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BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Avoiding Controlled Groups By Staying Unincorporated?

(Posted June 28, 2001)

Question 115: Suppose a husband and wife own separate medical practices. My understanding is that if the husband owns 100% of the stock in corporation A and his wife owns 100% of stock in corporation B, all employees have to be aggregated. Would they be better off as sole proprietors, as partners in a new partnership, or as members of a new LLC?

Answer: No. There are two key issues raised by your question.

Controlled group or common control. It is true that the controlled group rules of IRC 414(b) apply only to corporations. However, the common control rules of 414(c), which are essentially identical, apply to all types of entities. For purposes of whether the employees must be aggregated, the form of the entities is irrelevant.

Attribution through marriage. Depending on circumstances, the two entities might or might not need to be aggregated. Take a look at Q&A 111 (click) of this column for a roadmap.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.