IRS Publication 7005 – If you own or manage a professional services business—such as a medical practice, law firm, accounting firm, consulting company, or management services provider—understanding IRS Publication 7005 is critical for maintaining qualified retirement and employee benefit plan compliance. This official IRS resource provides detailed explanations and worksheets for identifying affiliated service groups (ASGs) under Internal Revenue Code (IRC) Section 414(m).
Download the PDF here: IRS Publication 7005 (Rev. 4-2016).
As of 2026, Publication 7005 (revised April 2016) remains the primary IRS guidance document referenced by practitioners, even though the IRS stopped issuing determination letters on ASG status in 2017. The rules help prevent businesses from separating service-related entities to skirt nondiscrimination, coverage, and contribution limits in 401(k), profit-sharing, pension, and certain welfare plans.
What Is IRS Publication 7005?
Publication 7005, titled Employee Benefit Plans: Explanation No. 10, Affiliated Service Groups, is a specialized IRS checklist and explanatory guide originally developed for IRS Employee Plans (EP) specialists reviewing determination letter applications (Form 5300) during the 2016 Cycle A period.
It includes:
- Worksheet 10 (Form 8388) for ASG analysis.
- Deficiency Checksheet 10 (Form 8400) for qualification issues.
- Step-by-step tests based on IRC §414(m) and proposed regulations under Treas. Reg. §1.414(m)-1 and -2 (issued 1983, never finalized but widely relied upon).
The publication applies the general rule of §414(m)(1): All employees of organizations in an affiliated service group are treated as employed by a single employer for purposes of IRC sections 401(a), 408(k), 408(p), 410, 411, 415, and 416.
Why Affiliated Service Groups Matter for Employee Benefit Plans?
ASG rules were enacted in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) to stop service businesses from fragmenting operations (e.g., a doctor creating a separate billing company) to exclude employees from plan benefits or pass nondiscrimination tests.
Key consequences if your businesses form an ASG:
- Employees across all member organizations must be aggregated for coverage testing (§410(b)), nondiscrimination testing (§401(a)(4), ADP/ACP), contribution and benefit limits (§415, §401(a)(17)), top-heavy rules (§416), and minimum participation.
- Your plan document must explicitly define “employer” to include all ASG members.
- Failure to aggregate can result in plan disqualification, excise taxes, and costly corrections.
Note: ASG rules apply to qualified retirement plans and certain welfare plans (e.g., self-insured medical reimbursement under §105(h)) but generally do not apply to ERISA Title IV PBGC liability or §409A nonqualified deferred compensation.
The Three Types of Affiliated Service Groups Under IRC §414(m)
Publication 7005 and §414(m) recognize three distinct categories. At least one organization must generally be a service organization (principal business is performing services where capital is not a material income-producing factor, or in specific fields like health, law, engineering, accounting, actuarial science, performing arts, consulting, or insurance).
1. A-Organization (A-Org) Groups
An A-Org group consists of a First Service Organization (FSO) plus one or more A-Orgs.
- FSO: A partnership or professional service corporation (PSC) whose principal business is the performance of services.
- A-Org: A service organization that is a shareholder or partner in the FSO (ownership can be de minimis) and either:
- Regularly performs services for the FSO, or
- Is regularly associated with the FSO in performing services for third parties.
Common examples:
- A surgeon’s professional corporation that is a partner in a larger surgical group practice and regularly performs surgeries with the group.
- An attorney’s PC that is a partner in a law firm partnership and shares clients or performs services together.
2. B-Organization (B-Org) Groups
A B-Org group consists of an FSO (or A-Orgs related to that FSO) plus one or more B-Orgs.
A B-Org must meet all three tests:
- Significant portion test (services provided to the FSO/A-Orgs):
- Safe harbor “not significant”: <5% of the organization’s service receipts.
- Deemed significant: ≥10% of total gross receipts.
- Otherwise, facts and circumstances (including 3-year look-back).
- Historically performed test: The services are of a type that, as of December 13, 1980, were customarily performed by employees of organizations in that service field.
- 10% ownership test: Highly compensated employees (HCEs, per §414(q)) of the FSO or A-Orgs own (directly or constructively under §318) at least 10% of the B-Org.
Common examples:
- A law firm partnership whose partners (HCEs) each own 1–2% of a separate billing or paralegal services corporation that derives a significant portion of its revenue from the firm.
