ACA and Common Control Issues for Large Employers
Many of our clients are seeking clarification of how controlled group rules apply under the Affordable Care Act (ACA). This is the time to consult with your attorney or CPA to confirm how common control applies to you and/or your affiliated groups to ensure no stone has remained unturned when the IRS comes knocking at your door for an audit.
For example, consider an owner of a company with 35 employees who has a spouse who owns a company with 40 employees. While neither individually, is subject to employer responsibility and reporting requirements under the ACA, they are considered “Common Control” under the IRS 414 guidance. Why? Because of family attribution rules which state if one spouse provides management, consulting or guidance for their spouse, even though there is not common ownership, both would then be subject to all requirements of ACA.
The IRS has defined three types of controlled and affiliated service groups for purposes of the ACA. These rules are used to determine if two or more employers must be grouped together and treated as a single employer for employer shared responsibility provisions, reporting requirements and many other aspects of employee benefit requirements.
- Parent-subsidiary groups where one or more businesses are connected through stock ownership (or chain of corporations) with a common parent corporation and
A. 80% of the stock of each corporation (except the common parent) is owned by one or more corporations in the group, and
B. The parent corporation owns 80% of at least one other corporation.
A. Controlling interest generally means 80% or more of the stock of each corporation (but only if the common owner owns stock in each corporation), and
B. Effective control generally means more than 50% of the stock of each corporation, but only to the extent stock ownership is identical with respect to the corporation.
A. Each organization is a member of either a parent-subsidiary or brother-sister group, and
B. At least one corporation is the common parent of a parent-subsidiary, and is also a member of a brother-sister group.
Family attribution rules apply to brother-sister controlled groups. For parents, adult children, grandparents the family attribution rules only apply when the person to whom the attributions rules apply owns greater than 50% of the business in question. For example, in order for the ownership interests of the parent to be attributed to an adult child, the adult child must own greater than 50% of that business.
For spouses, the ownerships interests of the other spouse are attributed unless there is:
- 1. No direct ownership,
2. No participation in the company, and
3. No more than 50% of business gross income is passive investments.
Examples of how to apply family attribution rules are available in the IRS publication for Controlled and Affiliated Service Groups.
In addition, there are constructive ownership requirements, affiliated service group requirements and more.
These rules are complex and if you are uncertain of any interests in multiple business enterprises and how it impacts the requirements under ACA, you should consult with your CPA or legal counsel. If your firm’s owners or their families own other businesses, please call your J.S. Clark Account Executive to discuss implications of Applicable Large Employer regulations.
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