Control Group... simple "yes" or "no"

I have an independent insurance agent who sponsors a single member plan.  He tells me that effective 1/1/23 he now has another new business, a financial advisory business.  These 2 businesses reek control group to me since they can feed off of each other so I am inclined to say "control group".  Yes?

But to further my knowledge, does it matter if the businesses benefit from each other?  If he added an ice cream parlor to the businesses that he owns would that make the insurance business and the Ice cream business a control group?

Thanks

Whether they "feed off each other" or not is irrelevant for controlled group status.  It is purely a question of ownership, and can be determined with mathematical certainty. What business form are these businesses (corporate, partnership - including LLC, or sole proprietorships) and who owns interest (and amount) of each.

Feeding off each other *may* bring in the affiliated service group rules (bit those are more complicated).

Agree with MoJo. The only exception might be if they could qualify for QSLOB treatment, but that requires 50+ ees in each and other very stringent items. 

So definite control group for the insurance and financial advisor businesses. 

And, to take it further, control group even if one business sells insurance and the other ice cream sundaes.  

Thanks!

2 hours ago, Basically said:

So definite control group for the insurance and financial advisor businesses. 

And, to take it further, control group even if one business sells insurance and the other ice cream sundaes.  

Thanks!

Yes

I once way, way back in the '90s and I was just starting I worked on a client that was a dentist.   He had himself and 2 employees in that practice.  He also owned a hobby farm that he lived on but had 3 farm hands.  He owned 100% of it all.  All one big happy controlled group.  

I get the premise that the IRS is thinking about here if the businesses have some kind of relationship.  Like a car dealer with employees who is a single member tire wholesaler and purchases all new tires from himself for his dealership.  He's making $ for himself and maybe has a plan for the tire business and not the dealership.  But a single member insurance agent who sells ice cream on the side?  If that client came to me and I told him he would need to include his ice cream employees in the plan he would say "huh?  my ice cream business has nothing to do with my insurance business.  Forget it, too many employees, will become too expensive".  That's my common sense thinking.  Am I naïve?  

But the rule is the rule.  Thanks

The link between the businesses is the owner.  If he wants to separate the 2, he needs to reduce the common ownership.  The ice cream sundae business is the likely candidate for passing off a majority of the ownership to family members or trusted colleagues whose ownership is not required to be attributed to him and aggregated with his ownership.  He should talk with his accountant or business lawyer about what it would take.

Congress often times takes a sledge hammer to fix problems that need something more surgical.

Take RMDs for example.  I get not wanting people to pass on millions generation to generation without paying taxes.  So you require taking money out. 

So what do we get is a complex set of rules they can't leave alone with no minimum or other levels.  So years ago a plan that refused to force anyone out sent about $0.75 RMD check to one of their participants becasue that person's balance was that low and just refuse to take their money.  They also refused to cash the RMD check. 

On 6/29/2023 at 10:14 AM, Basically said:

I get the premise that the IRS is thinking about here if the businesses have some kind of relationship.  Like a car dealer with employees who is a single member tire wholesaler and purchases all new tires from himself for his dealership.  He's making $ for himself and maybe has a plan for the tire business and not the dealership.  But a single member insurance agent who sells ice cream on the side?  If that client came to me and I told him he would need to include his ice cream employees in the plan he would say "huh?  my ice cream business has nothing to do with my insurance business.  Forget it, too many employees, will become too expensive".  That's my common sense thinking.  Am I naïve?  

But the rule is the rule.  Thanks

To be honest, the reason these rules exist is because a bunch of doctors figured out they could form two corporations - one employs all of the doctors with Rolls Royce benefits, and one for the staff, with no benefits.  Same ownership, abusive no doubt.  Granted, many "serial" entrepreneurs may have multiple otherwise unrelated business, but the "potential" for abuse still exists.  I have seen many companies have a "shared resources" entity providing management to a variety of other entities in different businesses, but the same ownership....  It is what it is....

I once (MANY years ago, back in the days when I was young, and still sometimes tried to make sense of things, rather than just accepting them) looked into this a little bit - not in-depth, but the original CG rules pre-date even ERISA - it was an income tax thing to prevent manipulation of corporate income taxes. Then ERISA pulled it into coverage/nondiscrimination, and as MOJO says, clever people found other ways to try to manipulate the rules, and we eventually got to where we are today.