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Do affiliated service groups rules of 414(m) apply to a corporate dire


preErisa
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Has anyone got current insight into the issue of whether Affiliated Service Group rules apply to a corporate director who owns less than 50% of the underlying corporation. The issue is whether that Director can establish a SIMPLE retirement plan using his Directors Fees (in addition to his coverage under the primary corporation's conventional qualified plan). I am still not sure whether a Directorship would be considered a 'Service Organization' under 414(m)(5).

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  • 2 weeks later...

Yes, they apply. However, a director is not a service provider; thus he/she is not part of an affiliated service group. Also, absent attribution, however, IRC Sections 414(B) and 414© would not seem to apply to this less than 50% shareholder.

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  • 4 years later...
Guest John Nelson

Consider an accounting firm that is organized as a C corporation. The corporation is considering paying members of its board of directors a Directors Fee for their service as a director. Each of the directors is a licensed CPA and an employee of the corporation.

Since the Directors Fees are "earned income" to the individual directors, they would like to set up a SEP and make contributions to the SEP based on their Directors Fees.

None of the individual directors owns more than 5 percent of the corporation's outstanding stock. The individual directors -- as self-employed persons -- and the corporation are NOT part of a controlled group. But, it seems to me that the directors and the corporation might be part of an affiliated service group under 414(m)(2)(A). Prior posts suggest that the director's sole proprietorship is NOT a "service organization", but I question this.

The proposed regs define "service organization" as one where capital is not a material factor. Clearly, the director has zero investment in plant, machinery, etc.

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Guest Pensions in Paradise

In the described scenario, I don't see how they are NOT an affiliated service group under 414(m)(2)(A).

My understanding is that the Directors are service organizations in accordance with Prop. Treas. Reg. §1.401(m)-1(f)(1).

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Although directors do "manage;" the function is not one "historically performed by employees, including partners or sole proprietors in the case of an unincorporated business." See Committee Reports accompanying IRC 414(m)(5). See also Rev. Proc 2000-6. That being said, at professional meeting the IRS has indicate that directors are performing management functions. In Q 13:16 of Who's The Employer, Derrin Watson suggests "[g]iven the confusion" that directors wishing to set up a plan request a determination letter on their ASG status.

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