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Who's the Employer?

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

Dentists as Investors

(Posted August 28, 2001)

Question 121: Dentist A and Dentist B operate as separate corporations but are housed in the same office building. They want to form corporation C as 50-50 owners. Corp C will be a dental practice staffed by a new dentist. Neither A nor B will receive dental revenues from patients of C; they will participate only as investors. None of the three dentists is related, and there are no options or rights of first refual. If A has a 401(k) plan, will the employees of C be included in the non-discrimination testing for A's 401(k) plan?

Answer: No. Based on the facts you have given, they are not a controlled group or an affiliated service group.

They are not a controlled group because they do not have 80% overlapping owners. For example, consider corporations A and C. A only owns 50% of corporation C. B does not own any of corporation A and is disregarded thanks to the Supreme Court's Vogel Fertilizer decision.

They are not an affiliated service group because none of the entities is providing any services (professional, employee, management, or otherwise) to the others, and they are not related in providing services to the public.

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.