Reg. § 1.414(c)-5 Certain tax-exempt organizations.
(a) Application This section applies to an organization that is exempt from tax under section . The rules of this section only apply for purposes of determining when entities are treated as the same employer for purposes of section , (c), (m), and (o) (including the sections referred to in section , (c), (m), (o), and (t)), and are in addition to the rules otherwise applicable under section , (c), (m), and (o) for determining when entities are treated as the same employer. Except to the extent set forth in , , and of this section, this section does not apply to any church, as defined in section , or any qualified church-controlled organization, as defined in section .
(b) General rule In the case of an organization that is exempt from tax under section (an exempt organization) whose employees participate in a plan, the employer with respect to that plan includes the exempt organization whose employees participate in the plan and any other organization that is under common control with that exempt organization. For this purpose, common control exists between an exempt organization and another organization if at least 80 percent of the directors or trustees of one organization are either representatives of, or directly or indirectly controlled by, the other organization. A trustee or director is treated as a representative of another exempt organization if he or she also is a trustee, director, agent, or employee of the other exempt organization. A trustee or director is controlled by another organization if the other organization has the general power to remove such trustee or director and designate a new trustee or director. Whether a person has the power to remove or designate a trustee or director is based on facts and circumstances. To illustrate the rules of this , if exempt organization A has the power to appoint at least 80 percent of the trustees of exempt organization B (which is the owner of the outstanding shares of corporation C, which is not an exempt organization) and to control at least 80 percent of the directors of exempt organization D, then, under this and , entities A, B, C, and D are treated as the same employer with respect to any plan maintained by A, B, C, or D for purposes of the sections referenced in section , (c), (m), (o), and (t).
(c) Permissive aggregation with entities having a common exempt purpose
(1) General rule For purposes of this section, exempt organizations that maintain a plan to which section applies that covers one or more employees from each organization may treat themselves as under common control for purposes of section (and, thus, as a single employer for all purposes for which section applies) if each of the organizations regularly coordinates their day-to-day exempt activities. For example, an entity that provides a type of emergency relief within one geographic region and another exempt organization that provides that type of emergency relief within another geographic region may treat themselves as under common control if they have a single plan covering employees of both entities and regularly coordinate their day-to-day exempt activities. Similarly, a hospital that is an exempt organization and another exempt organization with which it coordinates the delivery of medical services or medical research may treat themselves as under common control if there is a single plan covering employees of the hospital and employees of the other exempt organization and the coordination is a regular part of their day-to-day exempt activities.
(2) Authority to permit aggregation
(i) For determining when entities are treated as the same employer under section , (c), (m), and (o), the Commissioner may issue rules of general applicability, in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see ), permitting other types of combinations of entities that include exempt organizations to elect to be treated as under common control for one or more specified purposes if:
(A) There are substantial business reasons for maintaining each entity in a separate trust, corporation, or other form; and
(B) Such treatment would be consistent with the anti-abuse standards in of this section.
(ii) For example, this authority might be exercised in any situation in which the organizations are so integrated in their operations as to effectively constitute a single coordinated employer for purposes of section , (c), (m), and (o), including common employee benefit plans.
(d) Permissive disaggregation between qualified church controlled organizations and other entities In the case of a church plan (as defined in section ) to which contributions are made by more than one common law entity, any employer may apply and of this section to those entities that are not a church (as defined in section and ) separately from those entities that are churches. For example, in the case of a group of entities consisting of a church (as defined in section ), a secondary school (that is treated as a church under ), and several nursing homes each of which receives more than 25 percent of its support from fees paid by residents (so that none of them is a qualified church-controlled organization under and section ), the nursing homes may treat themselves as being under common control with each other, but not as being under common control with the church and the school, even though the nursing homes would be under common control with the school and the church under of this section.
(e) Application to certain church entities under section 3121(w)(3) [Reserved]
(f) Anti-abuse rule In any case in which the Commissioner determines that the structure of one or more exempt organizations (which may include an exempt organization and an entity that is not exempt from income tax) or the positions taken by those organizations has the effect of avoiding or evading any requirements imposed under section , , or , or any applicable section (as defined in section ), or any other provision for which section applies, the Commissioner may treat an entity as under common control with the exempt organization.
(g) Examples The provisions of this section are illustrated by the following examples:
Example 1.
(i) Facts. Organization A is a tax-exempt organization under section which owns 80% or more of the total value of all classes of stock of corporation B, which is a for profit organization.
(ii) Conclusion. Under of this section, this section does not alter the rules of section and (c), so that organization A and corporation B are under common control under .
Example 2.
(i) Facts. Organization M is a hospital which is a tax-exempt organization under section and organization N is a medical clinic which is also a tax-exempt organization under section . N is located in a city and M is located in a nearby suburb. There is a history of regular coordination of day-to-day activities between M and N, including periodic transfers of staff, coordination of staff training, common sources of income, and coordination of budget and operational goals. A single section plan covers professional and staff employees of both the hospital and the medical clinic. While a number of members of the board of directors of M are also on the board of directors of N, there is less than 80% overlap in board membership. Both organizations have approximately the same percentage of employees who are highly compensated and have appropriate business reasons for being maintained in separate entities.
(ii) Conclusion. M and N are not under common control under this section, but, under of this section, may chose to treat themselves as under common control, assuming both of them act in a manner that is consistent with that choice for purposes of , sections , , and , and any other applicable section (as defined in section ), or any other provision for which section applies.
Example 3.
(i) Facts. Organizations O and P are each tax-exempt organizations under section . Each organization maintains a qualified plan for its employees, but one of the plans would not satisfy section (or section ) if the organizations were under common control. The two organizations are closely related and, while the organizations have several trustees in common, the common trustees constitute fewer than 80 percent of the trustees of either organization. Organization O has the power to remove any of the trustees of P and to select the slate of replacement nominees.
(ii) Conclusion. Under these facts, pursuant to and of this section, the Commissioner treats the entities as under common control.
(h) Applicable date This section applies for plan years beginning after December 31, 2008.
[T.D. 9340, 72 FR 41158, July 26, 2007; 72 FR 54352, Sept. 25, 2007]