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Chapter 3 Controlled Groups & ASGs Flashcards

1
Q

Service for any member of a controlled group is treated as service with All members for purpose of eligibility and vesting, true or false?

A

This is true, even if one or more members of the control group do not maintain the plan

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2
Q

Can separate plans maintained by controlled group members be eligible for permissive aggregation to apply coverage testing rules?

A

They sure can

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3
Q

How is coverage testing conducted in controlled group?

A

The workforces of all members are taken into account to identify excludable employees and perform the applicable test

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4
Q

How are highly compensated employees determined in a control group?

A

Compensation from all controlled group members is combined to determine highly compensated employee status as well as key employee status

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5
Q

Are SIMPLEs and SEPs required to acknowledge controlled groups as well?

A

Yes, they are

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6
Q

What happens if a controlled group sponsors more than one 401(k) plan and a participant defer to both plans and exceeds the 402G limit?

A

Both plans could be at risk for disqualification

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7
Q

What’s the difference between the 402G limit and the 401a(30) limit?

A

The 402G limit is an individual limit

The 401 a 30 limit requires that a plan keep elective referrals by an employee under the limit in order to be a qualified plan

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8
Q

Does the 100 employee limit rule under a simple IRA apply to a control group?

A

Yes, it does

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9
Q

What percentage of ownership needs to exist for a parent child controlled group?

A

The parent owns at least 80% of the child

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10
Q

Explain the 50% test for 415 purposes

A

The 50% test does not assert controlled group status, but rather when a company owns 50% or more, but less than 80% in another company; while they are not considered a controlled group, they are treated as one ONLY for the purpose of applying the 415 limits to the plans they maintain

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11
Q

The brother sister control group exists if which two tests are passed?

A

Requires fiber, fewer common owners satisfy the following tests,

80% common control test

50% effective control test

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12
Q

Describe the brother sister 80% common control test

A

The test is satisfied if the combined ownership of the common owners in each business equals or exceeds 80%

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13
Q

How is the 50 Percent Effective Control Test of the Brother-Sister Controlled Group satisfied?

A

Satisfied if the combined identical ownership of the common owners is greater than 50%.

The same 5 or fewer Owners taken into account for the 80% test must be used for the 50 Percent Effective Control Test.

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14
Q

Does this test satisfy the 50 Percent Effective Control Test?

Owner. Corp X. Corp Y. Id-Own
K. 40%. 60%. 40%
M. 50%. 30%. 30%
Combined Identical Ownership: 70%
Total. 90%. 90%
For Common Owners

A

Yes, this satisfies the test as the combined identical ownership EXCEEDS 50%

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15
Q

Does this test satisfy the 50 Percent Effective Control Test?

Owner. Corp X. Corp Y. Id-Own
K. 90%. 10%. 10%
M. 10%. 90%. 10%
Combined Identical Ownership: 20%
Total. 100%. 100%
For Common Owners

A

No, this does not pass the test. The Combined Identical Ownership does not exceed 50%

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16
Q

Is there a Controlled Group if the 50% Effective Control Test is satisfied, but the 80% Common Control Test fails?

A

No- both must be satisfied. This would not be a Controlled Group

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17
Q

Is there a Controlled Group if the 50% Effective Control Test is satisfied, but the 80% Common Control Test Fails?

A

No, this is not a Controlled Group

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18
Q

Does the 50% test for applying limitations under 415 apply to Brother-Sister or Parent-Child relationships?

A

Only the parent child

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19
Q

Suppose a sole proprietor owns a 70% interest in company X, what would happen with regards to 415 aggregation?

A

The sole proprietor owns 100% of the sole proprietorship and 70% of company X, as a result:

This is not a control group.

The relationship is parent child.

The ownership amount by the sole proprietor exceeds the 50% required and earned income from the Sole prop must be combined with corporation X for 415 testing

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20
Q

If a business is the common parent in a parent child group and is also part of a brother sister group, then how are the businesses related?

A

The businesses included in both groups both the parent, child, and businesses in the brother sister constitute one group of businesses

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21
Q

If a child organization in a parent child group is also part of a brother sister group what happens?

A

The brother sister groups connected to the child are not considered part of a controlled group as per the parent, child or organization

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22
Q

What is an overlapping controlled group?

A

When two or more controlled groups have one common member, but they are not one big controlled group

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23
Q

How is coverage and non-discrimination testing handled in overlapping controlled groups?

