Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  To avoid having to provide health insurance under ObamaCare, my client is thinking about reorganizing his company so that each entity will have fewer than 50 employees.  Will that work?

Answer:  Possibly.

Businesses with fewer than 50 full-time equivalent (FTE) employees are exempt from the provisions of ObamaCare requiring them to provide health insurance to their team.  However, under certain circumstances, employees from separate entities must be counted together for the purpose of the 50 FTE rule.

The rules with regard to aggregating companies are the same rules for determining whether companies need to be aggregated for retirement plan purposes. Code Section 414 provides that all employees of businesses or trades, whether or not incorporated, under common control shall be treated as employed by a single employer for retirement plan purposes.

The intent of Code section 414 is to make it impossible for the pension plan coverage and discrimination rules to be avoided merely by operating a business as a separate corporation, LLC, partnership, or proprietorship, rather than a single entity.  ObamaCare has adopted the rules for aggregating companies for a similar reason—to make it hard for an employer with more than 50 FTEs to avoid providing health insurance.

There are three categories of common controlled groups: brother-sister, parent-subsidiary, and combined groups.

A brother-sister controlled group is two or more businesses in which five or fewer person (a “person” may be an individual, trust or estate) possess ownership interests which are: (a) 80% or more of the ownership of each business, and (b) more than 50% of the ownership of each business taking into account each owner’s identical ownership in each business.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.