K-t-F Posted November 12, 2020 Share Posted November 12, 2020 I have told these people that they have a controlled group. They keep balking at me. Just confirm for me so I know I am not going crazy... FACT: Bob and Betty are husband and wife Bob & Sons Excavating Bob is sole owner. Bob's Pipe & Supply Bob is sole owner Bob & Sons Gravel Bob is sole owner Betty's Enterprises Betty (Bob's wife) is sole owner, sole proprietor. Bob receives W-2 Betty's Enterprises performs management services for all of Bob's businesses Because Betty's Enterprises earns money off of Bob's businesses we must include all 4 businesses ... correct? Attribution? Bob wants to setup a Simple IRA because he thinks it would be cheaper than a 401(k) (because his businesses have employees). Bob and betty want to setup a 401(k) for Betty's Enterprises because it is just the 2 of them... no rank and file employees. Thoughts? Thanks Its not easy being green Link to comment Share on other sites More sharing options...
Belgarath Posted November 12, 2020 Share Posted November 12, 2020 Well, I guess technically it is a group under common control, since Betty is a sole prop (IRC 414(c)) but the effect is the same. All 4 are considered one employer, and I agree, Betty can not set up a Simple-IRA just for Betty and Bob. Luke Bailey and Bill Presson 2 Link to comment Share on other sites More sharing options...
C. B. Zeller Posted November 12, 2020 Share Posted November 12, 2020 1.414(c)-4(b)(5)(ii) An individual shall not be considered to own an interest in an organization owned, directly or indirectly, by or for his or her spouse on any day of a taxable year of such organization, provided that each of the following conditions are satisfied with respect to such taxable year: (A) Such individual does not, at any time during such taxable year, own directly any interest in such organization; (B) Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year; (C) Not more than 50 percent of such organization's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and (D) Such interest in such organization is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse's right to dispose of such interest and which run in favor of the individual or the individual's children who have not attained the age of 21 years. The principles of §1.414(c)-3(d)(6)(i) shall apply in determining whether a condition is a condition described in the preceding sentence. Since Bob is an employee of Betty's Enterprises, the exception to spousal attribution does not apply and Bob is deemed to own 100% of his wife's ownership interest. Therefore all 4 businesses are part of the same group under common control. Luke Bailey 1 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
K-t-F Posted November 12, 2020 Author Share Posted November 12, 2020 Thanks... that's what I told them. And... come to find out, Betty only works for the other 3 businesses. She could perform management services for unrelated businesses but technically makes all her $ from billing Bob's 3 businesses. I have led them to water.... unfortunately if it is not what they wanted to hear they think the water is poisoned and look for another watering hole. Ahh Zeller, thanks for that! Its not easy being green Link to comment Share on other sites More sharing options...
CuseFan Posted November 12, 2020 Share Posted November 12, 2020 You can only say these are the rules and I'll be happy to help you play by them and wish you luck elsewhere if you decide not to. Some people just don't like to accept the writing on the wall. Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com Link to comment Share on other sites More sharing options...
Jakyasar Posted November 12, 2020 Share Posted November 12, 2020 Also, if Bob and Betty have any minor children i.e. under 21, they can be controlled group as well. Luke Bailey 1 Link to comment Share on other sites More sharing options...
K-t-F Posted November 12, 2020 Author Share Posted November 12, 2020 Ya Cuse... I always make the point that "I don't make the rules". I told them how it would need to be and they came back with.... If Bob was not a paid employee of Betty's Enterprises (had nothing to do with Betty's) can they separate Betty's Enterprises from the other 3? Can that eliminate the control group including Betty's? Does that work? I think it's obvious that what they want to do is load up Betty's with maximum deferrals and ER Contributions and not be on the hook to provide a large ER contribution for the employees of the other businesses. Also, the admin expense for a qualified plan for all 4 businesses combined is not something they want to pay for (cut me out of a day's pay) So... would removing Bob from Betty's Enterprises take Betty's out of the control group? Thanks Its not easy being green Link to comment Share on other sites More sharing options...
Belgarath Posted November 13, 2020 Share Posted November 13, 2020 Go back to CB's discussion of the "spousal noninvolvement" clause. From the sounds of your posts, VERY unlikely that they can satisfy these requirements. I'm assuming you are not an attorney? Tell them what you think, but also tell them that you are not permitted to give them specific legal advice, and they should seek ERISA counsel for the determination. I find that in most (but not all) such situations, clients are completely unwilling to pay for legal advice, and they drop the issue. Link to comment Share on other sites More sharing options...
K-t-F Posted November 13, 2020 Author Share Posted November 13, 2020 Correct, not an attorney. I would like to be able to put it to bed with an answer though. In CBs post there is bullet "C" (C) Not more than 50 percent of such organization's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; Since Betty's business income is derived 100% from performing work for Bob's businesses then I would venture to say there is ownership attribution making all 4 businesses a control group regardless of whether Bob was an employee of Betty's Enterprises. Am I onto something there? Appreciate your thoughts. Its not easy being green Link to comment Share on other sites More sharing options...
Belgarath Posted November 13, 2020 Share Posted November 13, 2020 On 11/12/2020 at 12:13 PM, C. B. Zeller said: (B) Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year; Actually, I was talking about the above. According to your original post, Betty performs "management services for all of Bob's businesses." BTW - it hasn't been directly discussed, but is this in a community property state? If so, that would also generally blow the "non-involvement" clause. Link to comment Share on other sites More sharing options...
CuseFan Posted November 13, 2020 Share Posted November 13, 2020 If they can get to where neither is an employee of the other's business(es) nor provides services to the other's business(es) and they have no minor children and they are not in a community property state, then they are golden and Betty can do a solo plan to her heart's content. But it sounds like Betty's business is serving Bob's businesses, so in breaking that chain does she even have a business any more? Luke Bailey 1 Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com Link to comment Share on other sites More sharing options...
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