Is this a Control Group/Affiliated Service Group?

[himt4]

(previouisly had posted this in the wrong category)

Lets say Joe is over age 21 and is 100% owner of a building. Joe and his father decide to use the building to make widgets. Joe and his father form an s-corp with Joe a 51% owner and Father a 41% owner for their widget business. The widget business pays rent to Joe for use of his building. Joe incorporates as a 100% owner of a business that recieves rental income. Joe makes his father an employee of his rental income business, they both receive w-2 income from the rental income business. Joe wants to start a pension plan for his rental income business which cover him and his father (the only employees).

Is there any rule or reason the pension plan would have to also cover employees of the widget business?

[alanm]

I think both are a control group; 80% owned by father and son. That is one issue; the other is the conversion of passive rental income to earned income by calling it a real estate business, when no work is performed for other non-owned properties. Passive rental income is not a basis for contributions to a plan. He would also be paying fica or self employment taxes on rental income which is expensive--- in order to use it as a basis for plan contributions. The rules concerning "passive activity" or "active participation" or "in the real estate business" are complex and should be dealt with first But, without other information, I don't think they can exclude employees from the widget company.

[himt4]

Thanks for the response alanm:

Sorry, I made two typos in my original post. I meant a 51%/49% split. But more importantly it should have been written as Joe with 49% and Father with 51%. And, therefore, as Joe doesn't have a controlling interest, he does not get attributed his fathers interest and remains a 49% owner for consideration of control groups.

I had accidnetally put this thread in two forums, the one I accidentally placed in the "retirement plan terminations" forums has gotten more resonses, so I request that any further responses to this thread be made instead inside of that thread.