Affiliated Service Group?

Here's the question from the CPA - Owner (age 40) owns 20% of a Real Estate firm (no qualified Plan).  The Other Owners are parents (65%) and someone else unrelated 15%.  I have been told that ALL of the Sales Commissions are paid to the Individuals (about 50 of them) and they are reported on 1099 income.  The CPA would like to set up a SEP with the 40 year old above, and I have been told there is no management function here either.  I just don't think it's passing the sniff test, but I could be wrong.  Any suggestions?

Real estate agents are almost always independent contractors. That's the way that world works. Keep in mind that the SEP sponsor is the Real Estate Firm and not the 40 year old. So the contribution eligibility and contributions apply to anyone that is receiving earned income from the firm.

Also, I'm always nervous when someone says "no qualified plan to speak of."  They either do or they don't.

Real estate agents are generally independent contractors.

Look at from the flip side - I'm an agent working with that agency and all my income is 1099 self-employment income, can I set up my own "solo" plan? I would say yes. 

It's more a question about parents and that the other 15% owner(s) and if there are any employees (W-2) of the agency, like administrative support.

Thanks to you both.  There are some Employees of the firm that are clerical W2 workers.  Since the Person in question is an Owner of the Agency does this change things and the SEP needs to be under the Agency name as Bill indicates above?

55 minutes ago, Jason Grant said:

Thanks to you both.  There are some Employees of the firm that are clerical W2 workers.  Since the Person in question is an Owner of the Agency does this change things and the SEP needs to be under the Agency name as Bill indicates above?

Employers sponsor retirement plans, individuals (outside of IRAs) do not.

The CPA is arguing with me that he can do this, sometimes it's an uphill battle that we fight.  Any more words of wisdom I can share with the CPA?

Tell him to run it past an ERISA atty

25 minutes ago, BG5150 said:

Tell him to run it past an ERISA atty

This is a good idea. Maybe he'll believe that.

Or tell the CPA that you ran it past some very (very!) experienced folks on this board and they all said no (and that CPAs only know enough to be dangerous in this field).  Or look at a SEP application and go through it line by line, noting that it asks for the EMPLOYER info.

Jason Grant, you have supplied insufficient facts to reach a determination, but assuming that the real estate firm makes money from the real estate agent's services, e.g., gets a cut of the commissions that he or she earns, then the real estate agent would be a "leased owner" under some proposed affiliated service group regulations from long ago. Prop. regs. sec. 1.414(o)-1. Those regulations have never been finalized, but unlike most of the other proposed regulations under IRC sec. 414(o), which were withdrawn by the IRS in 1993, they are still proposed with a retroactive effective date.