Affiliated Service Group Question

[Madison71]

A management LLC provides management and administrative services to 4 LLCs. The LLCs provide day care services. The management LLC provides services such as hiring, firing, payroll, etc. to each of the 4 LLCs The ownership percentages of any one person is nowhere near 50% in any of the companies and there are at least 8 other owners (non-family members) with ownership percentages varying between 10-20%. It has already been determined that there is not a controlled group between the management LLC and any of the 4 LLCs and there is not a controlled group amongst the 4 LLCs.

In looking at the affiliated service group rules, I believe this is not an A-Org because there is no FSO (professional corporation). I also believe there is not a management affiliated service group because there is no common ownership between the 4 LLCs and the management services are split about 25% per company. The question is on a B-Organization. Would this be considered a B-Organization? A signficant portion of the management LLC (over 10%) is services to each of the 4 LLCs, and the management services are typically performed by companies in this industry. And, I believe an FSO is not required to be a professional corporation for a B-Org.

Am I missing something? Do you think this could be a B-Org? Thank you so much. By the way, I'm told the ERISA attorney has told the client that there is no ASG under any of the three. When I inquired about B-Org, I was shot down.

[Jim Norman]

Since they are LLCs the "professional corporation" rule for the A-Org FSO is not applicable. An LLC is not a corporation (are they electing to be taxed as a corp?) and any unincorporated service organization can be an FSO to an A-Org.

[Madison71]

Since they are LLCs the "professional corporation" rule for the A-Org FSO is not applicable. An LLC is not a corporation (are they electing to be taxed as a corp?) and any unincorporated service organization can be an FSO to an A-Org.

They are being treated as an S-Corp. Sorry about not adding that. So, not a professional corp - no FSO for A-Org. What about B-Org? Any thoughts?

[Jim Norman]

I don't know enough about what they do to really opine on the B-Org issue. However as you note, you specifically addressed this issue with their attorney and were "shot down". So why pursue it further? If the attorney were saying something that was clearly wrong, that would be one thing, but this is a F&C determination and he is coming up with a plausible result.