Sole Proprietorships all adopting the plan?

[jkharvey]

The employer has 5 locations (retail). Each is filed as a separate Schedule C for income tax purposes. What is it that determines which entities need to actually become participating employers by separately adopting the 401k plan? Is it because each has filed a separate Schedule C as opposed to combining the entities as one?

[Calavera]

I am not sure if there is a rule for that. I have seen distinction was made by EIN on each individual Schedule C. So if all of them have the SSN of the employer, it would be treated as one employer. But if all of them have different EINs you will have one employer and 4 participating employers.

[masteff]

The reason for filing of separate Sch C's is per Rev Rul 81-90 and Code Section 6011(a). The instructions for Sch C say to file separate businesses on separate schedules. A primary reason is the prevention of tax fraud.

A sole proprietorship is not a separate legal entity from its owner. Even if the owner has 5 businesses, since they are not separate from the owner then they are not separate from each other. The instructions for Form SS-4 explicitly state that a person should use only one EIN in operating multiple businesses as a sole proprietor. In my opinion, the sole prop is a single employer for all 5 businesses.

[jkharvey]

Masteff and Calavera thank you so much. That was exactly what I was tying to ask. Each of the Schedule C's is included on the 1040 of the owner using his SSN only. So, in your opinion, each of those 5 businesses would not need to "adopt" the plan in order to allow all of the employees to participate? We have 4 of them adopting, but it doesn't seem that there is an issue with having adopting employers even when they aren't "technically" needed.

[K2retire]

Since all of the employers are the same business owner, he should be the only person who needs to adopt the plan. As a sole proprietor he may have separate dba names for this businesses, but he is still the employer.

[Kevin C]

If the separate locations are considered separate trades or businesses, you might want to consider the following:

1.401-10(b)(2)

If a self-employed individual is engaged in more than one trade or business, each such trade or business shall be considered a separate employer for purposes of applying the provisions of sections 401 through 404 to such individual. Thus, if a qualified plan is established for one trade or business but not the others, the individual will be considered an employee only if he received earned income with respect to such trade or business and only the amount of such earned income derived from that trade or business shall be taken into account for purposes of the qualified plan.