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SIMPLE IRA's, controlled group and other plans.


Guest Mike Visse
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Guest Mike Visse

Husband is self-employed schedule C and has a SEP, there are no employees and he is the only participant. Wife is self-employed and a separate schedule C (different business) and currently does not have a plan. She does not have employees either. Can Wife adopt a SIMPLE? Or will it be thrown out because of having another qualified plan due to ownership attribution rules?

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Why couldn't the wife adopt the husband's SEP? This is permitted and it seems to me a way around the thorny issue of attribution. Why a SIMPLE? A SEP will do the same job where there are no employees. Unless the issue is the percentage of contribution 15% vs no %-max $6000. And deeming a partnership may prove a wise route to max the contribution if there is an earnings difference. Check with taxpayer's CPA. Here in Calif the argument is whether the Treas Regs 1563 control or does community property "attribution" control? I have not heard a definitive answer. This is a non-issue in separate property states, which leads me to believe that the Treas Regs will control. But, who knows?

[This message has been edited by Bill Berke (edited 05-22-2000).]

[This message has been edited by Bill Berke (edited 05-22-2000).]

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Guest Mike Visse

Thanks for replying. The wife's schedule C is usually between 22,000 and 40,000. So, the SIMPLE seems to make sense to get the $6,000 deferral plus the match. The H and W live in a community property state. Any additional thoughts??

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Guest FredReilly

1563 provides an exception to the family attribution rules which would seem be be met here only if both businesses were seperate property.

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I would take your clients to their lawyer for a discussion of the community property laws versus the separability requirements in the 1563 Regs. If your clent has maintained separabilty in accordance with the Treas Regs, then your client can make a reasoned decision regarding whether the 414/1563 rules apply and how. I am not aware of any cases on this point.

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  • 2 months later...

Unless the separate property rules apply, the employees of the wife's business (including the wife) would have to share in any SEP contributions. HOWEVER, such an agreement (for separate property status) should no be considered unless separate representation is used, even in a friendly separation. In CA, such an agreement is potentially invalid unless there is separate counsel. See Derrin Watson, "Who Is The Employer" (1998) at Page 212, Q&A 7:17. It is, by far, the finest book ever written on the subject and even foretells the future. To order the book, send an e-mail to Derrin and ask for information. His e-mail address is: mom@pixpc.com.

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