Search the Community

Hi - I am seeking practical feedback on the question of attribution of ownership to minor children. I don't question that IRC section 1563 attributes ownership from parents to children under 21. This creates controlled groups of entirely separate companies simply because they are owned by spouses with minor children. The thing I struggle with are the many cases where the issue goes unnoticed (or is even ignored). I have lost a couple of prospects because they refuse to believe that aggregation is mandatory. For those with existing plans, they often say their TPA never notified them (even in cases where they are confident the TPA is aware of the facts.) I am curious about others' experience. Do you find this rule is often overlooked? I've never heard of IRS making an issue of it. Have you?

Hi - I am wondering whether the employees of entities owned by a fund; e.g., a Mutual Fund, must be aggregated with employees of the Fund's management company. It seems there should be an exemption but I am not aware of any. Facts: An investment fund (the "Fund") obtains its employees from a Management Firm. Ownership of the Fund and Management companies is not sufficient to make them a controlled group; however, they are likely an Affiliated Service Group. The management firm sponsors a qualified plan covering its own employees. The Fund owns 100% of several companies that offer retirement benefits with much lower contributions/benefits than those of the management org’s plan. Some of the companies owned by the Fund are held as passive investments only ("Passive" entities). Other companies are actively managed by a small group of employees of the management company ("Managed Entities"). Issues: 1. Must employees of the Passive entities be included in coverage/discrimination testing of the Management Org’s plan? 2. Same question as above with respect to employees of the Managed Entities. Proposed Answers: 1. The passive entities need not be counted in discrimination testing because: a. They are not part of a controlled group with the Management Company b. They do not render or receive services to/from the Management Company. 2. The managed entities need not be counted in discrimination test because: a. They are not part of a controlled group with the Management Company; and b. Whatever compensation they pay for service from employees of the Management Company will represent an insubstantial portion of gross revenues of the Management Company Additional Thoughts: I believe there are clear rulings in the area of Prohibited Transactions providing that passive investments are not treated as prohibited parties. I would think a similar exemption should apply to entities that are primarily owned as investments, even if they get some services from employees of the investment fund. Thanks very much for your feedback.