Affiliated Service Group?

[MoShawn]

Can two companies be considered as performing a management function for a single client organization? Example:

Bob owns 100% of company A

Dave owns 100% of company B

Each owns 50% of company C

Company C is a materials broker. A and B perform the sales function for C and, receive all of their income from C.

Either A or B has the right to hire or fire from C.

I know this is not a controlled group, nor could it be an A-Org group since it is not a professional service company. I am less sure when getting into whether it is a B-Org group or a management function group. Opinions?

[Ron Snyder]

The test isn't whether the organization is a "professional service company" but whether it is a service organization, ie, a corporation that provides services, like sales.

[austin3515]

I think the professional service requirement for some reason only applies to corporations? Don't qupte me, but I do think there is a distinction. But I do believe that if they are corporations that there is a professional service requirement.

Also, since they are selling material, I think that you could suggest that capital (i.e., the materials being sold) is a material income producing factor, and therefore C is not a service company, and for THAT reason, no A-Org could exist. Just my opinion of course!

I think management company is a very likely possibility here, I would look at that one closely. B-Org might also be a possibility since sales is a function historically performed by employees.

[John Feldt ERPA CPC QPA]

Austin, your memory is correct if you are testing for an A-Org ASG. In order to be an A-Org ASG, the First Service Organization (FSO) must be a professional service organization if it is incorporated.

However, in the example provided, could the B-Org rules could apply? Is at least 10% of the B-Org is owned by HCEs of the FSO?

Of course, that assumes there is a service organization in the first place.

Assuming the service provided is not in the list of service fields (health, law, eningeering, architecture, accounting, actuarial science, performing arts, consulting, or insurance), then does an FSO exist? Is a sales organization considered a service organization? Consulting, under Treasury Regulations 1.448-1T-(e)(4)(iv), does not include sales.

Capital is not considered as a material income producing factor if the business income is derived primarily from fees or commissions for personal services. So, is sales a personal service? To me this means that retailers and wholesalers are not service organizations.