Affiliated Service Group and Testing

Company A and Company D are an Affiliated Service Group

Company B and Company D are an Affiliated Service Group

There is no common ownership between Company A and Company B

I understand Company D is included in the testing for Company A and also for Company B. Here is my question, does Company A and Company B need to be tested together? Does the ASG between D and these to entities require them to be tested together?

Is there an  issue if  eligibility/benefits under A and B are different?

If I read one more thing about ASGs I think I will scream. Having a root canal is better than figuring out ASG rules!!!

Which organization is the FSO in each group? If D is the FSO for both then you treat all 3 companies as a single ASG. Otherwise you have two separate ASGs and D is a member of both.

Here are the examples from Prop. Reg. 1.414(m)-2(g)(3), which hopefully makes things clearer:

Example (1). Multiple First Service Organizations. (i) Corporation P provides secretarial service to numerous dentists in a medical building, each of whom maintains his own separate unincorporated practice. Dentist T owns 20 percent of the secretarial corporation and accounts for 20 percent of its gross receipts. Dentist W owns 25 percent of the corporation and accounts for 25 percent of its gross receipts.

(ii) Considering Dentist T as a First Service Organization, the secretarial corporation, P, is a B Organization because 20 percent of the gross receipts of the corporation are derived from performing services for Dentist T of a type historically performed by employees of dentists, and 20 percent of the interests in the corporation is owned by Dentist T. Accordingly, Dentist T and the corporation constitute an affiliated service group.

(iii) Considering Dentist W as a First Service Organization, the secretarial corporation, P, is a B Organization because 25 percent of the gross receipts of the corporation are derived from performing services for Dentist W of a type historically performed by employees of dentists, and 25 percent of the interests in the corporation is owned by Dentist W. Accordingly, Dentist W and the corporation constitute an affiliated service group. However, this affiliated service group does not include Dentist T even though the secretarial corporation, P, is a B Organization with respect to both dentists. Thus, there are two affiliated service groups.

Example (2). Multiple B Organizations. (i) Doctor N is incorporated as Corporation N. Secretarial services are provided to Corporation N by Corporation Q. Corporation N owns 20 percent of the interests in the secretarial corporation and provides 20 percent of its gross receipts. Nursing services are provided to Corporation N by Corporation R. Corporation N owns 25 percent of the interests in the nursing corporation and provides 25 percent of its gross receipts.

(ii) Considering Corporation N as a First Service Organization, the secretarial corporation, Q, is a B Organization because 20 percent of the gross receipts of the secretarial corporation, Q, are derived from performing services for Corporation N of a type historically performed by employees of doctors, and 20 percent of the secretarial corporation is owned by the owner of Corporation N. Accordingly, Corporation N and the secretarial corporation, Q, constitute an affiliated service group.

(iii) Considering Corporation N as a First Service Organization, the nursing corporation, R, is a B Organization because 25 percent of the gross receipts of the nursing corporation, R, are derived from performing services for Corporation N of a type historically performed by employees of doctors, and 25 percent of the nursing corporation is owned by the owner of Corporation N. Accordingly, Corporation N and the nursing corporation constitute an affiliated service group.

(iv) For purposes of section 414(m), there will be considered to be one affiliated service group consisting of Corporation N, the secretarial corporation, Q, and the nursing corporation, R.