Earned Income Calculation from several K-1s

[Guest MSP]

We have a control group that consists of several partnerships. The partners are constent through the companies. For compensation puporses for the plan, do I start with the NET of all K-1s, some are negative - or do I disregard the negatives like it was zero?

[Lame Duck]

414© provides that "all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer." My plan document provides that Employer means the employer maintaining the plan or any other employer required to be aggregated under

414©. I think this language is consistent with most plans. My document goes further to define compensation for self-employed individuals as the net earnings from the trade or business with respect to which the plan is established. This is also consistent with most plan documents I've seen.

If your plan contains similar definitions, I believe you would need to aggregate the income form all members of the controlled group who are participating in the plan, including any negative amounts. You would start with the NET of all K-1s. You'll want to check the definitions of compensation and employer in your plan to make a final determination.

[Archimage]

I had a similar situation recently and we concluded the same position that Lame Duck gives. If your ultimate goal is to not include the negative amounts you would have to amend the document to exclude those companies from the plan.

[Guest MSP]

I leaned towards using the net also - but..... this client is a CPA firm and will require me to "prove" my stance. Any ideas on where to start?

[Archimage]

I don't think you will find anything in the regs that states exactly what you are looking for. I feel like the cite Lame Duck gave should be enough. They will understand what "net" means (I would think so anyway).

[Everett Moreland]

start with 1.1402(a)-2©

[Harwood]

ERISA Outline Book [2004] definition of Earned Income, Part A.8.a. and Part E. touches on the subject, with no firm answer.