Independent contractor medical practice

Essentially have a father/son medical practice.  Father owns 100% and is taxed as a sole proprietor.  Son has been practicing at the business for years as an employee.  Multiple CPAs have advised them that the son should incorporate and work for the father as a contractor.  They have advised them that one of the benefits  is that the son  can set up his own 401(k).

Am Is missing something?  Even if they could assert that the son is no longer an employee I don't see how they get around the related group issues.

Thanks for any guidance.

The "idea" may work, but you'd have to perform a detailed analysis of all the facts to ensure there isn't a related employer group with respect to all the rules.  A part of this analysis would be ascertaining why the father's business doesn't already have a plan in place.

Good Luck!

Is it really a related group problem? There's no cross-ownership whatsoever (or won't be) - right?

Doesn't sound like it would be a management function ASG either.

The father's business does have a profit sharing plan in place.   

Among other things, they want the son to be able to have a 401(k) without offering the same to the father's employees.  Also if the son is treated as a separate, unrelated employer the son would get a larger employer contribution than nondiscrimination testing currently allows.

42 minutes ago, Belgarath said:

Is it really a related group problem? There's no cross-ownership whatsoever (or won't be) - right?

Doesn't sound like it would be a management function ASG either.

Wouldn't we have constructive ownership under 318?

20 hours ago, R. Butler said:

Wouldn't we have constructive ownership under 318?

For a CG it would be Section 1563 attribution which would be limited to/from an adult child.

7 hours ago, RatherBeGolfing said:

For a CG it would be Section 1563 attribution which would be limited to/from an adult child.

Agreed, but for a affiliated service group it is 318, not 1563 and the rules are slightly different under 318.

True...