Affordable Anxiety and Controlled Groups: You Can Run, But You Can’t Hide

Part 1: Parent/Subsidiary Groups

William Johnson, CEO

CIBC of Illinois, Inc.

 

The Affordable Care Act.

It sounds nice on the surface, doesn’t it? Care will be affordable. What’s scary about that? It sounds kind of comforting, actually.

So why it is that business owners and managers are experiencing so much anxiety over something that should be so assuring and transcendently empowering?

Just say it aloud. That may help.

Maybe chant it like a Tibetan Monk.

Oooohmmmmm-bamacare.

Doesn’t that feel better? 

No?

Maybe the anxiety is due to all of the unknowns.

Is your plan compliant? Is it affordable? Does it offer minimum essential benefits?

So how do you plan on finding out? Maybe look under the donuts your broker dropped off today. Is there a map to compliance under the long johns?

No?

Is the benefits fairy going to visit your business one magical night and sprinkle compliance dust all over your health plan?

It would be funny if it wasn’t so critical to your businesses profitability. I hear a lot of business owners profess knee-jerk, semi-political reactions like “I am just going to pay the fines….That’ll teach them”, or “I will just lower the hours to 29 for my part-timers and then I am safe.”

The one I have heard more and more lately is that businesses will split into separate divisions to dodge the 50+ employee threshold for the Shared Responsibility part of the ACA.

While that sounds viable on the surface, you had to know that the IRS is not going to allow a loophole that large to exist…and now we know the final regulations relating to that course of action. The regs are confusing, and like anything relating to the ACA, ever evolving. This article will be the first of three scenarios that speak to how businesses will be classified by the IRS in relation to a Controlled Group and Affiliated Service Group. If you thought you were going to split op your company, or figured that since you had several tax ID numbers for all of your commonly owned subsidiaries you could avoid penalties….think again. There’s a lot more to it than that.

 

What is a controlled group?

To determine their compliance with employee benefit laws, it is important for employers to know whether they are sufficiently linked with one or more businesses to form a controlled group or an affiliated service group.

Under the health care reform law, all employees of a controlled group or an affiliated service group must be counted when determining if an employer is a large employer and tied to the “pay or play mandate.”

A controlled group exists if two or more corporations, trades or businesses (including partnerships and proprietorships) have one of the following relationships:

  • Parent-subsidiary;
  • Brother-sister; or
  • Combination of parent-subsidiary and brother-sister.

Also, constructive ownership….or “attribution rules” apply when determining if a group of organizations is a controlled group. These rules view a person as owning an interest in an organization that is not actually owned by that person.

 

Parent-Subsidiary Controlled Group

A parent-subsidiary controlled group exists when one or more chains of organizations are connected through ownership of a controlling interest with a common parent organization if:

  • A controlling interest in each of the organizations (except the common parent) is owned by one or more of the other organizations in the group; and
  • The common parent organization holds a controlling interest in at least one of the other organizations.

 A controlling interest is ownership of stock having at least 80 percent of total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock. For a partnership (LTD), it refers to ownership of at least 80 percent of the profits interest or capital interest of the partnership.

 Here’s an example.  Billy Bob Corporation owns 90 percent of the stock of Ajax Corporation and 80 percent of the stock of Canary Corporation. Ajax Corporation owns 85 percent of the profits of TarHeel LTD. Billy Bob Corporation is the common parent of a parent-subsidiary controlled group consisting of Billy Bob Corporation, Ajax Corporation, Canary Corporation and TarHeel LTD. Image

(The result would be the same if Billy Bob Corporation, rather than Ajax Corporation, owned the 85 percent interest in TarHeel LTD.)

In next week’s article, we will look at the Brother-Sister Controlled Group scenario.

 

 

 

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About CIBCsolutions

CIBC is a leader in the development and implementation of innovative employee benefits plans. Headquartered an hour south of Chicago in Kankakee, CIBC has branch offices throughout Illinois serving private sector clients, non-profit organizations, governmental agencies and Taft-Hartley health and welfare funds across the Midwest. Over the past two decades, we have creatively addressed the employee benefits needs of hundreds of organizations — some with as few as two employees and others with as many as 25,000 employees around the globe. A relationship with CIBC gives you access to a team of employee benefits experts who are among the most knowledgeable consultants, analysts and account managers in the industry. With more than 75 years of experience, our team commands the respect of insurers and health care providers nationwide.

Posted on March 19, 2013, in Health Care Reform, Uncategorized and tagged , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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