Question 40: Corporation A, which maintains a qualified plan, is the general partner of Limited Partnership B. Corporation A owns a 1% general partner interest and a 2% limited partner interest in Limited Partnership B. The remaining 97% interest in Limited Partnership B is publicly held.

Corporation A also is the general partner of Limited Partnerships C, D, E and F and owns a 1% general partner interest in each. Limited Partnership B owns a 99% limited partner interest in each of Limited Partnerships C, D, E and F. The partnerships invest in real estate. A's only business is to function as a general partner of these 5 partnerships.

Limited Partnership C owns 100% of the stock of Corporation G, which maintains a qualified plan.

Do these entities (or at least Corporations A and G) constitute a single employer under Code Section 414? Does Corporation A's status as general partner of Limited Partnerships B, C, D, E and F trigger an affiliated service group?

Answer: Let's ignore A for a moment. B owns 99% of C, D, E, and F. Hence those five partnerships are under common control under 414(c) as a parent-subsidiary group. Moreover, because C owns 100% of G, G is a part of that same parent-subsidiary group. That means all 6 are treated as a single entity for most qualified plan purposes.

Now we come to A. The mere fact that A holds a minority interest in the various partnerships does not make A part of the common control group. The fact that the partnerships invest in real estate means they are not service organizations, so we cannot construct a traditional affiliated service group between A and the other entities.

But what about a management function group under 414(m)(5)? A's principal business purpose (indeed, its sole business) is to provide management functions to B and entities related to B (specifically, C, D, E, and F). Hence, those 6 businesses are a management function affiliated service group.
Whether G is technically part of the affiliated service group is subject to some doubt, based on the wording of the statute. (See Q 13:20 of my book, Who's the Employer?.)
However, because entities B through G are considered a single employer, and A through F are considered a single employer, it makes logical sense to treat the entire group, A through G, as though they were one employer, at least to the extent 414(m) and 414(c) overlap (which is the case for most of the employee benefit Internal Revenue Code sections).

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