I’d appreciate views on whether the groups below “chain” for §410(b) coverage testing.
Facts (2021–2026)
Husband (oral surgeon) owns 100% of a dental professional corporation in California (an S corp). The PC is one of four PC partners (25%) in a dental group practice (a partnership with about 80 employees), and Husband regularly performs services for the partnership through his PC. So the PC is an A-org and the partnership is an FSO under §414(m)(2)(A). The partnership sponsors a 401(k) for its staff.
Wife (dentist) owns 100% of her own dental practice, a sole proprietorship, which sponsors a solo 401(k) covering only her.
Wife has been a W-2 employee of Husband’s PC since 2021 (about $100,000 a year). That defeats the spousal exception in Reg. §1.414(c)-4(b)(5)(ii), so she is attributed his 100% of PC, and her practice and his PC form a brother-sister controlled group under §414(c).
Wife’s practice has no ownership in the partnership and performs no services for it. Neither her practice has other employees.
Here's a diagram:
https://drive.google.com/file/d/1w72CAr4jlnkDsZR1zcAZaW_hUa1HkqVY/view?usp=drive_link
Question
For §410(b) coverage testing of Wife’s solo 401(k), do the overlapping groups combine, so the partnership’s 80 employees must be counted? Or is Wife’s plan tested only within the controlled group (her practice and his PC)?
What I’ve found
TAM 201715001 (very similar facts) applied the §414(c) and §414(m) rules separately and held the doctor’s two plans share one §415(c) limit, but expressly reserved “any other possible implications” of the overlapping membership in footnote 2.
An ERISA attorney, on a comparable structure (spouse was a 50% owner and W-2 employee of the husband’s PLLC, which was an A-org of a professional corporation), concluded that all three entities were related for plan purposes, without addressing the TAM.
Going forward: Wife comes off Husband’s payroll from 2027, so the question is whether her plan needed testing for 2021 through 2026 including Husband's partnership's 80 employees, and if so, whether VCP is the expected route.
Is there authority, or an IRS position, on whether the groups chain? Thank you.
