Controlled Group Issue

[metsfan026]

If a client failed to divulge that they own multiple companies (they are unrelated, but he is the 100% owner of all of the corporations) and it's not discovered that it should've been a controlled group.  What are the ramifications?  Is there any back correction that is needed?

[Belgarath]

This doesn't lend itself to a simple answer, and a whole lot of specific information would be required. But as a poor stab at a general, quick answer (with the HUGE caveat that are many possible permutations):

 

When you have a controlled group of corporations, all of the employees of all of the corporations must be CONSIDERED for coverage, nondiscrimination, etc.

Doesn't mean that you necessarily have to cover them, depending upon results, but they will be included in your testing.

Your document provisions can matter - some automatically include them unless excluded, some are the opposite. Another issue is whether they signed on as participating employers, and the timing of such.

Any back correction? Quite possibly, and might likely be looking at VCP rather than SCP. 

It sounds to me like you should take this to an ERISA attorney, or get the assistance of a TPA who is more familiar with these types of situations. It could be relatively simple, or incredibly complex, or anywhere between. Good luck!

[metsfan026]

Thanks!  I'm trying to determine if it is actually a controlled group currently:

Company A - 100% owner
Company B - 50% owner currently.  He's recently divorced and his now ex-wife still owns 50% of the company

Is there any attribution with his ex-wife, or since he doesn't own 80% of both companies?

13 hours ago, Belgarath said:

This doesn't lend itself to a simple answer, and a whole lot of specific information would be required. But as a poor stab at a general, quick answer (with the HUGE caveat that are many possible permutations):

 

When you have a controlled group of corporations, all of the employees of all of the corporations must be CONSIDERED for coverage, nondiscrimination, etc.

Doesn't mean that you necessarily have to cover them, depending upon results, but they will be included in your testing.

Your document provisions can matter - some automatically include them unless excluded, some are the opposite. Another issue is whether they signed on as participating employers, and the timing of such.

Any back correction? Quite possibly, and might likely be looking at VCP rather than SCP. 

It sounds to me like you should take this to an ERISA attorney, or get the assistance of a TPA who is more familiar with these types of situations. It could be relatively simple, or incredibly complex, or anywhere between. Good luck!

 

[Bill Presson]

Timing of the divorce is relevant. Also, have they had any minor children during this time?

[Roycal]

First you say multiple companies of which the client is 100% owner, and then you say just two, with the client owning 100% of one and 50% directly of the second.  This is as I understand you.  Facts actually matter, so gather all the facts.  Then, if necessary, read the controlled group code and reg provisions, including the attribution rules.  You may need to dig into other IRS "guidance" and the case law.  This could be a very messy situation, but hopefully not.

[Roycal]

One more thought -- ethical and practical issues.  For example, did you ask about other companies that might be in the controlled group, but the client lied to you, which you only found out about later.  I actually had that happen to me once and it was not a pleasant experience -- I'll leave it at that.