Question 342: Doctor X owns 100% of Corporation A and 100% of Corporation B (a professional corporation). A and B are in a controlled group.
A pays compensation to Doctor X, and sponsors a DC plan in which Doctor X participates.
B is a 25% partner in Partnership P that provides medical imaging services. Other partners in P are individual doctors or professional corporations owned by other doctors. Assume that an affiliated service group (ASG) exists, consisting of P, B, and the other professional corporations that are partners. A is not part of the ASG. B pays compensation to Doctor X (its sole employee).
P sponsors a separate DC plan. B has signed P's plan as a "participating employer."
The question: must annual additions for Doctor X under the two plans be aggregated to apply the Code 415 limit?
Absolutely, yes. That is the correct conclusion of just released Technical Advice Memorandum 201715001.
It's quite straightforward. A and B are a controlled group. The fact that B is in an ASG with other companies doesn't change that fact or change the duty of B to comply with the controlled group rules. All defined contributions plans sponsored by A or B are a single plan for purposes of 415 and there is a single 415 limit between the two.
The employer argued that the sponsor of the ASG plan was the ASG as a whole, and that hence the ASG is a separate, single employer under Code 414(m). The employer wanted the IRS to treat the ASG as one conglomerate adopting employer, and ignore the component entities. Since A wasn't part of the ASG, A didn't have to aggregate its plan with the ASG plan for 415. The IRS didn't buy that argument. B shows on the document as a sponsor (a "Participating Employer"). The Service also cited congressional committee reports stating that the controlled group rules take precedence over the ASG rules.
The employer also argued that Doctor X could have avoided this result by dissolving Corporation B and being a partner in Partnership P individually. The IRS replied in effect, "Maybe so, but you didn't." Corporation B was the partner. Doctor X provided services to the ASG through B. B paid employer contributions to the plan and signed the document, not Doctor X. B paid X's compensation which was the basis of the contributions..
This tale illustrates the reality that how a business is structured can profoundly affect the application of the ASG rules.
Chapter 13 of my book, Who's the Employer, discusses the ASG rules. Chapter 8 discusses controlled groups and overlapping entities. Chapter 10 discusses the consequences of related employer status. Order your copy of the 7th edition at www.erisapedia.com.
(Thanks to David Baker for helpful clarifications.)