Affiliated Service Group ?

[Guest merlin]

A and B are each 100% shareholder employees in their respective S-corps. A has regular full-time employees,B does not. A and B are also 50/50 members of an LLC. All are engaged in computer/software consulting and service. A's employees spend approximately 25% of their time working on projects for the LLC's customers, for which A bills the LLC. A sponsors a profit sharing plan covering himself and his employees. B derives 50-75% of his income from the LLC,paid to his corporation.A,B, and LLC do not form a controlled group. Is there an affiliated service group somewhere in the pile? Can B sponsor a plan in his corporation that will only benefit him?

[Guest earthy]

Since B is a 100% shareholder of A and has a 50/50 interest in the LLC, I believe that he/she would be considered to be a "common owner" for purposes of Treas. Reg. 1.414(m)-2©(4)(v).

If he/she (B) sponsored a separate retirement plan, they would all be considered as a single employer.

The regulations under 414(m) mainly preface law and medical partnerships as examples. However, I believe the same tax principles would come into play b/w an LLC and a sub S corp for purposes of the constructive ownership rules of Code Section 318(a).

earthy

[Guest merlin]

earthy-thankyou for the response.I think you're saying that there is an affiliated service group relationship between B and the LLC.If so,what are the practical implications? Neither B nor LLC have any employees,unless you consider the employees from A who sometimes are working on LLC projects to be LLC employees. If there are no employees in the B-LLC group,then that would seem to allow B to establish a plan covering only himself. Agree or not?

[Guest earthy]

Yes, I believe B and the LLC form an ASG. Since some employees of A perform services for the LLC (and hence indirectly for b), if B sponsors his own plan, than A, B, and the LLC would be treated as "related groups" for purposes of the 414(m) rules. If B sponsors a separate profit sharing plan, than B may have trouble meeting the 410(a) rules, the 410(B) rules, and the 415 rules in adopting a new plan under the single employer rule. This plan would have to take into account some (perhaps all) of A's employees.

I wonder if the Service would view this single employer as a per se "combined group" since the employees are all essentially involved in the same functions in this trade or business?

Just a thought. It would be good to see some attorney input on this issue and some case law that follows the Kiddie Garland line of case law.

earthy

[Belgarath]

You might want to consider getting Derrin Watson's book. "Who's the Employer." Best reference source I've ever seen for CG/AFSG

questions.