controlled group; self-employed

[pmacduff]

Here's the situation:

husband owns 100% of his company with existing qualified 401k SH 3%/PS plan and 2 NHCE non key employees

wife starts new company has one NHCE non key

Wife and any of her employees (as they become eligible) will all participate in husband's existing plan.

Companies are completely different types of businesses and they do NOT share NHCE employees.

Both husband and wife have self-employment income only each from their respective business.

For Sch C purposes for the NHCE $$ deduction, does each of them deduct only the portion of the contribution that goes to their NHCE(s)?

Does it matter as long as no NHCE contribution is deducted more than once?

[ETA Consulting LLC]

For Sch C purposes for the NHCE $$ deduction, does each of them deduct only the portion of the contribution that goes to their NHCE(s)?

Does it matter as long as no NHCE contribution is deducted more than once?

I think they would complete a separate Schedule C for each business. I am assuming there was an analysis to conclude they are, in fact, a controlled group.

Good Luck!

[Bill Presson]

Here's the situation:

husband owns 100% of his company with existing qualified 401k SH 3%/PS plan and 2 NHCE non key employees

wife starts new company has one NHCE non key

Wife and any of her employees (as they become eligible) will all participate in husband's existing plan.

Companies are completely different types of businesses and they do NOT share NHCE employees.

Both husband and wife have self-employment income only each from their respective business.

For Sch C purposes for the NHCE $$ deduction, does each of them deduct only the portion of the contribution that goes to their NHCE(s)?

Does it matter as long as no NHCE contribution is deducted more than once?

I think they should deduct the NHCE contribution on the correct Sch C because it would have an impact on SE taxes.

But make sure you have a controlled group first. If there are no children under 21, it might not be.

http://www.mhco.com/library/Articles/2010/...olG_022510.html

[pmacduff]

Husband owns 100% of his and she owns 100% of hers...aren't they both "deemed" to own what the other owns?

[Bill Presson]

Husband owns 100% of his and she owns 100% of hers...aren't they both "deemed" to own what the other owns?

Not if they meet the exception in the link I provided.

[pmacduff]

I can't access that link Bill, it says I don't have permission when I click on it.....

[david rigby]

Hope this is not a copyright violation. Here is the information from the link above:

The husband is a doctor and the wife is a wedding planner — are they considered to be a controlled group under the family attribution rules?

The answer depends on whether they meet the spouse exception in Code Section 1563(e)(5).

Background

If a husband and wife each work for the same company, they would be deemed to own the stock of the other. For example, if the husband owned 100% of the company and the wife owned nothing. Through the family attribution rules found in Tax Code Section 318(a) and 1563, the wife would be deemed to also own 100%. Thus, the husband and wife would both be considered highly compensated employees and key employees as they would satisfy the more than 5% ownership rule of each definition because the husband's ownership of 100% is also attributed to the wife.

Husband and Wife Exception

There is a spouse exception in the controlled group family attribution rules where the husband and wife each own unrelated businesses and meet the points under Tax Code Section 1563(e)(5) listed below. In such a case, the husband and wife will not attribute ownership to each other and, thus, each will only be considered to have ownership in their own entity. The exception requires that the following conditions be met:

- Each spouse has no ownership interest in the other's business entity;

- Neither spouse participates in the management of the other's business entity,

- Neither spouse is an employee of the other spouse;

- Not more than 50% of either business entity's gross income was derived from passive income such as royalties, rents, dividends, interest and annuities; and

- There is no restriction on the right of the spouse to dispose of the stock.

Note: where the individuals have a child under age 21, a controlled group will be deemed to exist because the parents will each be attributed ownership through the child, even if all of the foregoing conditions are met. This will continue to be the case in those situations where the marriage is subsequently dissolved by divorce for as long as there is a minor child.

Community Property States Caveat:

The above spousal exception to the controlled group rules does not appear to apply in those states with community property laws. However, if the community property is relinquished or if the community property law permits the business ownership to be treated as separate property, the exception may apply. In community property states, it is suggested that an ERISA attorney familiar with that state's law be engaged. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

[mbozek]

Here's the situation:

husband owns 100% of his company with existing qualified 401k SH 3%/PS plan and 2 NHCE non key employees

wife starts new company has one NHCE non key

Wife and any of her employees (as they become eligible) will all participate in husband's existing plan.

Companies are completely different types of businesses and they do NOT share NHCE employees.

Both husband and wife have self-employment income only each from their respective business.

For Sch C purposes for the NHCE $$ deduction, does each of them deduct only the portion of the contribution that goes to their NHCE(s)?

Does it matter as long as no NHCE contribution is deducted more than once?

Sked C is filed by unincorporated business which is owned by a sole proprieter. Companies usually file corporate tax returns claiming the pension deduction unless they are a LLC. If H and W each operate a sole proprietorship which files a sked C then each spouse will claim the deduction for the pension contributions for their employees on the Sked C that they file because pension contributions for employees reduce net earnings from self employment on that business.

[pmacduff]

This situation does not meet the exception rules. It makes sense to me that each would take the employees of that entity on the separate Sch Cs as indicated by mbozek.

Thank you for the replies and thank you david rigby for posting the information from the link.