Controlled group issues, related employers

[dan.jock]

Bob is an owner of a sole prop with DB and PS plans and just invested in a 50% partnership of another practice.  No attribution, affiliated service, or any other relation.  Since this is not a controlling interest, the employees of the partnership do not need to be covered by the sole prop plan.  Further, if the partnership wanted a qualified plan, Bob could benefit from fresh 415(b) and (c) limits.  Seems like a nice fit and wanted to double check if anyone had any objections.

Further, I think Bob is ok to have separate plans until he owns 80% of the partnership. 

 

Cheers,

Dan

[Lou S.]

You might want to check 415 limit. I believe there is a clause about replacing "80%" with "50%" for purposes of the 415(b) and (c) limit but I can't recall if it is "50%" or "more than 50%" for the aggregated 415 limit.

[BG5150]

21 minutes ago, Lou S. said:

You might want to check 415 limit. I believe there is a clause about replacing "80%" with "50%" for purposes of the 415(b) and (c) limit but I can't recall if it is "50%" or "more than 50%" for the aggregated 415 limit.

This post is relevant to my interests...

[Lou S.]

Just looked it up.

Regulation 1.415(f)(1)

relevant part

Quote

Pursuant to section 415(h), for purposes of section 415, sections 414(b) and 414(c) are applied by using the phrase "more than 50 percent" instead of the phrase "at least 80 percent" each place the latter phrase appears in section 1563(a)(1) and in the regulations under section 414(c) (except for purposes of determining whether two or more organizations are a brother-sister group of trades or businesses under common control under the rules in § 1.414(c)-2(c)).

So as long as you are 50% or less you are OK and have separate 415 limits. If you are over 50% one limit.

[dan.jock]

Attached from Who's the Employer says the >50% rule only applies to parent-subsidiary groups.  Even brother-sister groups have to be corporations.  For SOle prop and partnerships, we are directed to the "groups of trades and businesses" rules (which are very similar to the corporations guidance) and I believe a relationship only exists for any purpose there when there is 80% ownership.  I don't think >50% comes into play since it is not a parent-subsidiary.  I feel like I've been in conversations in practice, however, where the >50% was cited for 415 under a partnership situation...  I'll keep reading WTE and let you know if I find anything compelling

 

controlled groups.docx

[Lou S.]

I'd love to be shown to be wrong but I think the reference to 414(c) in the 415(f)(1) reg is pretty clear that it applies to partnerships as well for the one 415 limit rule.

And recall partnership interest is greater of capital interest or profits interest.

[dan.jock]

Attached is another excerpt from Who's the Employer After reading through 1.414(c) I am actually with Lou in that I think >50% triggers a combined 415 limit.  The author here though is pushing the issue if it is not a parent-subsidiary situation so I'll hang it out there for any other interpretations.

controlled groups1.docx