Employer/Participating Employer

Encountered what was (to me) an unusual situation on a possible takeover. Details a little sketchy at this point.

John Doe, Sole Proprietor, sponsors a 401k plan, using a volume submitter pre-approved document. John has several employees, all covered under the plan, everything seems fine.

However, it turns out that unbeknownst to the prior TPA (and if there's a problem, likely not their fault, as apparently neither client nor CPA ever informed them) the employees of John are actually PAID through another company. Details on this other company not yet known, but apparently has a different EIN than John.

The reasons why it is handled this way are unknown. The CPA likely had good reasons for it - I'm not making any judgments since this is outside my sphere of knowledge.

Now, my understanding has always been that the IRS will only issue one EIN to a Sole Prop. If true, (?) then this other company, apparently 100% owned by John, must be something other than a Sole Prop?

At any rate, my question is this: Assuming these are "employees" of John, is the fact that payroll is run through another company in the controlled group a problem in and of itself? This other company has NOT signed on as a Participating Employer, and the document provides that employees of another member of a controlled group are not covered under the plan unless a Participating Employer Agreement has been signed. Although it is the CPA's purview, can John deduct contributions if payroll is through another company?

I'd love to hear any thoughts on the situation. Thanks in advance.

It might be ok.  I've seen companies use a common paymaster to run payroll through another organization and from what I understand it is legit; the key is who is (really) the employer.  

Thanks. I'm sure something else is going to pop up on this as more information becomes available...

To the moderator - please delete this post. Information now coming in is very different from originally received, and at this point, no one should be wasting their time responding to the original post.  Thanks!

1 hour ago, Belgarath said:

To the moderator - please delete this post. Information now coming in is very different from originally received, and at this point, no one should be wasting their time responding to the original post.  Thanks!

[EDIT]

Aw, man!  I had like six paragraphs of great insights and code citations for you!  Now I had to delete them.

Sorry about that! I probably shouldn't have even made the original post until I had more information.

2 hours ago, Belgarath said:

Sorry about that! I probably shouldn't have even made the original post until I had more information.

 

Pretty sure he was teasing.

Yeah, coffee hadn't kicked in yet. (My standard excuse for being dense...)

2 hours ago, Bill Presson said:

Pretty sure he was teasing.

This man gets me.