A controlled group, in the context of employee benefits and taxation, refers to a group of businesses that are closely connected and treated as a single entity for certain legal and regulatory purposes. When multiple businesses are considered part of a controlled group, they are subject to certain rules and requirements that apply to the group as a whole, rather than treating each business separately. The concept of a controlled group is primarily relevant in the areas of employee benefits, retirement plans, and taxation, particularly in the United States.

Here are some key points to understand about controlled groups:

1. Definition: A controlled group generally consists of a parent company and one or more subsidiary companies or businesses that meet certain criteria. The criteria typically involve ownership and control relationships between the businesses. For example, a controlled group may exist if one business owns a significant percentage (usually 80% or more) of the voting stock or ownership interest in another business.

2. Benefits of Grouping: Treating multiple businesses as a controlled group has implications for various aspects, including employee benefits and retirement plans. It helps prevent owners from segregating employees into separate companies to avoid providing benefits to all eligible employees. By treating them as a single entity, the benefits and retirement plans can cover all eligible employees, regardless of the specific business they work for within the controlled group.

3. Retirement Plans: A controlled group may have implications for retirement plans, such as 401(k) plans. When multiple businesses are part of a controlled group, the employees of those businesses are considered collectively for determining plan eligibility, contribution limits, and other plan provisions. It ensures that employees working for different businesses within the controlled group are treated fairly and consistently in terms of retirement plan benefits.

4. Taxation: Controlled groups also have tax implications. For example, in the United States, businesses within a controlled group are generally treated as a single entity for tax purposes. This means they must file a consolidated tax return and may have shared tax liability and benefits. The Internal Revenue Service (IRS) has specific rules to determine whether a controlled group exists for tax purposes.

5. Compliance and Regulations: Being part of a controlled group can subject businesses to additional compliance requirements and regulations. For instance, certain employee benefit regulations, such as nondiscrimination testing for retirement plans, apply to the entire controlled group as a whole, rather than each individual business separately.

It’s important for businesses that are part of a controlled group to understand their obligations, responsibilities, and potential benefits associated with the controlled group status. Consulting with legal and tax professionals can provide guidance on how to navigate the rules and requirements specific to controlled groups.