Controlled Group Determination

[Below Ground]

Controlled Group determination is one of my worst skills, along with Affiliated Service Groups. Anyway, Corporation X is owned equally (50% each) by Mother and Adult Son. Both Mother and Adult Son also have Proprietorships. The source of earned income for both Propietorships is commisions from Corporation X. It is my understanding that there is not a controlled group based on ownership for ERISA purposes. Is this correct, and what about the "income relationship" between Corporation X and the Proprietorships? Is it possible that there a controlled group or affiliated service group for ERISA puposes? Thanks!

[J Simmons]

IRC sec 1563(e)(6)(B) (per IRC sec 414© and (b)) would make the Adult Son a deemed owner of Mother's proprietorship, and vice versa. That would make the two Proprietorships a control group as they would, for this purpose, have identical ownership.

It might also make Corp X a part of that control group; I don't remember Vogel Fertilizer going so far as to not count deemed owners in the brother-sister corporation analysis under IRC sec 1563.

[david rigby]

You may also wish to review these Q&As:

http://benefitslink.com/modperl/qa.cgi?db=qa_who_is_employer

[Below Ground]

Thank you for your replies and the link. I'm still a bit confused. I thought that the person needed to own more than 50% of the other entity to be "credited" with the adult child's ownership for these determinations. Also, I know I did not state this clearly, it is Corporation X with the Plan. Does it have a controlled group relationship with either of the proprietorships?

To Rigby: The article about problems having TPAs determine controlled groups is so true. Again, thanks.

To Simmons: If I understand you right, when a Parent and Adult Child both have proprietorships, they are always a controlled group?

[Below Ground]

Could someone clarify the post by J. Simmons with regard to Mother and Adult Child Proprietorships. I am having trouble accepting that.

Specifically, IRC 1563(e)(6)(B) says:

"(B) Adult children and grandchildren

An individual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years. "

Since Mother owns none of Adult Son's Proprietorship, and Adult Son owns none of Mom's, how does this apply?

[Young Curmudgeon]

Could someone clarify the post by J. Simmons with regard to Mother and Adult Child Proprietorships. I am having trouble accepting that.

Specifically, IRC 1563(e)(6)(B) says:

"(B) Adult children and grandchildren

An individual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years. "

Since Mother owns none of Adult Son's Proprietorship, and Adult Son owns none of Mom's, how does this apply?

I'm not really feeling like researching this much, but even if you aren't a controlled group, since they both collect their money from a corporation they own, it smells like a Managment Services ASG regardless. From what you've disclosed, this arrangement just seems like a way to sidestep some rules. Can you share some more details about what each entity actually does?

[Below Ground]

Actually, the "net effect" is the opposite. The 2 proprietorships are set up to account for real estate commisions for Mom and Son. The Corporation, a real estate firm, has the plan and pays the employees (support staff). Why they do this I don't have a clue.

Until we found out about these 2 proprietorships, the incomes under these 2 firms was ignored for plan purposes. The principals were only using the income under the Corporation for contributions under the plan. In otherwords, "coverage" was "total" for employees and "partial" for the owners. Of course, since they are HCE, no one cared. I felt this should be reviewed.

I suspect that it is an ASG also. Admittedly, this is not my forte (see 1st post), so I posted to see if it was possibly a controlled group (I don't think so), an ASG (I suspect it is), and what the impact would be. What I don't see as being possible is that the 2 proprietorships are a controlled group and the Corporation has no relationship. Maybe I am wrong but that doesn't make sense to me. I am guessing that "Simmons" misread my post, or more likely, I was not clear enough.

I hope this provides clarity. Anyway, thanks for your reply.