Discussion:Leased Employees - Fringe Benefits
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Discussion Forum Index --> Advanced Tax Questions --> Leased Employees - Fringe Benefits
Discussion Forum Index --> Tax Questions --> Leased Employees - Fringe Benefits
| 4 June 2008 | |
| I have a contractor client that wants to set up a management company to employ his office staff and provide health insurance benefits to, and the existing s-corp would lease them back. The existing S-corp would continue to employ the crews with no bene's. I know leased ee's fall under the fringe benefit rules. Do you know if the common ownership of the two companies require the existing corp to pay bene's to the ee's (crews)?? Obviously they do not want to provide health insurance to "somewhat" seasonal employees. Any thoughts on this matter would be greatly appreciated.
Stacy | |
| June 4, 2008 | |
| Pretty sure it can't be done. I know you can't do what you're suggesting when it's retirement benefits that are under consideration; due to the common ownership (there's a better phrase/descriptor but I'm drawing a blank) | |
| 4 June 2008 | |
| Discrminatory plans are ok as long as the discrimination is employment based, and not ownership based. In addition, to preserve the FICA exemption, the basis for the discrmination should be in writing. | |
| June 4, 2008 | |
| R2 - I have a client who suggested creating a separate S-corp (S#2) for "management" purposes; he would have S#1, the one with all the other employees, pay S#2 for management. He proposed to then set up a retirement plan just for himself thru S#2. The two retirement plan consultants I talked to said nope, not possible.
That was the basis of my response above. I'd appreciate your opinion on my client's situation as he would love to max his retirement without covering employees. Thanks. | |
RoyDaleOne (talk|edits) said: | 4 June 2008 |
| Retirement plans benefits are different than health insurance benefits in respect to the discrimination rules.
Stacy, your questions covers to many fringe benefits to answer correctly with a reasonable short answer. | |
| 4 June 2008 | |
| Specifically health insurance. Wants to pay his management/office ee's but no one else...
Thanks | |
RoyDaleOne (talk|edits) said: | 4 June 2008 |
| See Riley2 comment.
Not a Section 105 plan. | |
| 4 June 2008 | |
| StacyCPA, the retirement plan consultants are right. See Sections 414(b) and 414(c). | |
| June 4, 2008 | |
| R2 - that was me with the retirement plan consultants and I do thank you for your confirmation of the answer I received. Client still doesn't like the answer tho..... | |
| 5 June 2008 | |
| See [Proposed Regulations, EE-111-82] 1987-2 CB 862
Affiliated service group.--For purposes of this subsection, the term "affiliated service group" means a group consisting of a service organization (hereinafter in this paragraph referred to as the "first organization") and one or more of the following: (A) any service organization which-- (i) is a shareholder or partner in the first organization, and (ii) regularly performs services for the first organization or is regularly associated with the first organization in performing services for third persons, and (B) any other organization if-- (i) a significant portion of the business of such organization is the performance of services (for the first organization, for organizations described in subparagraph (A), or for both) of a type historically performed in such service field by employees, and (ii) 10 percent or more of the interests in such organization is held by persons who are highly compensated employees (within the meaning of section 414(q)) of the first organization or an organization described in subparagraph (A). (3) Service organizations.--For purposes of this subsection, the term "service organization" means an organization the principal business of which is the performance of services. (4) Employee benefit requirements.--For purposes of this subsection, the employee benefit requirements listed in this paragraph are-- (A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a) and , (B) sections 408(k), 408(p), 410, 411, 415, and 416. www.irs.gov/ (5) Certain organizations performing management functions.--For purposes of this subsection, the term "affiliated service group" also includes a group consisting of-- (A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and (B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A). For purposes of this paragraph, the term "related organizations" has the same meaning as the term "related persons" when used in section 144(a)(3). (6) Other definitions.--For purposes of this subsection-- (A) Organization defined.--The term "organization" means a corporation, partnership, or other organization. (B) Ownership.--In determining ownership, the principles of section 318(a) shall apply. (o) Regulations.--The Secretary shall prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n)) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) or any requirement under section 457 through the use of-- (1) separate organizations, (2) employee leasing, or (3) other arrangements. The regulations prescribed under subsection (n) shall include provisions to minimize the recordkeeping requirements of subsection (n) in the case of an employer which has no top-heavy plans (within the meaning of section 416(g)) and which uses the services of persons (other than employees) for an insignificant percentage of the employer's total workload. Source - Westlaw Additional Helpful Information An attorney experienced in the area of ERISA should be consulted to determine whether an affiliated service group exists If there is common ownership for both businesses, it could be determined that the businesses are part of a controlled group. However, determining whether an affiliated service group exists is a very complex process. Section 414(m) was enacted to prevent circumvention of the controlled group rules by expanding the idea of control to separate, but affiliated, entities. Proposed Treas. Reg. ยง 1.414(m) provides that all employees of the members of an affiliated service group shall be treated as if a single employer employed them. IRS Worksheet Number 10 (Form 8388) and IRS Explanation Number 10 are designed to aid the specialist in identifying and resolving issues pertaining to affiliated service groups | |
