Father & Son, any control issues?

[himt4]

Father owns 100% of company A. His over-age 21 son owns 100% of company B.

The father tells me that the "two companies are independent", but the father says that sometimes when Company B (son's company) can't meet payroll, company A (father's company) will give Company B money to meet payroll.

What further questions do I need to get answers to so that I can definitively determine if it is common control or not.

[E as in ERISA]

I think that the main goal of the control rules is to make sure that if one party (or a small group) has the ability to make decisions about retirement plans for two or more companies, then they are generally required to make similar decisions for all of the companies to avoid discrimination (with exceptions for QSLOBs, etc., etc., of course). I don't see anything about these facts that on their face suggest that the father controls the decisionmaking of the son's company (although he might want to do so....)

[himt4]

Thanks for the insight. I guess that I look at the control rules as being born from the IRS desire to out-think employers who are trying to think of ways not to cover their employees.

Let's say an owner wants a db plan but doesn't want to cover his employees. So he convinces his son to put his employees (the father's employees) on his son's company's payroll. and he gives his son money to pay their salary. I'd imagine that the IRS might have come up with some rules to prevent this scenario and perhaps one of those rules would have to do with money being given from one company to another. If such rules exist, then it might cause problems for my client who is nicely trying to help his son out, and I was scared he might end up in a control group situation because of the transfer of money.

[No Name]

As an aside, I've read that the contolled group rules sprang from progressive tax rates. Say 15% up to x, 25% on next y, etc.

Some spoilsports decided that they'd set up January Corp, February Corp, etc. Each would bill for their month, and all would be in the lowest bracket. Seems ridiculous, but there you have it.

[E as in ERISA]

Definitely tax rates for the corporate issue. Have to share that tax attribute of lowest brackets even if they don't file consolidated. But discrimination is the issue for plans. Which is why you have the affiliated service group rules. So that zero-out corps without bricks and mortar (like law firms and md practices) don't get around the rules by putting the paralegals and nurses in a separate corp.

[JAY21]

I don't see where a controlled group exists here, so presumably you're looking more at Affiliated Service Group rules. Be careful to check the family attribution rules under ASG carefully as I believe they use IRC 318 references instead of IRC 1563 as used for Controlled Group rules. I think those family attribution rules are important since if they require no family attribution the only ASG "trap" you probably could fall into would be if one of the entities has a captive management relationship over the other entity (the 3rd of the the ASG "traps"). The other 2 ASG traps (A-org and B-org relationship) all require some minimal common ownership in both entities by either one or more individuals, or one or more entities that own some part of the other entity. I "thought" the IRC 318 family attribution rules were a bit broader (more inclusive) than IRC 1563, so it's possible it could cause there to be some "attributed common ownership" between the father-son, although there are still other facts and issues under IRC 414(m) to consider before you necessarily have an ASG situation, so you could still be ok depending on the facts of the relationship between the entities, even if family attribution exists.