Affiliated Service Group

[Below Ground]

Partner A owns 50% of Firm 1 and 100% of Firm 2.  Partner B owns 50% of Firm 1 and 100% of Firm 3.  Business is wealth management service and all 3 firms are S-Corps.  Firm 1 is support staff and expenses, while firms 2 and 3 are the respective partners.  Does this represent an Affiliated Service Group?  I note that the partners are both licensed.  Finally piece of the puzzle is that the one support staff working for Firm 1 is a leased employee, where the leasing firm provides a 401(k) plan with a 100% of 1st 4% Safe Harbor Match.  That Match is paid by Firm 1 (indirectly paid by Firms 1 & 2).  Is there a coverage issue if Firm 2 and Firm 3 have SEP's that only cover the respective partners?  If firm 2 replaced its SEP with 401(k) covering only Partner A would that cause a problem?

[Luke Bailey]

Seems to me like this is an (m)(2)(B) group.

[Below Ground]

Details Luke Bailey?

 

 

[Luke Bailey]

ASG is very fact-intensive and there are no longer any regs, even proposed, so hard to opine. You also need to know family and business relationships for stock attribution. Having said that, it seems to me that, depending on additional facts, Firm 1 could be performing historical employee services for 2 and 3, and the owners of 1 or HCEs of 2 and 3. 1 and 2 would be one m2b, 1 and 3 the other, and you might have a "combined group." But again, this is just a hypothetical analysis of a hypothetical situation, Would need more facts. The Code section is in effect, but again no regs.

Good luck, Below Ground.

[Below Ground]

Thank you very much Mr. Bailey.  As you know, to have a controlled group in this specific situation, you would need to have ownership attribution.  There are no family relationships, so no attribution.  So we can at least take that problem off the table.  The services of Firm 1 are definitely services historical employee services for both 2 and 3.  Just looking at the relationships between the firms, it really seems to fit the definition of ASG.  However, I recall there is an exemption from ASG rules for banks and financial service firms.  (In line with your comment on nonexistent regs, I seem to hit one dead end after another with my research.)  The addition of the lease employee just seems to make a murky issue, even more muddy.  You gotta love our field some days!  Again, thanks for you help.

[Luke Bailey]

Hmmh...All you need is 10% for (m)(2)(B). Anyway, good luck, Below Ground.