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MGKS
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Question 165: Now that you've had 48 hours to think about it, would you care to revise your comments on the transition rule in Rev. Proc. 2002-21? | ||
Answer: Absolutely, yes. So much so that I've removed my former Q&A on the subject. Let's try again.
Instead of referring to all of 401(a), the transition rule is limited to 401(a)(2), the exclusive benefit rule. To best understand what that means, consider the following extended example:
The IRS never has been enamored of the co-employer concept as applied to PEOs. No case has found that such a dual employer relationship exists with a PEO. I discuss this at great length in Chapter 4 of my book, citing all the cases, rulings, and history of this issue. And there is very little in that history to give a staffing firm comfort that it would be able to convince the IRS or a judge that it is the common law employer of workers with whom it has no relationship other than writing out a paycheck and filling out forms. The great rule of employee/independent contractor relationships is that calling someone an independent contractor doesn't make them one. A corollary to that rule is that calling yourself a co-employer doesn't make you one. Rev. Proc. 2002-21, for all its generosity in allowing PEOs an opportunity to resolve the exclusive benefit rule issue and providing a road map for future compliance, does nothing-- absolutely nothing-- for continuing plans dealing with other qualification issues, as described here. |
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.
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