A

Each control group would independently verify coverage non-discrimination testing. The common member would be responsible to make sure that there’s no violation using the overlap.

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24
Q

At what point during the year is a determination of a control group required?

A

There’s no provision that describes a single date. Rather status changes when:

1) Change in ownership.
2) Change in family relationships
3) Issuance of stock options, which impact attribution

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25
Ownership interest in a corporation is determined through?
Ownership in stock
26
Ownership interest in a partnership is determined through:
Interest is a capital interest or profits interest in the partnership
27
Ownership interest in a sole proprietorship is determined
The sole proprietor is Treated as 100% owner
28
Ownership interest in a business through a trust or estate is determined how
The ownership interest is the actuarial interest in that trust or estate
29
Ownership percentage in a corporation is determined by stock ownership. That is tested two different ways based on stock type. What are they and what is the test?
Stock ownership is satisfied either on the basis of voting power or value. A voting power analysis and value analysis are separately run. A shareholder that owns 80% or more of either stock type would create a control group situation
30
The application of voting power and value in analyzing ownership of stock in the application of controlled ownership scenarios further applies to brother sister. Can the testing method be mixed up so as to use voting power to to determine common ownership and value to determine identical ownership greater than 50%?
Yes, the type of stock ownership (voting power or value based) does not matter when applying multiple tests for brother sister. The test can be interchanged as needed.
31
If the common owners of a company own at least 80% of the combined voting power and their combined identical ownership also based on voting power is less than 51% is this a brother sister arrangement?
No, because it fails the identical ownership test of greater than 50%. The brother sister control group status is established through satisfying both the common ownership test and the identical ownership test.
32
In the example where common owners own at least 80% of combined voting power and their combined identical ownership (based on value) is more than 50%: is this a brother sister control group?
Yes, it is as both the 80% common ownership and 50% identical ownership. Tests were satisfied. It doesn’t matter that different stock types (voting power and value based) were independently used for each test
33
Secure act 2.0 eliminated the community property attribution rule which provides an exception for a spouse. What are the four criteria?
1) spouse does not have direct ownership 2) spouse is not a director, employee & not involved in management 3) 50% or less of gross income is derived from passive investments in business 4) no right of first refusal
34
How does secure act 2.0’s rescission of community property impact children?
Ownership Attribution is no longer extended to minor children Attribution occurs when an Age 21 or older child owns more than 50% of the business
35
How does the secure act attribution rule change also apply when a parent owns an interest in their Son or Daughters company?
The attribution is limited and requires the parent to own more than 50% of their child’s business in order for ownership attribution to occur
36
Suppose Marc owns 27% of his son’s business and his wife Lisa owns 27% of his son’s business. Neither parent directly owns more than 50%. Per the new secure act 2.0 is ownership attributed to the parents?
Yes, Though neither parent independently owns more than 50% of the business each is attributed the others ownership amount which equals a 54% attributed ownership stake.
37
An adult child owns 30% of their dad‘s roofing business. The adult child’s father owns the other 70% of the roofing business. Is the adult child attributed his father’s ownership interest?
No, the adult child does not own more than 50% of the company and is therefore not attributed his father’s interest in the business
38
What court cases caused the creation of the affiliated service group rules? What sections were added to the IRS code as a result? (3 codes)
Garland and Kiddie 414 M, 414 N and 414 O
39
If two or more organizations are part of an affiliated service group, what does this mean for benefit treatment?
They are treated as a single employer when applying certain benefits for employees
40
Is the 50% IRC 415 aggregation rule applicable to brother sister entities? Does this only apply if controlled ownership has been established through the typical 80% rule?
No, it only applies to parent child organizations when the 50% ownership by the parent of the child occurs. No, this is a separate test and a separate barrier. 415 aggregation can be required whether controlled ownership meets the 80% requirement or not.
41
To determine whether any plan maintained by one or more members of an ASG satisfies coverage under IRC 410 B what must take place?
Workforces of all members are taken to do account to identify excludable employees and perform coverage test testing
42
What if the ASG maintains separate plans what is an option?
The separate plans are eligible for permissive, aggregation, and applying the coverage testing
43
What 8 items are evaluated in a ASG group as if they are provided under a single-employer?
Eligibility Vesting Coverage Non-discrimination Top heavy Annual auditions limits Compensation limit Deferrals and catch up
44
In A– org affiliated service group consists of what?
At least one A-organization and a first service organization (FSO)
