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I must admit I've never seen this issue before and haven't been able to come up with a definitive answer. I have a potential client who is the 100% owner of an S-Corporation that is a member of an affliated service group. The ASG sponsors a safe harbor 401(k) plan for all members of the ASG. My client is also the 100% owner of a separate sole proprietorship which receives 1099 income from consulting. It is my understanding that none of the income from the consulting work is derived from the ASG.

My question is whether being a member of a controlled group with a member of the ASG taints the sole prorietorship so that it cannot sponsor it's own plan? I haven't been able to find anything one way or the other, and it doesn't make sense that a completely separate business can be dragged into the ASG, but I thought I'd put the question to you.

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