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Related employers for SEP?

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Entity A is an LLC (taxed as a partnership) owned 99% by John Smith, and maintains a SEP.  Entity X is a partnership.  One of the partners (with a 10% partnership interest) is a single member LLC (Entity B) owned 100% by John Smith.

The SEP must cover all related/controlled employers.   Since Entity B is a disregarded entity (as a single member LLC), is John Smith deemed the 10% partner of Entity X and there is no control?  Or since John Smith owns 100% of Entity B and 99% of Entity A, is this a controlled group?

John has SE earnings from Entity A, but a loss from Entity B.  If the entities are controlled (and therefore both must be covered by the SEP) I would net the earnings from both for purposes of determining any SEP contribution and 415 limits.  If the entities are not controlled, and since only Entity A adopted the SEP, I would only use SE earnings from Entity A for determining the contribution.

Which is the correct analysis?

Thanks to all for your input.




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The single member LLC rules say you disregard basically for all federal income tax purposes, so I agree with CuseFan.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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