Hospital Affiliated Service Group and HCE determination

I have a C corporation which is a hospital and employs hospital staff (PAs, non-owner doctors, etc.). I then have a separate partnership which was setup as a billing entity and bills the hospital for services (1099 income); they try and zero out the c corporations income each year by having the partnership (billing entity) bill the C corporation.  The owners of the billing partnership are 22 S corporations (4.55% each) which are owned by 22 individual doctors who provide services to the c corporation hospital. The owners of the C corporation hospital should Theoretically be the 22 owners of the s corporations but they have told me they haven’t been the best at keeping its ownership up to date (I probably need to ask them who the actual owners are) when new partners are admitted to/removed from the partnership. The 22 S corporations and the C corporation are the only entities with employees and are the only entities covered by the plan; the billing partnership isn’t covered by the plan. Here are my questions:

1. Are the S corporations and the billing partnership b-organizations to the C corporation? This would make them an affiliated service group with no A organization, right? 

2. What ownership percentage do I use for determining if the 22 owner doctors are HCEs? 4.55% or 100%? I assume 100% because each of the 22 owner doctors own 100% of their own S corporation and each S corporation participated in the plan. 
 

Because there are no final 414(m) regs, this area is a mess when you get to edge cases (where some decisions by IRS would help) or, potetentially, non-edge cases with complex facts, which I think is what you have. Why do you dismiss A-Org ASG's here? Any of the S corps, assuming the likely 100% ownership by the doc, is attributed the doc's C corp stock (See IRC sec. 318(a)(3)(C)). Each such S corp is thus an owner in and (at least arguably, and depends on facts) regularly associated with the C corp in performing professional services for third parties.

Hey Luke, 

That makes sense; thanks for the response. For determining HCEs and key employees for the greater than 5% ownership test, do you think I should be conservative and say each owner doctor owns 100% and not 4.55%? Fortunately, I think all the doctors are paid over $125,000 so they are HCEs regardless but for key employee status and just in case the doctors drop their wages below the $125,000 level, I just want to know what ownership percentage I should use?

Thanks, 

Will.I.Am, the doctors each own 100% of their S Corps, right? Are those 100%-owned S corps where they get their W-2 compensation, on which plan contributions are based?

Hey Luke, 

Yes you are right. the doctors get their W2 compensation from their s corporations. 

Sorry it took me a while to respond. I am a CPA and we have been really busy with this PPP stuff that has been going on. 

Thanks,