A profit sharing plan is co-sponsored by a 100%-owned corporation and sole proprietor (the same person is the owner and the sole proprietor). The corporation has about 10 common law employees, and there are no common law employees in the sole proprietorship. The owner makes $150,000 in W-2 from the corporation, and about $170,000 in earned income prior to any deductions from the sole proprietorship.

Is there any guidance as to what percentage of the owner's contribution of $45,000 can be or should be deducted by the sole proprietorship? Or can I deduct the max 404 from the sole proprietorship, and the remaining from the corporation? Or put another way is there any regulatory restriction on how to aggregate compensation?

I appreciate your input.

I, too, have come across such a situation only to find a lack of guidance. The largest consensus that we found was that it would be hard to argue with prorating every part of the calculation according to the applicable compensations from each company, including issues regarding IRC 401(a)(17), 415© and deductibility by company. It may be somewhat unwieldly to do this, especially on the sole prop side, but doing it this way would seem to minimize the possibility of the sponsor being accused of manipulation should the plan be audited.