new company must be counted as controlled group employees and allowed to participate in the SEPs previously set up by the individuals through their single member LLCs. Given that the 2 individuals do not effectively control 80% of the new company, I cannot see how there is any argument that the new company employees would have to be included or covered under the SEP. (Even if the two individuals did own a combined 80% of the new company, I'm not sure the new company employees would have to be counted.) What am I missing? Link to comment Share on other sites More sharing options...
Gary Lesser Posted October 21, 2005 Share Posted October 21, 2005 Agreed, they do not appear to meet the "80 percent" test under Code Section 1563(a)(2). Perhaps the accountant is including individuals whose ownership is not identical with respect to the entities being tested or that the entities are part of an affilliated service group (which is not a mathematical test). Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now