Affiliated Service Group question

[Belgarath]

I own 100% of law firm A. My father owns 100% of law firm B.

Now, for affiliated service group determination, we each own 100% of each other's practice, because there is attribution from family, and age is no object. BUT, if we are truly independent, then there's no ASG, because we don't meet the other requirements for ASG status - no regularly performing services for each other or third parties, no financial flow, etc...

If we refer clients to each other, then this could throw us into ASG status, right - it it's regular and not just occasional?

I hate ASG questions.

[Tom Poje]

to show you how ignorant of the issue I am, I thought the question would have been not ASG, but rather is this a controlled group, which my limited knowledge says yes.

[Belgarath]

Hi Tom - no, I don't see a CG issue here. There's no attribution under 1563 with adult children because neither owner has any ownership in the other business.

I shoulda been a plumber. At least my compensation for dealing with excrement would be higher...

[jpod]

I'll assume you're right about the father-son attribution (because I have not bothered to check it out), but I'm not clear on how the referral of prospective clients or even existing clients back and forth throws you over the edge under the proposed regs. Please explain. The standard is "regularly associated . . . in performing services for third persons." The only examples given in the regs. for what "regularly associated" seem to raise the bar pretty high.

[K2retire]

I shoulda been a plumber. At least my compensation for dealing with excrement would be higher...

Theoretical excrement still smells better than actual excrement, at least in my book.

[Belgarath]

Jpod - I was thinking of a situation where, for example, 30% of the Son's business comes from clients of the Father. Let's say the Father's firm does estate planning, but doesn't handle divorce law. So the Father refers all divorce cases to the Son. It seems to me that this might constitute an ASG - the Father's firm would be the FSO, and the Son's would be an A-org. The A-org rules use a "facts and circumstances" and "regularly associated with" standard, which is undefined as far as I know. But since the B-org rules state that a "total receipts percentage" of more than 10% will be considered "significant" I thought that perhaps some of the same thinking might be applied to the A-org test. Even if not, I suspect that the IRS might rule that there is an A-org ASG?

Presumably in such a situation the client might consider filing for an ASG determination on a form 5300. But I just wondered what folks thought about this situation.