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Control Group Question - 415(h)


Guest Steve Palmer
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Guest Steve Palmer

X is the 100% owner of C-Corp business that has employees. X also 60% owner with unrelated Y of LLC business with no employees. Business activities of each entity are unrelated...Y has no connection with C-Corp. C-Corp has an existing SIMPLE. X would like to make a maximum SEP contribution based on share of LLC business income without involving C-Corp employees or violating exclusive test for SIMPLE.

It appears that this could be done in this case as the control group (brother-sister) test (1563 and 414(b)) is not met since X as the 100% owner of C-Corp only owns 60% of LLC, so the 80% test is no met.

I am uncertain how, or if, to apply the 415(h) test where 50% is substituted for 80%. Does this cause the above to fail?

Also, does X's spouse taking a salary at C-Corp pose any problems (community property state)?

Thank you for your thoughts.

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Guest Sieve

415(h) would capture both of these businsses only for purposes of 415 annual addition purposes and then only if they were related as parent-sub as per IRC Section 1563(a). Yours are related as brother-sister, so 415(h) does not apply.

And, your conclusion that they are not otherwise a controlled group for other pension purposes is correct.

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  • 2 years later...

There is no attribution TO a corp/p'ship/trust, just FROM a corp/p'ship/trust. So, stock owned by an individual is not treated as owned by a corp, but stock owned by a corp can be treated as stock owned by an individual.

Of course, my initial answer way back assumed that the other 40% of the LLC was not, in some way, attributed to X (such as if his/her kids owned 21% of LLC)

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