A bit self-employed, entirely self-employed?

[Oh so SIMPLE]

ABC is an S Corp, but employee X owns no stock of ABC. X receives W-2 wages from ABC.

X is an 8% owner of MNO, an LLC (i.e., partnership for tax purposes). Due to MNO being 85% owned by the person who is also the 100% owner of ABC, MNO and ABC are a 'control group.'

Does X's 8% ownership of MNO (which renders him a self-employed person, not a C/L employee of MNO) render X to be a self-employed person as to all of the MNO-ABC control group, and not eligible to participate in the MNO-ABC cafeteria plan?

Or, may X participate in that cafeteria plan since X is a C/L employee of ABC? If so, what special concerns might apply to X's participation in that cafeteria plan, apart from just considering X's W-2 wages from ABC for purposes of elective reductions, etc.?

[Guest morris]

The cafeteria plan is the "MNO-ABC" 125 plan (per your description). In other words, MNO is a part of it, and X owns 8% of MNO. Therefore, X can't participate.

[Oh so SIMPLE]

morris, X is both a self-employed person of MNO and a true C/L employee of ABC. Why can't X participate in the cafeteria plan as an employee of ABC? Do you have a citation to authority for the analysis you explained, essentially that X's being a self-employed person with respect to MNO negates, for cafeteria plan purposes, his being a true C/L employee of ABC?

[masteff]

I'm not familiar enough w/ the final regs to know if they ever cleaned this type of scenario up but older threads on here reached the conclusion that because he's an LLC member then he can't participate anywhere in the control group, that being an LLC member overrides the W-2. A few threads provide citations but they predate the final regs so take them w/ a grain of salt.

http://www.google.com/search?hl=en&q=+...+cafeteria+plan

[Guest morris]

The bottom line question is: how does he file his personal tax return? If it's filed as self employed, then he can't participate in the 125 plan(s).