Who's the Employer?

Answers are provided by S. Derrin Watson

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.

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