Controlled Group

[Guest Twinky]

I know the controlled group thing has been beaten to death, but I need to confirm a controlled group situation I am dealing with, just to put my mind at ease.

I do not believe this to be a controlled group, but the potential client's accountant insists that it is.

Here's the scenario:

Joe owns 60% of Company A

Sue owns 20% of Company A

Jan owns 20% of Company A

Rick does not own any of Company A

Joe owns 100% of Company B

Sue does not own any of Company B

Jan does not own any of Company B

Rick does not own any of Company B

Joe owns 60% of Company C

Sue does not own any of Company C

Jan does not own any of Company C

Rick owns 40% of Company C

Sue and Jan do not own anything but 20% of Company A, so wouldn't they be out of the equation? (lowest % = 0%)

Rick only owns 40% of Company C, so wouldn't he also be out of the equation? (lowest % = 0%)

The only one considered would be Joe, right? And Joe has only 60% common ownership in 2 companies, right?

Am I missing something???

Thanks for any help you can give me.

[Mike Preston]

It looks to me like you are correct. So, if I were you I'd ask the accountant for a source that backs up what he is saying. Of course, you could offer to have an ERISA attorney look at it to see whether there is anything you are missing.

[Belgarath]

I agree. Of course, you haven't mentioned whether there's any possibility of attributed ownership, etc., or whether there's any possibility of an ASG, but on the surface it doesn't appear to be a CG.

[Guest Twinky]

Thanks for your responses.

Nope, no Affiliated Service Group. They are completely unrelated businesses, and with the exception of Rick, the owners are brother and sisters. (Rick is not realted at all.) The only other relation that works there is a cousin.

[masteff]

If the accountant is trying to read straight from the regs, it might be worth pointing out to him Sec 1563(f)(5) which contains alternate wording for 1563(a)(2) that applies to any provision outside that code part (and 414(b) is outside that code part).

1563(f)(5) says 80%+ of all classes of stock of which >50% must be of identical classes. (edit: that reads awkardly... it's 50% of the total shares, not 50% of the 80%... in (f)(5) it says "and" where I tried to clarify with "of which")

[BG5150]

Does your plan document define what affiliated ER's are, and to what code sections apply? Try those.

[buckaroo]

I also agree with the group. There does not appear to be a control group issue here. The key factor appears to be that the actual ownership percentage is only 60%. The rules state that it must be at least 80%. Therefore, no control group.

Belgrath makes an interesting point about attribution. We are all in agreement that there is no attribution. However, the accountant may not understand the rules of attribution. In other words, may be the accountant believes that the attribution rules apply to brothers/sisters. (As always, another frightening situation regarding misinformation.) If this is the case, I would see where the accountant would think there is a control group issue.

[rcline46]

Remember that for ACCOUNTING purposes, a controlled group is different from PLAN purposes.

[BG5150]

Remember that for ACCOUNTING purposes, a controlled group is different from PLAN purposes.

That's why I suggested looking at the plan doc. Ours says:

...controlled group relationship as defined under 414(b) or a group under common control under 414© or if there is an affliated service group situation under 414(m). The 414(b) and © regs refer you to Sec 1563(a).