How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask socrateaser Your Own Question
socrateaser, Lawyer
Category: California Employment Law
Satisfied Customers: 37689
Experience:  Retired (mostly)
Type Your California Employment Law Question Here...
socrateaser is online now
A new question is answered every 9 seconds

In California, wife has a medical practice. She has about 10

This answer was rated:

In California, wife has a medical practice. She has about 10 employees and has a safe-harbor PS/401k plan. Husband manages their real estate properties through a partnership (100% owned by husband, wife and two grown up sons. Sons have this beneficial interest-total35%- via a generation skip irrevocable trust).

Husband's real estate management business employs several employees. It does not have a pension plan of any kind.

Husband does not manage wife's practice and wife does not manage the real estate partnership.

Question: Is the wife required to make pension plan contributions for the employees of the husband's business? I understand that Control Group situation arises here, but please refer to Example 1 on page 13 of the IRS pdf at this link:

In Orange County, California, there are several businesses where one spouse’s business may have a pension plan but the other spouse's business may not have any (assuming there is no sharing of employees or the management). Are they all in trouble with the law?
I'm Fran, and I’m a moderator for this topic.

We have been working with the professionals to try to help you with your question. Sometimes it may take a bit of time to find the right fit. I was checking to see if you had already found your answer or if you still needing assistance from one of the professionals.

Please let me know if you wish to continue waiting or if you would like for us to close your question.Also remember that JustAnswer has a multitude of categories to help you with all your needs from Health, Pets, Computers, Cars, Finance, Law, to Home Improvement, and more.
Customer: replied 3 years ago.
Yes, still waiting for answer. Thank you!

Thank you. We will continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.
Customer: replied 3 years ago.
In your selection of attorney, you should also add a category "Employee Benefits".

Customer service asked me to review your question. It's actually more of a tax law question, becausea while ERISA is found in Title 29 (Labor) of the U.S. Code, Title 26 (Internal Revenue Code) controls the tax-related details.

That said, you ask that I refer to, in my answer.

Page 12 of the Guide provides that a spouse's interest his or her spouse's "brother-sister" business is attributed to that spouse, creating a controlled group of non-corporation businesses, unless there is "no: direct ownership, participation in company, and no more than 50% of business gross income is passive investments. See Treas. Reg. 1.414(c)-4(b)(5)(ii)."

At this point, I feel obliged to mention that, "instructions and other IRS publications are not authoritative sources of federal tax law. Casa de La Jolla Park, Inc. v. Commissioner, 94 T.C. 384, 396 (1990). Taxpayers must look to authoritative sources of Federal tax law such as statutes, regulations, and judicial decisions and not to informal publications provided by the IRS. Zimmerman v. Commissioner, 71 T.C. 367, 371 (1978), aff'd, 614 F.2d 1294 (2d Cir. 1979)." Brombach v. C.I.R., 2012 TC Memo 265 (USTC 9/12/2012).

Thus, while the Guide 704 may be a useful tool, it is not the law of the United States of America, and taxpayers rely upon the Guide at their peril. Caterpillar Tractor Co. v. United States, 589 F. 2d 1040, 1043 (12/13/1978).

Treasury Regulation 1.414(c)-4(b)(5)(ii) (i.e., the law), actually provides as follows: Exception. An individual shall not be considered to own an interest in an organization owned, directly or indirectly, by or for his or her spouse on any day of a taxable year of such organization, provided that each of the following conditions are satisfied with respect to such taxable year:

  • (A) Such individual does not, at any time during such taxable year, own directly any interest in such organization;
  • (B) Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year;
  • (C) Not more than 50 percent of such organization's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and
  • (D) Such interest in such organization is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse's right to dispose of such interest and which run in favor of the individual or the individual's children who have not attained the age of 21 years. The principles of § 1.414(c)-3(d)(6)(i) shall apply in determining whether a condition is a condition described in the preceding sentence.
Applying the above-quoted law to your hypothetical, the medical practice and partnership are part of the same brother-sister controlled group. The reasons for this are: (1) wife owns an interest in the partnership; and (2) substantially all of the gross income from the partnership is passive rental income. This violations subsections (A) and (C) of the Treasury Regulation, therefore this is a controlled group, and an ERISA-qualified retirement plan provided for employees of the medical practice must extend to employees of the partnership (or the partnership must provide a substantially equivalent retirement plan).

Concerning your question about what other businesses do in Orange County, California, I can't comment intelligently. What I can say is that because the only time that the IRS would ever likely audit this set of circumstances, would be if an employee of the partnership were to complain to either the IRS or U.S. Department of Labor Employee Benefits Security Administration (EBSA). And, if the employees of the partnership have no knowledge of the medical practice 401(k) plan, they would have no reason to complaint. Moreover, even if they were aware of the medical practice 401(k), it's unlikely that any of the employees would "connect the dots," because this is a very complicated subject.

It's certainly possible that an IRS investigator, if he/she were to select the husband's and wife's joint tax return for audit, could make the connection that wife owns a medical practice and husband and wife are partners in a real estate investment, both with employees and only one with an ERISA-quaified retirement plan. But, that seems a remote possibility to me.

Nevertheless, based upon your hypothetical and my interpretation of the Treasury Regulations, the employees of the partnership are entitled to be included in the medical practice 401(k) plan (or a substantially equivalent plan).

Please let me know if I can clarify or assist you further.

Hope this helps.
Customer: replied 3 years ago.

If the husband is taking salary and the passive income from the partnership is under 50%, would the answer be different?

Because wife owns a direct interest in the partnership, this violates subparagraph (A). The regulation requires that all four (A-D) subparagraphs must be satisfied to avoid liability. So, wife would have to divest herself of any direct ownership interest in the partnership, as well as having the partnership generate no more than 50% passive gross income (not profit/net).

Wife's divestment would require a "transmutation agreement" (Cal. Family Code 850-852). California is a community property jurisdiction, so without a formal written agreement under which wife consents to the absolute transmutation of her community property interest into husband's separate property, it is not possible to avoid the creation of a controlled group of business organizations -- because wife has an automatic 50% undivided interest in husband's property -- and visa versa.

Hope this helps.

socrateaser, Lawyer
Satisfied Customers: 37689
Experience: Retired (mostly)
socrateaser and 2 other California Employment Law Specialists are ready to help you

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Previous | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK

Meet The Experts:

  • LawTalk



    Satisfied Customers:

    I have 30 years of experience in the practice of law, including employment law and discrimination law.
< Last | Next >
  • LawTalk's Avatar



    Satisfied Customers:

    I have 30 years of experience in the practice of law, including employment law and discrimination law.
  • Tina's Avatar



    Satisfied Customers:

    JD, 17 years experience & recognized by ABA for excellence in employment law.
  • Brandon, Esq.'s Avatar

    Brandon, Esq.


    Satisfied Customers:

    Has received a certificate of recognition from the California State Senate for his outstanding legal service.
  • melissamesq's Avatar



    Satisfied Customers:

    Represent clients to maximum recovery in employment cases.
  • /img/opt/shirt.png Attorney2020's Avatar



    Satisfied Customers:

    I have significant experience in employment law.
  • /img/opt/shirt.png Legal Counsel's Avatar

    Legal Counsel


    Satisfied Customers:

    California Licensed Attorney- 29 years- Wages, Hours, Overtime, Discrimination, Wrongful Termination.

Related California Employment Law Questions