45
To be part of an A-organization affiliated service group what two criteria must be met?
The A-organization must have ownership interest in the FSO The A-organization must regularly perform services for the FSO, or regularly associate with the FSO in performing services for third parties
46
What must occur if an FSO is a corporation?
To be considered an FSO if the entity is incorporated, then it must be a professional services corporation.
47
Professional service corporations provide professional services. What are some examples?
Accountants Attorney Actuaries Dentist Doctors Engineers Veterinarians
48
How many shareholders are required for the professional services corporation?
At least one shareholder must be licensed or otherwise legally authorized to render the professional services
49
Must, the FSO file itself to be a professional services corporation?
No, the IRS will characterize a corporation as a professional services corporation if it’s satisfies the ASG definition
50
It is not required that both the FSO and the A organization the service organizations, true, or false?
False, it is required
51
What’s the ASG definition of a service organization? two criteria.
1) capital is not a material income producing factor 2) Gross income of the business is principally from: fees, commissions, or Comp for personal services provided
52
Related to capital being a major income producing factor what are some examples of capital?
Inventories, plant, machinery
53
What types of businesses were specifically excluded from the regulations concerning affiliated service groups?
Banks and other financial institutions will not be considered service organizations
54
To be an A-Org, the A-organization must have what regarding the FSO?
An ownership interest in the FSO
55
What IRC attribution rules would apply to determining ownership in an FSO?
IRC 318 app applies to ownership and affiliated service group situations
56
Can the A- organization avoid the ASG designation merely by billing for Services separately from those of the FSO? If not, why?
No If the fees are derived from performing services for the FSO Or From providing services for third-party such as patients in association with the FSO, those billings are still taken into account.
57
A real estate brokerage agency is organized as a partnership. A broker is separately Inc. The brokers corporation is a 5% partner in the agency. The agency is a service organization because its income is primarily derived from fees and commissions for personal services. Is this an A-Org ASG? What if the real estate agency was a corporation rather than a partnership?
Yes- With the FSO real estate agency structured as apartnership, this would be an affiliated service group No- If the FSO real estate agency is structured as a corporation, it would then have to be a professional services corporation AND real estate brokerage services are not included in the regulatory definition of professional services
58
A B-Org ASG consists of what?
At least one B-Org and an FSO
59
The B-Org does not have to be a service organization as defined by A-Org ASGs. To be a B-Org group, the following must be satisfied: (3 criteria)
1) derive a significant portion of its business from the performance of services for the FSO (or A-Org affiliated with the FSO) 2) perform services for the FSO or A-Org that are typically performed by employees 3) owned at least 10% by persons who are HCE of the FSO or A-org
60
Does the B-org ASG rules require FSO structured as corporations to be professional service corporations?
No, that is not required That only applies to A-orgs ASGs
61
The significant portion of business standard for a B-Org is based on what two safe harbor tests, or what additional option?
Safeharbor tests. 1) service receipt Safe Harbor test 2) total receipt, Safeharbor test Additional: Facts and circumstances
62
What is the service receipt safe Harbor test for B-Org ASG determination? How is the test calculated?
The B-Orgs services are not considered significant if receipt percentages is less than 5% The service receipts percentage is the ratio of gross receipts derived from services the B Org performs for the FSO and or the A organizations, to the total gross receipts received by the B-Org from all services provided .
63
What is the total receipt Safeharbor test? For determining B-Org ASG status? What else is required?
The B-Orgs services are considered significant if its total receipt percentage is 10% or more. The ratio of the gross receipts derived from Services, the B-Org perform for the FSO or A-Org The services of the B-org must be historically performed by employees of the FSO or A-org
64
Yonder is in the business of developing and reselling land. Jon is a 20% shareholder in yonder. John also owns 40% of the man, a construction company. Yonder regularly engages Zieman in the development of land owned by yonder. Z man drives at least 10% of its gross receipts from this relationship. Is this an affiliated service group?
Strangely, no. Affiliated service group rules are not applicable here because yonder, the potential FSO, is not a service organization.
65
Ned a CPA, is a 15% owner in an accounting firm. That also has a 20% ownership stake in Wordex, a company which provides clerical services. The accounting firm uses Wordex during heavy workload periods. Wordex derives at least 10% of its gross receipts from this relationship. Is this an affiliated service group?
Yes, it is The accounting firm is the FSO. Word X is a B organization with respect to the FSO because it performs services that are historically performed by employees
66
An organization is part of two separate ASG’s if it is in A-Org or B-Org to:
Two or more different FSO’s
67
A management ASG group consists of what?
