Credit service prior to date of incorporation?

[shERPA]

A physician left a large group in 2014 and set up his own corporation which he owns 100%. He also hired another physician from the same group (as an employee). The entity was incorporated 11/1/14 and operations began in December 2014.

Question - for purposes of the shareholder Dr's date of hire, when did he first perform an hour of service. He said he was working on the organization of the new practice and corporation for at least 6 months. If the DOH is the date an employee first performs an hour of service, can this date be prior to the date the entity was formed? If so this would be in May of 2014.

The Dr would like to establish a DB plan this year, but the employee Dr. is an NHCE this year because she is not a shareholder and her 2014 earnings were below the HCE threshold. But this year her earnings are over $265K, and she is 4 years older than the shareholder, making a DB plan problematic. Next year she'll be an HCE and the problem goes away. For 2015, if the shareholder Dr's DOH is prior to 7/1/14, we can get him in a DB this year and the employee Dr is not yet eligible.

[Mike Preston]

If the entity was formed 11/1/2014 then surely the DOH for the owner is no later than 11/1/2014. If the entity began operations in Dec of 2014 then the DOH for the other doctor is no earlier than 12/1/2014. Why can't the eligibility be set so that only the owner is in the plan for 2015?

[shERPA]

Your answer reminds me of our PIX days! It's actually what I did, but I still wonder if pre-DOI service counts!

[LANDO]

What's to say that the business didn't start earlier (Sole Proprietorship), but was only incorporated on 12/1/2014? Is there some reason the entity could only have been a corporation? Something to do with practicing medicine perhaps?

[david rigby]

Can a sole proprietorship be presumed to be in existence at an earlier date? If so, does the presumption require any evidence?

[shERPA]

I think sole prop prior service counts. In this case there is no prior sole prop, he was a W-2 employee prior to starting his own corp and practice.

[LANDO]

I don't think being a W2 employee of another organization would preclude someone from also working for their own Sole P. That seems pretty obvious, but I understand if you're saying that's not what happened here. I was simply offering a possible alternative view.

[shERPA]

Agreed, it doesn't preclude it him also being a sole prop.