Compensation in CG/ASG

[goldtpa]

I have medical practice "A" as a client and "A" maintains a 401(k). Last year the doctors of "A" created their own separate practices. Each doctor receives $40,000 from "A" as well as receiving a K-1 for their own practice. They have not updated the plan docs to reflect the CG/ASG rules, and do not think they have any intention to.

The attorney who drafted the plan says that I can't use the income from the K-1s since they have not updated thier plan to reflect the new entities. The doctors obviously want me to use their K-1s as part of their income so they can get a larger profit sharing contribution.

I am leaning with the attorney since the new practices have not adpoted "A"s 401(k), eventhough they are a CG/ASG. All of the employees are in "A", the doctors are the only employees in their practices.

In addition if I use both incomes, I would assume that I would have to reduce the K-1 income but not the W-2 income.

Thanks