Beals Bros. Management Corp. - Page 8

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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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