Control Group and Non-Profit Entities

[Guest abajeb]

We have a company that is for profit, and sponsors a 401(k) Plan (Company A). The 100% owner of Company A has started a non-profit foundation that is hiring employees starting in 2006. This non-profit has the owner of Company A and 3 of his children as its trustees and directors. Neither the owner or his children work for company A. Does this constitute a control group? The CFO wants to keep the two entities separate plan-wise, but we're thinking keep it one plan for simplicity. Any suggestions or observations are appreciated. Thanks.

[Kirk Maldonado]

My recollection is that the IRS has some internal memos that apply the controlled group rules to non-profit entities. Because there are no ownership interests in non-profits, I seem to recall that the IRS looked at other factors, such as whether there were overlapping boards of directors (meaning the same persons sat on both boards). I don't remember if those rules applied if one of the entities was a for-profit business.

[MWeddell]

It sounds to me like at least 80% of the non-profit foundation's directors are representatives of or are controlled by the for-profit company. You'll want to consider your fact situation in light of proposed regulations issued in 2004 under IRC 414©.