Aggregation

[Guest elang]

Bob owns 100% of Company A and B. They have one 401K plan that covers both

companies, even though the companies are in different industries. Bob is considering

gifting 60% of Company A only to his daughter and son in law. Jack, the son in law,

owns Company C with 30 employees. Company C has its own 401K plan.

Question: Must Company C's plan be aggregated with the Company A and B plan

for ADP and 401(a) testing in 2012? In 2013 and beyond?

If so, any suggested solutions? Participation in Co A (30 EE) is good, Co B (80 EE)

and Co C is very weak. We are afraid aggregation will hurt our testing.

[Lou S.]

You are most likely going to be a conrolled group in this situation.

Unless the 60% is given to the daughter and not the son-in-law AND son in law only works for C, not A or B and daugher only works for A/B and not C and daughter and son in law meet the exception on seperate unrelated business which can be a bit complicated and may depend on whether or not it is a community property state.

[Guest elang]

Thank you; I appreciate your helpful response.

[Mike Preston]

Can somebody lay out the Vogel Fertilizer results here? I see why A and C are controlled, but once Dad gives 60% of A away his ownership of A is 40% (since this number is not bigger than 50% he is not deemed to own the other 60%) and his ownership of B is 100% and his ownership of C is 0%. How is B controlled with either A or C?

[Lou S.]

Mike maybe I'm way off base and if so I'd like to know but with

1563(e)(6)(B) Adult children and grandchildren. —An individual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years.

I would say the following would apply.

A has Bob 100% owner, beacuse that is more than 50% adult child daughter is deemed to own 100%.

B has adult daughter own 60% more than 50% and is deemed to own the 40% by Bob for 100%

A & B controlled through Daughter.

Unless the exceptions of 1563(e)(5)(A)-(D) apply, duaghter would similarly own 100% of C through Son-in-law 100% ownership of C.

The daughter becomes the common thread in all. But maybe I've got my logic all wrong and the step that passed from daughter to parent is bad leap but I thought that went both ways.