Is there a controlled group-Another tough question!

[Guest m.n.ouellette]

A lady has an LLC, and contracts her services to a state, and is paid by the state on a 1099. Ok so far.

This same lady finds more contractors for the state for other projects, and is paid more by the state. This lady pays the contractors that she finds, on a 1099. Income is generated to her based on the difference between what the state pays her and then what she pays the consultants.

Can this lady have a plan, and if so, what do I do with/for the contracted employees(?)? BTW, each of these contracted employees(?) are opening their own plans for themselves.

I have searched on this message board, but really am finding nothing.

Thanks, again, for your guidance.

[Mike Preston]

There is a 20-point guideline published by the IRS that, no doubt, somebody will give you a link to. That 20-point guideline is meant to help ferret out situations like you describe to determine the important question: are these people truly independent contractors (which I'm guessing they ARE, but I've been wrong before) or whether they are employees, either of your client or of the state in question.

Find it. Read it. If it isn't crystal clear to you after that, hie thee to an ERISA attorney!

[Guest Sieve]

Of course, the answer to your question is that she can have a plan herself, as a self employed individual with respect to her own consulting income. What Mike Preston is suggesting you look at (OK, I'll bite! It's Revenue Ruling 87-41 - http://www.legalbitstream.com/scripts/isys...y/irl6d45/1/doc) will help you determine whether those she pays are to be considered her employees (which means she will have to cover at least some of them in her plan) or whether they are, in fact, truly independent contractors (so that they can be ignored when designing her plan).

Of course, if they are her employees, then there are other considerations, too, such as payment of payroll taxes, and withholding, etc., etc.

See, also, http://www.irs.gov/businesses/small/articl...d=99921,00.html