Controlled Group

[Guest Joe Vasko]

I know that a sole proprietor cannot participate, but an employee who is the spouse or child of the sole proprietor can participate if they meet the eligibility requirements of the Plan.

Is this still true, under a controlled group situation where the other entity is an LLC owned by the sole proprietors five childern-20% each.

Thanks, Joe

[Ron Snyder]

You refer to a "sole proprietor" while the IRS refers to "partners", "shareholder employees" and other self-employed persons. The same rules apply to all self-employed and deemed self-employed, including members of LLCs.

If an individual is self-employed in one entity but is a bona fide employee of a "C" corporation in the same controlled group or affiliated service group, that individual may receive employee treatment on amounts paid by the "C" corporation. The same applies to LLCs that elect to be taxed as corporations under the check the box regulations.

I'm not sure how a sole prop. and an LLC owned by his or her children are legally related unless the children are minors. In that case the children's interests are imputed to the self-employed parent.

You refer to meeting the requirements of the plan. However, you should be more concerned with whether they are actually common law employees or self-employed individuals.