X is the 100% owner of C-Corp business that has employees. X also 60% owner with unrelated Y of LLC business with no employees. Business activities of each entity are unrelated...Y has no connection with C-Corp. C-Corp has an existing SIMPLE. X would like to make a maximum SEP contribution based on share of LLC business income without involving C-Corp employees or violating exclusive test for SIMPLE.

It appears that this could be done in this case as the control group (brother-sister) test (1563 and 414(b)) is not met since X as the 100% owner of C-Corp only owns 60% of LLC, so the 80% test is no met.

I am uncertain how, or if, to apply the 415(h) test where 50% is substituted for 80%. Does this cause the above to fail?

Also, does X's spouse taking a salary at C-Corp pose any problems (community property state)?

Thank you for your thoughts.

415(h) would capture both of these businsses only for purposes of 415 annual addition purposes and then only if they were related as parent-sub as per IRC Section 1563(a). Yours are related as brother-sister, so 415(h) does not apply.

And, your conclusion that they are not otherwise a controlled group for other pension purposes is correct.

But isn't the C-Corp deemed to own the stock owned by its majority owner...thus the C-Corp would own 60% of the LLC in a parent sub analysis...which might trigger 415(h)...no?

There is no attribution TO a corp/p'ship/trust, just FROM a corp/p'ship/trust. So, stock owned by an individual is not treated as owned by a corp, but stock owned by a corp can be treated as stock owned by an individual.

Of course, my initial answer way back assumed that the other 40% of the LLC was not, in some way, attributed to X (such as if his/her kids owned 21% of LLC)