Husband and wife, each with their own businesses

[Guest oxdougw]

Due to attribution I'm sure we have controlled group issues. He has employees and a 401(k) plan. She has no employees and a SEP.

Because of attribution of ownership wouldn't husband's employees also need to be covered under wife's plan?

She'd like to up her contributions so we're thinking of having her sign on as a participating employer in husband's plan. Any issues there?

[KJohnson]

Look here:

http://benefitslink.com/modperl/qa.cgi?db=...employer&id=262

If they have children under 21, you have a controlled group. If you are in a community property state you probably have a controlled group. If one of the spouses has any "invovlment" in the other's business (officer, director etc) you have a controlled group. There is a non-invovled spouse exception to the attribution rules, you would have to look at the regs to see what additional factors could constitute "involvment".

[mbozek]

I dont think the constructive ownership rules automatically requires aggregation of each parent's business interest if there is a child under 21. See Reg. 1.414©-4(b)(6)(iv)©. I would like some one to explain how the rule of 1.414©-4(b(6)(ii) works.

[KJohnson]

The example you cite in the the regs just stands for the proposition that there is no double family attribution. In other words in that example the minor son is only attributed the stock directly held by his father and not the stock that the father is attributed from his other son who is over 21 through another attribution rule.

In this case you don't have double attribution. Minor son is deemed to own all stock owned directly by father (single attribution), minor son is deemed to own all stock directly by his mother (single attribution).

[Blinky the 3-eyed Fish]

I agree that technically there is a controlled group with under age 21 children. However, I would argue that is an unintended result of the code. After all, is their any logic to one situation being a controlled group versus another just because they have under age 21 children? Of course not.

So, while I wouldn't dismiss the controlled group possibility because I don't agree with the law, I would certainly attempt to obtain an IRS ruling if it was important to establish that it wasn't a controlled group.

[Guest oxdougw]

I did find the 4 expections to the rule for husband and wife businesses. Thanks for your input.