TAM 201715001 left this open: does a spouse’s solo 401(k) need coverage testing against an ASG partnership’s staff?

I’d appreciate views on whether the groups below “chain” for §410(b) coverage testing. 

Facts (2021–2026)

Husband (oral surgeon) owns 100% of a dental professional corporation in California (an S corp). The PC is one of four PC partners (25%) in a dental group practice (a partnership with about 80 employees), and Husband regularly performs services for the partnership through his PC. So the PC is an A-org and the partnership is an FSO under §414(m)(2)(A). The partnership sponsors a 401(k) for its staff.

Wife (dentist) owns 100% of her own dental practice, a sole proprietorship, which sponsors a solo 401(k) covering only her.

Wife has been a W-2 employee of Husband’s PC since 2021 (about $100,000 a year). That defeats the spousal exception in Reg. §1.414(c)-4(b)(5)(ii), so she is attributed his 100% of PC, and her practice and his PC form a brother-sister controlled group under §414(c).

Wife’s practice has no ownership in the partnership and performs no services for it. Neither her practice has other employees.

Here's a diagram: 

https://drive.google.com/file/d/1w72CAr4jlnkDsZR1zcAZaW_hUa1HkqVY/view?usp=drive_link

Question
For §410(b) coverage testing of Wife’s solo 401(k), do the overlapping groups combine, so the partnership’s 80 employees must be counted? Or is Wife’s plan tested only within the controlled group (her practice and his PC)?

What I’ve found

TAM 201715001 (very similar facts) applied the §414(c) and §414(m) rules separately and held the doctor’s two plans share one §415(c) limit, but expressly reserved “any other possible implications” of the overlapping membership in footnote 2.

An ERISA attorney, on a comparable structure (spouse was a 50% owner and W-2 employee of the husband’s PLLC, which was an A-org of a professional corporation), concluded that all three entities were related for plan purposes, without addressing the TAM.

Going forward: Wife comes off Husband’s payroll from 2027, so the question is whether her plan needed testing for 2021 through 2026 including Husband's partnership's 80 employees, and if so, whether VCP is the expected route.

Is there authority, or an IRS position, on whether the groups chain? Thank you.
 

To my knowledge, the IRS has not provided guidance on chain "common control." The 414(m) Proposed Treasury Regulations ask for public comments on this matter, but obviously that has been decades.

Given your facts (i.e., the wife and husband's wholly owned entities constitute a controlled group but wife does not perform any services for the dental partnership), and given the lack of definitive guidance, one could argue against chain "common control" by pointing to the Proposed Regulations, where ASG status is determined with respect to the FSO. For example, 2 A-orgs that each provide services to one FSO (and not to each other) are not chained together to form one big ASG. Rather, they constitute two separate ASGs, so that A-Org1 and FSO are one ASG and A-Org2 and FSO a separate ASG. Under this scenario, 410(b) testing would be conducted for each separate ASG. By analogy, one argument is that the controlled group member (the wife) who does not perform any services for the dental partnership should be viewed as under common control with only the husband's entity.  Also, if you look at the M-Org type of ASG, you will note that the definition of both a management company and recipient company (i.e., recipient of the management activities) include all entities that are otherwise under common control with either entity (the definition is a bit more nuanced because it includes "related parties" to the recipient company).  But the point is that this is a form of chain common control. This could be argued either way as supporting or not supporting chain common control between an ASG and controlled group.

Don't forget the all-encompassing anti-abuse provisions under the 414 regulations. Even if the Service cannot "fit" the arrangement neatly into the A/B/M org--they can impose "common control" if they view the arrangement as abusive.

Thanks so much for your thoughtful reply!  Your point that the proposed regs determine ASG status relative to the FSO with two A-orgs serving the same FSO forming two separate groups rather than one is the cleanest framing I've seen for the no-chain side. I also appreciate your note that the M-org definitions cut the other way and the reminder about the 414(o) anti-abuse authroity.  

Thanks again for taking the time. 

best, Kenny