LLC partner draws to C Corp for SEP IRA

[TKH]

Folks, any help is appreciated!

 

My friend works for Company A (LLC). Mr. X, the firm's partner, owns 100% after Mr. Y passed away a few years ago. Mr. X has a separate company (Company B), a C Corp, into which he transfers the earnings from Company A. The employees in Company B are himself and his wife. He set up SEP IRA in Company B. 

 

From my understanding SEP IRA is under ERISA and when a brother-sister group sets up a pension plan, all employees within the brother-sister group have to be covered in order to satisfy the coverage testing. 

 

In this situation, can she get the same benefit (SEP IRA)  from Company A?

If yes, under what law.

 

[Bird]

What you've described is the classic reason that the controlled group rules exist.  Some of your statements aren't quite right, e.g. "all employees within the brother-sister group have to be covered" really should be "all employees within the brother-sister group have to be included in testing" (which may devolve to the same thing but not necessarily).  

As far as "under what law" it is really several parts of the Internal Revenue Code.

The question is how best to rat them out, and I don't have an answer.  It is likely to become acrimonious at best.  It's worth noting that a SEP can effectively have a three year eligibility period so she needs to be sure of her status before going too far.

[Larry Starr]

10 hours ago, info4via@gmail.com said:

Folks, any help is appreciated!

 

My friend works for Company A (LLC). Mr. X, the firm's partner, owns 100% after Mr. Y passed away a few years ago. Mr. X has a separate company (Company B), a C Corp, into which he transfers the earnings from Company A. The employees in Company B are himself and his wife. He set up SEP IRA in Company B. 

 

From my understanding SEP IRA is under ERISA and when a brother-sister group sets up a pension plan, all employees within the brother-sister group have to be covered in order to satisfy the coverage testing. 

 

In this situation, can she get the same benefit (SEP IRA)  from Company A?

If yes, under what law.

 

Your comment in the first paragraph about him "transferring the earnings from company A to Company B needs to be challenged.  That ain't legal!  Since this is third hand: "I have a FRIEND.....", I wonder if you have the facts right?

Company A has to file the appropriate tax return (sounds like a Schedule C) which will make the profits taxable to the 100% owner (Mr. X).  If he then puts the money into Company B, that would have to be an after tax transfer (loan) to Company B from Mr. X.  The whole question you are asking falls apart because your premise is wrong.  How do you know (or how does your friend know) he is doing what you describe?  Basically, if this is true, we need to know on what basis this is being done, but you are at least two steps removed from the situation so your knowledge is going to be limited I would assume.

Yes, there are certainly controlled group issues (as Bird has noted), but I don't think this even gets that far.  

If she wants to put her job at risk, then she can call the DOL and complain that she isn't being covered by a retirement plan because her boss is practicing tax fraud! Probably won't go over too well with the boss.