Application of Section 415 limits when employer is dissolved and new c

[Guest]

Individuals who work for two unrelated companies during a year get two 415 limits, or up to the lesser of 25% of pay or $60,000.

Three shareholder doctors in Service Corp A and three sharholder doctors in Service B (unrelated) dissolve their corporations as of 2/28 and form Service Corporation C effective 3/1, with the six identical shareholder doctors. Can they exceed the $30,000 415 limit based on comp in the two companies, or are Corps A, B and C considered related?

[MWeddell]

415 limits apply to an "employer" using the controlled group rules except that more than 50% common ownership instead of 80% or more common ownership is required.

You've not mentioned the exact ownership percentages in your posting, but if the 6 doctors are all equal partners, then the common ownership between A & C or between B & C will be exactly 50%, not more than 50%, and no 415 aggregation is required.

[This message has been edited by MWeddell (edited 03-09-2000).]

[MWeddell]

My previous posting was in error. This situation is a brother-sister controlled group question so the "more than 50 percent" standard doesn't apply. See Code Section 415(h) and 1563(a). Use the 80 percent standard still, which makes is unlikely that you've got to aggregate your 415 limits.

[KJohnson]

Good catch by MWeddell--50% test only applies to parent-sub relationship

Also, there is also a PLR ,9541041, where six P.A's merged into a "new corpororation" The IRS stated that if the prior corporations "ceased to exist" because of the merger then the plans of the prior employers and the plan of the "new" employer would not need to be aggregated for 415. IRS reasoned that corporations must exist at the same time to be under common control. Since "old employer" ceased to exist at the time "new employer" came into existence--no common control and no Section 415 aggregation.

This is only a PLR and it would appear to be ripe for abuse because it would enable you to "double up" on 415 each time a merger takes place. I think you still do an ownership analysis and, based on the assumptions in M Weddell's, comment I agree that you would not have to aggregate for 415 purposes.