Who's the Employer?

Answer: No, they do not.

This question comes up frequently. There are two ways to approach it, either of which arrives at the same point.

The IRS "check-the-box" entity regulations are very clear that an unincorporated expense sharing arrangement is disregarded as an entity. That, of course, is exactly what the LLC is -- an expense sharing arrangement. Instead of filing a separate partnership return, the LLC's expenses should simply be reported on the returns of the two firms.

Of course, if the LLC is not an entity, it is not an "organization" and cannot be a FSO, A-Org, or B-Org under the ASG rules. All you have left are the two firms, and they do not have any common ownership. Accordingly, there is no ASG.

Let's take it from another approach for a moment. Ignore what I've just said and pretend that the LLC is treated as an entity, as an organization. Does it perform or provide services, either for the firms or the public? No. (It's hard to perform services without employees.) Do the firms perform services for it? No. That being the case, it cannot be a member of a traditional ASG.

The entity rules and the regulations that govern them are discussed in chapter 1 of my book, Who's the Employer. Affiliated service groups are discussed in chapter 13.

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