3. Management Function Groups (§414(m)(5))
This is the simplest and most ownership-independent type.
- One organization’s principal business is performing management functions for another organization (or group of related organizations) on a regular and continuing basis.
- No FSO or common ownership required.
- Management functions include day-to-day operations oversight, personnel management, compensation planning, financial planning, and similar activities historically performed by employees (as of September 3, 1982, per legislative history).
Facts-and-circumstances factors (per Publication 7005):
- Percentage of gross receipts derived from management services.
- Time spent by personnel on these functions.
- Duration (typically more than one year to show “regular and continuing”).
Common example:
- A management services company whose primary revenue comes from providing ongoing executive management, HR, and operational supervision to a group of biotech or healthcare entities.
Ownership Attribution Rules – Updated by SECURE 2.0
Attribution for A-Orgs and B-Orgs uses IRC §318(a) constructive ownership (spouse, children, grandchildren, parents; proportionate entity-to-owner and owner-to-entity rules).
Important 2024+ update from SECURE 2.0 Act (Section 315):
- Community property laws are disregarded in many cases—spouses’ businesses are treated as separate if there is no direct ownership or management involvement in each other’s entities.
- If spouses are legally separated (divorce or separate maintenance decree), attribution via minor children under age 21 is generally eliminated.
Management groups use the different §267(c) attribution rules (includes siblings, requires 50% thresholds in some cases).
How to Determine If Your Business Is Part of an ASG?
Publication 7005 provides a practical worksheet flow:
- Identify all service or management relationships.
- Test for Management ASG (Part II).
- Test for A-Org relationships (Part III).
- Test for B-Org relationships (Part IV).
- If any “Yes,” aggregate and complete qualification checks (Part V).
Practical tip: Analyze both directions (e.g., does the potential A-Org own part of the FSO and provide regular services?). Consult a qualified ERISA attorney or enrolled actuary for complex structures involving LLCs, multiple entities, or family ownership.
Key Differences: ASG vs. Controlled Group
- Controlled Group (§414(b)/(c)): Based on 80% ownership/control (parent-subsidiary or brother-sister). Applies more broadly, including PBGC liability.
- ASG (§414(m)): Based on service/management relationships; often little or no common ownership required.
- You can have both—aggregate accordingly.
Compliance Steps and Risks in 2026
- Update plan documents to include ASG definition.
- Aggregate compensation, service, and employee data across all members for annual testing.
- Consider a multiple-employer plan (MEP) or pooled employer plan (PEP) structure if appropriate (but note ASG members are treated as a single employer, not separate).
- IRS no longer rules on ASG status in determination letters—self-compliance is essential.
Failing to identify an ASG is one of the most common reasons solo 401(k) plans for professionals get disqualified when the owner has related service entities.
Frequently Asked Questions (FAQs)
Is IRS Publication 7005 still current in 2026?
Yes. It is the most detailed official IRS explanation and checklist available. The core statutory rules in §414(m) have not changed substantively since 2016, aside from the SECURE 2.0 family attribution updates.
Can I have a solo 401(k) if I’m in an ASG?
Generally no—unless there are truly no non-owner employees in any ASG member entity. You will likely need a full ERISA 401(k) covering all aggregated employees.
Do management companies automatically create an ASG?
Only if management is the principal business performed on a regular and continuing basis.
Where can I get help?
Work with an ERISA attorney, CPA, or third-party administrator experienced in controlled group/ASG determinations. Many use Publication 7005 as their starting checklist.
Final Thoughts
IRS Publication 7005 remains an indispensable tool for anyone operating in the professional services sector. Properly identifying and handling affiliated service groups protects your retirement plan’s tax-qualified status and avoids expensive compliance failures.
Action steps today:
- Download Publication 7005 from IRS.gov.
- Map your business entities and service relationships.
- Review family ownership under the post-SECURE 2.0 attribution rules.
- Consult a qualified retirement plan professional for a formal ASG analysis.
Staying compliant with these rules ensures your employee benefit plans continue to deliver the tax advantages and retirement security you and your team deserve.
Sources: IRS Publication 7005 (Rev. 4-2016), IRC §414(m), SECURE 2.0 Act of 2022, proposed Treas. Reg. §1.414(m), and related IRS guidance. This article is for informational purposes only and does not constitute tax or legal advice.