Who's the Employer?

Answer: I fear you are laboring under a misapprehension about controlled groups. Let me do my best to rectify it. so you will then understand my response for ASGs.

It is true that IRC 1563(b) contains the component member rule you describe. (Q 9:5. References to "Q" are to numbered questions addressed in the third edition of Who's the Employer; they can be viewed online by subscribers.) Thus, for ordinary income tax purposes, if you are in a controlled group for half the year, you're in, and if not, you're out.

But this rule is totally irrelevant for retirement plan purposes. (Q 9:3.) See Reg. 1.414(b)-1(a). Effectively, this means that controlled group status is determined on a day-by-day basis for retirement plan purposes. (Q 9:11 and Q 11:11.)

Does it then come as any surprise that no similar half-year rule exists for ASGs? Like controlled groups, affiliated service group status is determined on a day-by-day basis. If ownership changes or a relationship ends to terminate ASG status, then from that point on the businesses are separate but before that date they are treated as a single employer.

This result is unsatisfactory in many respects, but it is unquestionably the result that the law provides.

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