Who's the Employer?

Answer: That's uncertain based on the facts given.

They certainly are not a controlled group, assuming that there are no facts giving rise to attribution or exclusion. A and B own 100% of Corp 1, but only 67% of Corp 3-- not enough for a controlled group.

The minimum required ownership does exist for an affiliated service group. But the real question is whether one corporation provides services to the others, or if they are related in providing services to third parties. The old corporations continue for the purpose of collecting receivables. I don't know about your business, but my receivables don't collect themselves. You need to send bills, deal with insurance companies, take the money to the bank, credit accounts, etc. And all of that implies employees who are performing those services. And those employees are going to come from Corp 3.

Is that enough to create an affiliated service group? We don't know. It depends on whether this represents "regularly providing services." This requires a close look at the actual facts of the situation, and may be a situation calling for a determination letter from the IRS.

On the other hand, if you leave skeleton staff at the old businesses to process things, paid from the old businesses rather than from Corp 3, then it becomes very difficult to argue that Corp 3 is regularly providing services to the other two corporations or that they are regularly associated in providing services to third parties.

These issues are discussed in more detail in Chapter 13 of my book, Who's the Employer?.

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