RULES FOR IDENTIFYING CONTROLLED GROUPS OF TAX-EXEMPT ORGANIZATIONS

Correctly identifying the “employer” is critical for many of the provisions applicable to 403(b) and qualified retirement plans. In certain situations, related employers must be treated as a single employer under the Internal Revenue Service’s rules for aggregating controlled groups of organizations, groups of organizations under common control and affiliated service groups. Proper application of the “controlled group rules” will help ensure the favorable tax-qualified status of retirement plans sponsored by tax-exempt organizations.


Tax-exempt organizations are considered to be under common control if at least 80% of the directors or trustees of one organization are either representatives of the other organization or are directly or indirectly controlled by the other organization.


  • A director or trustee is a representative of another organization if she or he is also a director, trustee, agent or employee of the other organization.

  • A director or trustee is controlled by another organization if the other organization has the power to remove that individual and designate a new director or trustee.


An affiliated service group might exist if there is a management organization whose principal business is performing, on a regular and continuing basis, management functions for a tax-exempt organization or a group of related organizations.


These controlled group rules may apply to treat multiple tax-exempt organizations as a single employer or to treat a group of tax-exempt organizations and a non-tax-exempt organization as a single employer.


Different controlled group rules apply to “steeple churches”, qualified church-controlled organizations and governmental entities.


403(b) and qualified retirement plan sponsors should be aware of these rules in the event they might have an impact on their controlled group status. If your organization would like more information regarding this topic or any other employee benefits matters, please do not hesitate to contact us at www.boutwellfay.com.



© Boutwell Fay LLP 2017, All Rights Reserved. This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of April 30, 2017.

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