Brother Sister Relationship to Establish a DB Plan

[Hoard1]

Corporation C is owned 100% by Dr. A. This corporation develops and sells Medical software. No medical licensing is required to be in this business.

Dr A ownes 51% of a Medical Practice with another individule who is not related. The Practice provides no services to Corp C and there is no sharing of employees.

I read the Brother Sister rules to state that Dr. A only has common ownership of 51% and therfore does not pass the 80% common ownership test. Although she does pass the 50% identical ownership test she does not pass both and therfore is not a Brother Sister Relationship.

Can Corp C set up a Defined Benefit Plan and not include the Employees of the Medical Practice. I think they can. Am I missing anything?

[John A]

I agree with your analysis, but I am not an expert in controlled group determinations. Are you saying that the unrelated individual owns the other 49% of the medical practice? Also, be sure Dr. A has not been given the option to buy stock of the medical practice (attribution rules). I'd be interested in whether others agree.

[KJohnson]

I agree.

The only hitch is that the plans would have to be aggregated for 415 purposes if any employee participates in both plans. For 415 the 80% is reduced to more than 50%

[Hoard1]

Dr. A also teaches at a University. She does not have any ownership in the institution. Would any benenfit earned in their Plan have to be considered for 415 purposes?

[Guest mo]

I believe the reduction referred to by KJohnson applies only to parent-subsidiary controlled groups and not to brother-sister.