A management organization, and a recipient organization
68
Besides, the group would also must be present, specific to work performed?
The management principal business must be the performance of managerial functions on a regular and continuing basis for the recipient
69
What is the ownership requirement between themanagement org and the recipient org?
There is no ownership test and no ownership required
70
Tom is a former Executive with Granger. Tom owns a management, consulting, firm, Ladders. Tom’s sole client is Granger. Tom Continues to provide Management Services for Granger through Ladders. Is this an affiliated service group?
Yes, Using the managerial ASG definition. This is true, even though there is no common ownership between Granger and Ladders.
71
In our example where we looked at company Granger and evaluated that it had an affiliated service group with ladders. What would happen if Ladders had three other clients for which it provided managerial services to? Now Granger only constitutes 25% of its total receipts. Is it still an affiliated service group?
No. Ladders does not derive its principle business under any one of these relationships and therefore is not in a managerial affiliated service group with any of these.
72
In an affiliated service group when there is more than one qualified Plan present, how are the plans test tested for coverage and non-discrimination?
Each component of each plan has to be tested separately.
73
For purposes of affiliated service group attribution, using IRC 318, and if an individual is treated as owning any interest that is owned by the individuals:
Spouse Children, Grandchildren, Parents
74
Do the spousal exceptions that are provided for under the secure act 2.0 and found inside a IRC 1563 for controlled group determination also extend to affiliated service group attribution
No, they do not. There is no spousal exception.
75
Jason and Lisa have three children. Each child is also treated as owning 100% of the company. Is this double attribution?
No
76
Under IRC 318 What happens with attribution between a grandchild owning a business to the grandparent? What happens with attribution between a grandparent to a grandchild?
The grandchild’s business interest is attributed to the grandparent There is no attribution from the grandparent to the grandchild
77
Generally, if a parent company owns some or all of a subsidiary, that ownership is attributed proportionally to individuals who are owners of the parent organization. While the parents ownership is always attributable to the owners, if the parent is a: (four items) What happens in a true corporation or a company that’s tax as a corporation?
Sole proprietorship, partnership, S Corp., LLC Attribution is made to corporate shareholders only if they own 50% or more of the parent corporation
78
How is a trust ownership of a company attributed in a controlled group?
A trust ownership of a company is attributed to both the trusts creator called the Grantor , and to the trusts beneficiary
79
What happens if a person owns at least 50% of a corporation but also has an ownership stake and another entity?
Because of the 50% attribution requirement has been met, the owner ownership, and the other entity is attributed to the corporation
80
A parent subsidiary controlled group exists if the companies are connected through at least 50% stock ownership, true or false?
False. The company must be connected by at least 80% of stock ownership to satisfy the parent subsidiary requirements
81
Brother sister controlled group exists of either the common ownership or the effective controlled test is satisfied, true or false?
False. Both the common ownership and the effective controlled test must be satisfied for a brother sister relationship to exist
82
Attribution between spouses does not apply if the couple is childless, true or false?
False. The presence of children has no bearing on spousal attribution
83
Attribution under 318 from a parent to a minor child only applies if the parent owns more than 50% of the business, true or false
False. There is no percentage ownership requirement for attribution from a parent to a child. This question confuses the 50% ownership required in a partnership that’s taxed as a corporation or a corporation attribution
84
Company A and company B are controlled Group. The workforces of both companies are considered when testing each companies plan for coverage require requirement, true or false?
True
85
A financial institution is considered a service organization because it provides a service of lending money, true or false?
False. Banks and financial institutions are conveniently excluded from the definition of service organizations for professional service organization designation of an FSO
86
In order for an a – org group to exist the a – organization must have at least a 10% ownership interest in the FSO, true or false?
False. there is no minimum percentage requirement of ownership an A-Org must have in an FSO.
87
If an FSO is a corporation. It always must be a professional services corporation for affiliated service group rules, true or false?
False That only applies to A-Org ASGs, not to B-Org ASGs.
88
If two or more entities are deemed to be an affiliated service group, they do not need to be tested together for top heavy purposes, as long as each is not top heavy on its own, true or false?
False plans must be aggregated for top-heavy purposes
89
If two or more entities are deemed to be an affiliated service group and each entity sponsors its own plan each plan must pass coverage, true or false?
True
90
For purposes of determining any type of affiliated service group, ownership is attributed from grandchild grandparent, but not from grandparent to grandchild, true or false?
True

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