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While the claim about not having common law employees has been argued to try to avoid PBGC jurisdiction in the past, the PBGC has successfully fought off that argument. The PBGC states ERISA § 4021(a) (1) extends Title
IV coverage to a plan which is an employee pension benefit plan as define d in ERISA § 3(2) which meets, in practice, the applicable Internal Revenue Code ("IRC" or "Code") requirements specified in § 4021 (a)(1). However, ERISA § 4021 (a)(2) also extends Titl e IV coverage to any plan which "is, or h as been determined by the Secretary of th e Treasury to be, a plan described in [IRC § 401(a)] . . . ," regardless of whether such plan is an " employee benefit pension plan" with in the meaning of ERISA § 3(2) .
The PBGC and courts hold that ERISA § 40 21(b)(9) sets forth an exclusion of plans which are "established and maintained exclusively for ' substantial owners' as defined in section 402 2(b )(6) [now 402 2(b)(5 )]." However, ER ISA § 4022 (b)(5) defines a substantial owner as an individual who -- . . . (ii) in the case of a partnership, is a partner who owns, directly or indirectly, more than 10 percent of either the capita l interest or the profits interest s in such partnership, or (iii) in the case of a corporation, owns, directly or in directly, more than 10 percent in value of either the voting stock of that corporation or all the stock of that corporation. To interpret ERISA § 4021(a) as excluding all plans which consist entirely of partners would be to expand this exclusion beyond Congress' chosen requirement of a minimum 10 percent ownership
So, in order to fight PBGC on their audit you have to prove that your partners have the more than 10% ownership and if you can do that, your next step if the PBGC denies your proof would be that you have to file suit in court to get the court to issue a declaratory judgment
to stop the audit.