Common Control?

[Guest REDCFP]

I have a client that has an S-corp that he is the sole employee and shareholder (100%) and he also is a 77.5% shareholder of a C-corp that has 25 employees. Does this constitute a brother-sister group under common control?

I don't believe it does because the C-corp has a minority stockholder of 22.5% and no ownership in the S-corp, and he doesn't own 80% of the C-corp.

He would like to initiate a SEP or SIMPLE plan in the S-corp and not have to contribute for the employees in the C-corp. His accountant has told him he would have to include the employees of the C-corp.

Thanks for your help.

[BeckyMiller]

Boy - the accountants are always in trouble in here. Being one, I tend to try to defend them, but the best answer is always to ask for the source. Which Code section makes the accountant think that is the correct answer? In general, 2 corporations one of which is owned by a completely unrelated person at a 22.5 ownership level would not create a controlled group under Section 1563 or Sections 414(b) or © of the Code. But, there can be lots of detailed nuances that change that answer. So, I would ask the accountant the technical basis for his or her conclusion. There may be one that you didn't consider, the facts might be different or the accountant may just be wrong...

[Guest Pensions in Paradise]

My guess is its an affiliated service group.

[namealreadyinuse]

He could be in the clear on those facts, but we need to know more. Does he perform services for either ot both? Any options or buy out provisions? The "completely unrelated" person does not have any other business relationships in common with the client? The S-corp and the C-corp have no relations or dealings at all (the affiliated service group question)?