Successor Corp Question

[CLE401kGuy]

Company AB was owned 50% by A and 50% by B.

A and B recently sold the company. As part of the sale, both will receive consulting income of $200k for 5 years (or less if A or B terminates the consulting agreement).

A and B each set up an LLC to receive the consulting income. A would like to set up a DB plan and defer as much as possible. If the LLC is considered a successor to the Company AB then all the consulting can be deferred as there is a wage established.

If not a successor, then there needs to be wages (or earned income).

Is A's LLC considered a successor corp to Company AB?

[rcline46]

If A and B do not offer consulting to other companies, I am not sure that you escape 'common law' employee status, or that you might end up with some kind of affiliated service group.

[JAY21]

That is a good point. IRC 414(m)(5) explains those "captive management" situations where the 1 entity exists only to manage another entity. Whether the "consulting" they do equals "management" of those companies might be the key issue to look into further. Perhaps if the "Consulting" is something more narrow than management (e.g., technical consulting on a certain aspect of the operation but not management servies) then it might still be ok, but this is certainly an important issue to consider. If it's an Affiliated Service Group with the ongoing AB company due to the performance of captive management services you wouldn't want a DB plan if AB company has employees.