Guest 3rdGEN Posted March 24, 2011 Posted March 24, 2011 I own 100% of an S-corp which provides consulting engineering services. I also own 50% of a c-corp which provides technical field services (electricians, mechanics, etc...). When either firm needs the services of the other those services are subcontracted to the other firm. Both firms have worked for each other at various times, but never for more than 10% of either firm's revenue. Does this make the S-corp or C-corp an affiliated service group, a controlled group or both?
PensionPro Posted March 24, 2011 Posted March 24, 2011 Who owns the other 50% of the C-Corp? PensionPro, CPC, TGPC
Guest 3rdGEN Posted March 28, 2011 Posted March 28, 2011 Who owns the other 50% of the C-Corp? My wife's uncle, by marriage.
ETA Consulting LLC Posted March 28, 2011 Posted March 28, 2011 It is interesting that you clarified that no entity receives 10% of it's revenue from providing services to the other entity. I think the 10% revenue standard applies to services being provided to the other entity (or their clients). Do these two organizations provide work to the same clients? If so, your fact pattern would need adjusting for the Affiliated Service Group determination. Even below 10%, you have facts and circumstances for amounts between 5% and 10%; so the actual number may be necessary when trying to make your determination. Good Luck! CPC, QPA, QKA, TGPC, ERPA
PensionPro Posted March 28, 2011 Posted March 28, 2011 The 2 corporations are not part of a controlled group. However ... They MAY still be considered an affiliated service group. If the revenue from performing services for the related company is less than 5% of the total revenue from performing services then you are unlikely to have an affiliated service group. If the revenue from performing services for the related company is at least 10% of the total overall revenue, then you are likely to have an affiliated service group. This is a very fact-specific determination. If the results are unclear since there is a vast gray area, you may need to engage the services of an ERISA attorney and/or obtain a determination from the IRS. PensionPro, CPC, TGPC
Guest 3rdGEN Posted March 28, 2011 Posted March 28, 2011 It is interesting that you clarified that no entity receives 10% of it's revenue from providing services to the other entity. I think the 10% revenue standard applies to services being provided to the other entity (or their clients). Do these two organizations provide work to the same clients? If so, your fact pattern would need adjusting for the Affiliated Service Group determination. Even below 10%, you have facts and circumstances for amounts between 5% and 10%; so the actual number may be necessary when trying to make your determination. Good Luck! Yes, both companies have a couple of common clients. Depending on if the task is more of an engineering project or a technician project, the firm with the most work will be in the lead. We are trying to eliminate these situations now.
Guest 3rdGEN Posted March 28, 2011 Posted March 28, 2011 The 2 corporations are not part of a controlled group. However ...They MAY still be considered an affiliated service group. If the revenue from performing services for the related company is less than 5% of the total revenue from performing services then you are unlikely to have an affiliated service group. If the revenue from performing services for the related company is at least 10% of the total overall revenue, then you are likely to have an affiliated service group. This is a very fact-specific determination. If the results are unclear since there is a vast gray area, you may need to engage the services of an ERISA attorney and/or obtain a determination from the IRS. The S-corp provided the C-corp with 18% of its revenues in 2010. The C-Corp provided the S-corp with 1.4% of its revenues for 2010. So it appears that they are an affiliated service group. Does it matter which one exceeds the 10% of revenue from the other firm? How does the "more than 50% owned" standard of IRC Section 415(m) apply since I own exactly 50% of the technical services firm.
PensionPro Posted March 28, 2011 Posted March 28, 2011 In this context I do not believe it matters which corp exceeds the 10% revenue threshold. IRC Section 415 relates to annual addition limits not to determining related employer status. For this affiliated services group determination, the ownership interest requirement is only 10%. [iRC 415(h) provides the "more than 50%" ownership standard. This applies to determining annual addition limits under IRC section 415, not to determining related employer status. According to §1.414(m)-3(4), all members of an affiliated service group are treated as a single employer for determing 415 limits.] PensionPro, CPC, TGPC
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