Restructuring Ownership to Avoid Controlled Group?

[Susan S.]

A client of ours is a physician who is 100% owner of her private practice and sponsors a 401(k) plan. She and her husband bought 80% of a liquor store, not realizing that they might have to cover these employees under the plan. I don't see any way around this being a controlled group but I wanted to make sure I'm not missing something. They asked about transferring all ownership to the husband, but I told them the attribution rules applied. I'm sure they couldn't pass coverage by excluding them, as there are more employees at the store than the clinic. Is there any creative way to structure this to avoid a controlled group?

[My 2 cents]

A client of ours is a physician who is 100% owner of her private practice and sponsors a 401(k) plan. She and her husband bought 80% of a liquor store, not realizing that they might have to cover these employees under the plan. I don't see any way around this being a controlled group but I wanted to make sure I'm not missing something. They asked about transferring all ownership to the husband, but I told them the attribution rules applied. I'm sure they couldn't pass coverage by excluding them, as there are more employees at the store than the clinic. Is there any creative way to structure this to avoid a controlled group?

Just wondering - should physicians own liquor stores? Strikes me as somewhat incongruous in the same sort of way that an orthopedist owning a skateboard park is incongruous.

[Susan S.]

That's funny, I hadn't even thought about that!

[mphs77]

Wonder if that doctor will slow down on tranquilizer prescriptions and in stead

recommend a fifth of vodka to calm the nerves of their patients?

[ESOP Guy]

Just wondering - should physicians own liquor stores? Strikes me as somewhat incongruous in the same sort of way that an orthopedist owning a skateboard park is incongruous.

In that case isn't the orthopedist just engaging in vertical ingratiation of the business?

I suppose if the Dr is willing to give 1% to 6 unrelated people there would not be 5 people who own 80%! (I am doing this from memory and I have managed to not work with many complex controlled groups in my time)

[Bill Presson]

Have you looked at the coverage testing if you exclude the liquor store participants? Assuming the husband would be an employee of the store (and excluded) you might pass.

I've done that kind of thing several times before.

[Belgarath]

If you are not in a community property state, you MIGHT be able to structure the businesses to rely on the "spousal noninvolvement" clause in IRC 1563(e)(5). Also, you would need to make sure there are no minor children.

So a lot of "ifs" but at least a possibility. You'd want to have the CPA and an ERISA lawyer involved, as there may be other issues involved with such requirements that would, in terms of importance, override any qualified plan considerations.

[Susan S.]

I knew you all would have some great ideas! Belgarath, can you explain further about the children? They do have minor children, but why does that matter?

[My 2 cents]

Not that much involved with controlled group issues, but husband owns one company, wife owns another unrelated company, and there are minor children = controlled group. Ownership of each company is imputed to the minor children. Do I have that right?

[Mr Bagwell]

That's how I understood it to be My2Cents.

[Belgarath]

Yes, I agree.

[RatherBeGolfing]

Agreed, even if the spouses are not attributed ownership, the minor child is attributed ownership from both which still creates a CG.

For community property states, you can still qualify for the exception to spousal attribution. It gets a bit more complicated but community property interest can be relinquished, and then there are other instances where property is separate property even though you are in a community property state