Who's the Employer?

Answer: Although we don't have a clear answer from the IRS, I believe the answer is no, based on my reading of IRC 414(m).

The key word of section 414(m) in this situation is "organization." An FSO or an A-Org must be an organization. Organizations include sole proprietorships, partnerships, trusts, corporations, etc. In this case, I think we must distinguish between the doctor's services as a partner in the partnership, and his separate sole proprietorship. That sole proprietorship is not performing services for the partnership. Rather, the doctor himself is, in his capacity as a partner. He receives a Schedule K-1 for his services, not a Form 1099. Partners and employees, in my view, are not separate organizations but are part of the partnership or corporation for which they provide services.

If the doctor as a partner is not an "organization," then he as a partner cannot be an FSO, an A-Org or a B-Org. His sole proprietorship is an organization but it does not perform services for the partnership and hence is neither an A-Org nor a B-Org.

As I say, we have nothing definitive from the IRS, but I believe this conclusion makes sense and is a reasonable interpretation of the statute.

The affiliated service group rules are discussed in more detail in Chapter 13 of my book, Who's the Employer?.

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