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In the plan year ended June 30, 1987, respondent determined
that MGMT and MFG were members of an affiliated group. Section
414(m)(5) provides that an affiliated service group includes a
group consisting of an organization the principal business of
which is performing, on a regular and continuing basis,
management functions for one organization and the one
organization for which such management functions are provided.
The parties stipulate that MGMT was established on February 1,
1987, to provide management services to MFG. Respondent
determined MFG and MGMT were members of an affiliated service
group, and petitioner introduced no evidence that would indicate
that the determination was incorrect. Indeed, petitioner even
acknowledges on brief that the record is barren of any evidence
as to the nature of petitioner’s principal business or business
activities. We sustain respondent’s determination that
petitioner and MFG were members of an affiliated service group
for the year ended June 30, 1987. As a consequence, section 410
applies as if MFG and petitioner were a single employer. For
that plan year, only four of six (66.6 percent) of the eligible
employees were covered by the MGMT ESOP. Because less than 70
percent of the combined employees of petitioner and MFG were
participants in the MGMT ESOP, the MGMT ESOP did not satisfy the
requirements of section 410(b).
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