A and B are each 100% shareholder employees in their respective S-corps. A has regular full-time employees,B does not. A and B are also 50/50 members of an LLC. All are engaged in computer/software consulting and service. A's employees spend approximately 25% of their time working on projects for the LLC's customers, for which A bills the LLC. A sponsors a profit sharing plan covering himself and his employees. B derives 50-75% of his income from the LLC,paid to his corporation.A,B, and LLC do not form a controlled group. Is there an affiliated service group somewhere in the pile? Can B sponsor a plan in his corporation that will only benefit him?

Since B is a 100% shareholder of A and has a 50/50 interest in the LLC, I believe that he/she would be considered to be a "common owner" for purposes of Treas. Reg. 1.414(m)-2©(4)(v).

If he/she (B) sponsored a separate retirement plan, they would all be considered as a single employer.

The regulations under 414(m) mainly preface law and medical partnerships as examples. However, I believe the same tax principles would come into play b/w an LLC and a sub S corp for purposes of the constructive ownership rules of Code Section 318(a).

earthy

earthy-thankyou for the response.I think you're saying that there is an affiliated service group relationship between B and the LLC.If so,what are the practical implications? Neither B nor LLC have any employees,unless you consider the employees from A who sometimes are working on LLC projects to be LLC employees. If there are no employees in the B-LLC group,then that would seem to allow B to establish a plan covering only himself. Agree or not?

Yes, I believe B and the LLC form an ASG. Since some employees of A perform services for the LLC (and hence indirectly for b), if B sponsors his own plan, than A, B, and the LLC would be treated as "related groups" for purposes of the 414(m) rules. If B sponsors a separate profit sharing plan, than B may have trouble meeting the 410(a) rules, the 410(B) rules, and the 415 rules in adopting a new plan under the single employer rule. This plan would have to take into account some (perhaps all) of A's employees.

I wonder if the Service would view this single employer as a per se "combined group" since the employees are all essentially involved in the same functions in this trade or business?

Just a thought. It would be good to see some attorney input on this issue and some case law that follows the Kiddie Garland line of case law.

earthy

You might want to consider getting Derrin Watson's book. "Who's the Employer." Best reference source I've ever seen for CG/AFSG
questions.