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Having Just a Single Customer Doesn't Mean Aggregation is Required
(Posted February 12, 2001)
Question 76: If 100% of a company's sales of a product are to one unrelated company, are there any issues as to who is the employer?
Answer: No. The controlled group rules are based strictly on ownership. Sales are immaterial. If the two companies have substantially similar ownership, you might have a controlled group, but not otherwise.
The affiliated service group rules are based on the performance of services of one nature or another, not the sale of products. Generally, the company in question would not be considered a service organization and so could not be a First Service Organization (FSO) or an A-Org. Unless it performs significant employee services, it cannot be a B-Org. Unless it performs management services (or its customer's principal business purpose is providing it with management services), it cannot be part of a management function group.
The related party rules, which can affect leased employee status, are based solely on ownership.
Any way you cut it, sales of products, in and of themselves, do not cause aggregation of employers for purposes of the tax-qualified plan requirements of the Internal Revenue Code.
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