Law Firm partner who also owns 50% of another corporation

[Guest mecboo]

Hello--I have a client, a small law firm, and one of the partners owns 50% of Corporation X. The law firm has a 401(K) plan. Corporation X does not have a retirement plan. I have 2 issues here:

1) The law firm uses 2 employees from Corporation X that they use for secertarial services. The law firm does not pay these employees directly. The law firm pays Corporation X a certain dollar amount and then Corporation X pays these employees.

I'm very new to affiliated service group and controlled group issues.

Would these 2 employees of Corporation X be able to participate in the 401(k) plan of the law firm??

3) Also, what potential 415 issues would I have, if any?

Thanks for your help!

[Archimage]

I do think it is possible that this is a B-org affiliated service group. You have to meet three tests:

1. Significant portions test -- if Corp X receives at least 10% of its revenue from the law firm then it passes this test.

2. Historically performed test -- it sounds like this secretarial work is the type of work that would historicall be performed by employees.

3. Common ownership test -- This is met since one of the partners owns at least 10% of Corp. X

The two employees could be included in the document depending on how your document is drafted. If you have a standardized prototype then yes they must be included. If you have a different kind of document then it really depends on if it includes language that would include all members of a controlled group and/or affiliated service group.