Compensation

[Guest mk2308]

Partnership A is owned equally by Corporation B and Corporation C.

X is 100% owner of Corporation B.

Y is 100% owner of Corporation C.

It has been determined that an Affiliated Service Group exists.

What is used as compensation for the partner-owners (X and Y)? Does the ordinary business income from the partnership (which X and Y materially participated in) get added together with the W-2 received from the corporation?

[Guest mk2308]

What if, instead of a General Partnership in the example above, it was an LLC. Would this make a difference?

[QDROphile]

I don't understand the question. The partners of A are B and C. Income of the partnership goes to B and C, not X or Y.

[Guest mk2308]

But X and Y are 100% owners of Corporation A and B. Doesn't the partnership income flow through to them because of stock attribution?

[GBurns]

Income does not flow because of attribution.

Stock ownership does not affect W-2 income.

Partnership income flows to the partners which are Corporations B and C. If B and C are S Corps only then would the results of the total operations of Corps B and C flow through to the shareholders.

LLC should make no difference.

[QDROphile]

Not if the corporations are C corporations. Even if they are S corporations, what flows to shareholders is not the partnership income, but corporation income. While that may seem like a fine point, it may determine the matter you are trying to resolve.

I don't think "attribution" is really the correct concept when you are tracing the money. Attribution is important when you are analyzing ownership for purposes of controlled business and affiliated service group rules.

Edit: This message is not a response to the message of GBurns. The GBurns message is interposed. I am saying pretty much the same thing as GBurns.

[Guest mk2308]

So for purposes of "compensation" of X and Y, I only include the W-2 from their respective Corporations? It doesn't make sense to me, especially since if I had an employee who worked for both the Corporation and Partnership, I would have to add their wages together for Plan purposes.

I understand that the Partnership income would be reflected as Other Income on the Corporate Return as far the K-1 is concerned, but since it is an Affiliated Service Group, wouldn't I have to add their "compensation" from both entities for Plan purposes?

Since the Corporations own the Partnership, and the individuals own the Corporation, wouldn't the Partnership income be considered "compensation" to the individuals for ASG and Plan purposes, even though for tax purposes, the income doesn't directly flow to them but instead into their corporations?

[QDROphile]

Are you now saying that X and Y are employees of the partnership and have W-2 income from the partnership?

[GBurns]

What is the Plan definition of "compensation"?

Which is/are the Plan Sponsors?

Why is there an AFSG?

[Blinky the 3-eyed Fish]

First, I agree with QDRO and GBurns.

Mk, you have to first understand the definition of compensation. True, if an employee worked for both the partnership and the corporation, their compensation is the sum of the two. (I am assuming that both entities adopted the plan or it's a standardized prototype.) But these employees are receiving W-2 from both entities.

This is a much different situation that for the owners of the corporation. From the partnership they either have W-2 wages or nothing. They are not owners of the partnerships and do not have earned income. Instead their corporations have the ownership and the income flows through on the corporate level. This could perhaps allow them to take more W-2 from the corporation, but earned income certainly does not flow through to them personally.

Think of it this way. Take Microsoft which surely owns many other entities which let's assume are part of a controlled group or ASG. Do the shareholders of Microsoft have wages because of the income of the entities owned by Microsoft? Of course not. It's the same thing here.

[Guest mk2308]

makes sense now...thank you.