Who's the Employer?

Answer: You can call them whatever you like. Call them "George" if it suits you. But when you test them, you had best test them as though they were separate entities, because they are.

These clearly are not a controlled group or under common control. You don't pass either the effective control or the controlling interest tests. (These issues are discussed in more detail in Chapter 6 of my book, Who's the Employer?.)

These entities don't constitute a traditional affiliated service group, because unless things are very unusual they are not service organizations. Each business has a significant investment in tools, inventory and supplies that is a significant part of its revenue stream. The painting corporation not only sells the time of its painters, for example, but also the paint (and at a markup, thank you). That means capital is a material income producing factor for each business. If none of the businesses is a service organization, then you cannot have a traditional affiliated service group.

That leaves us with a management function group. To have that, providing management functions would have to be the principal business purpose of one of the organizations. That's not likely here. I assume most of the income of the contractor, for example, comes from contracting, not from running either the paint or the brick businesses. See Who's the Employer?, chapter 13.

They can certainly sponsor a single plan. However, it would be a "multiple employer" plan, subject to IRC 413(c). It would file multiple schedule T's with the annual Form 5500, and each employer would be tested separately.

This illustrates one of the most important rules in this arena. Entities are treated as a single employer because the law says they are, not because we think they should be.

If you really want the three entities to be tested as a single entity, A could acquire an option to buy 30% of each of the other companies. Alternatively, the other two owners can each be given an option to buy 1% of the contractor. Then, after performing attribution, the three businesses would be under common control.

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