CYCLE A Submission Period – 02/01/2016 – 01/31/2017

Employee                                                   Explanation No. 10

Benefit                                                    Affiliated 

                                                           Service Group
Plans

Note:                                                      Worksheet Number 10 (Form 8388) and this explanation are 
                                                           designed to aid the specialist in identifying and resolving is-
Plans  submitted during  the Cycle E submission  period    sues pertaining to affiliated service groups as defined under 
Plans submitted during  the Cycle  A submission  period    section 414(m) of the Code.
must satisfy the applicable changes in plan qualification 
requirements listed in Section IV of Notice 2015-84, 2015- The general rule of section 414(m) is that employees of em-
52 I.R.B. 1 (the 2015 Cumulative List).                    ployers that are members of an affiliated service group are 
                                                           considered to be employed by a single employer for purposes 
This publication contains copies of:                       of certain provisions of section 401(a), and sections 408(k), 
Form 8388, Worksheet 10                                    408(p), 410, 411, 415 and 416.
Form 8400, Deficiency Checksheet 10

These forms are included as examples only
and should not be completed and returned 
to the Internal Revenue Service.

                                                           The technical principles in this publication may be changed 
                                                           by future regulations or guidelines.

Publication 7005 (Rev. 4-2016)  Catalog Number 48752V  Department of the Treasury  Internal Revenue Service  www.irs.gov

Page 2                                                                    CYCLE A Submission Period – 02/01/2016 – 01/31/2017

I. Required Information

If the information described in section 5.01 of Rev. Proc. 85-43, 1985-2 C.B. 501, has not been submitted with the application and there 
are indications that the plan may be subject to section 414(m), the information should be requested. If it is not submitted within a rea-
sonable period of time, this worksheet should not be completed. If the plan is otherwise qualified, a favorable determination letter should 
be issued without a caveat addressing section 414(m). See IRM 7.11.1.26. In such instances, the employer may not rely on the letter for 
qualification of the plan under section 414(m). 

II. Management Organizations

Line a. Under section 414(m)(5) of the Code, two or more organizations comprise an affiliated service group if the principal business of 
one of the organizations is performing management functions on a regular and continuing basis for the other organization(s) (or organiza-
tions related to the other organization (s)). Note that there is no requirement of common ownership of the managing and managed entities, 
unlike organizations affiliated under other provisions of section 414(m). 

Whether an organization’s principal business is performing management functions on a regular and continuing basis for another organiza-
tion is essentially a facts and circumstances question. Factors to be considered in making this determination could include the percentage 
of the organization’s gross receipts that are derived from performing management functions for the other organization and the amount 
of time individuals actually spend performing these functions. A sufficient period of time (e.g., more than one year) must be considered 
to ensure that the “regular and continuing basis” condition is met. Of course, the particular activities and services that the organization 
provides for the other organization must also be considered in order to determine that these activities and services are in the nature of 
management functions. 

Line b. A affiliated service group under section 414(m)(5) will not exist unless the management functions performed by the one organi  -
zation for the other organization are functions that have historically been performed by employees, including partners or sole proprietors. 
Management functions will be considered to be of a type historically performed by employees if, in other organizations in the same busi-
ness field, it is not unusual for such functions to have been performed by employees. Conference Committee Report on the Tax Equity 
and Fiscal Responsibility Act of 1982. 

III. A Organizations

Lines a., b., c., and d. Under section 414(m)(2) of the Code, an organization must be a service organization in order to be considered a 
“First Service Organization” (FSO) or an A Organization (A-Org.) within the meaning of section 414(m)(2)(A). The term “service organi-
zation” is defined in section 1.414(m)-2(f) of the proposed regulations. It includes organizations in which capital is not a material income  
producing factor and organizations engaged in one of the specific service fields listed in section 1.414(m)-2(f)(2) regardless of whether 
capital is a material income-producing factor. 

For purposes of the A-Org. test only, an FSO must be either a partnership or a professional service corporation. See section 1.414(m)-1(c) 
of the proposed regulations. If the A-Org is a 
shareholder or partner in the FSO, and either regularly performs services for the FSO or is regularly associated with the FSO in providing 
services to third parties, then the organizations are an affiliated service group under section 414(m)(2) of the Code. See section 1.414(m)-
2(b) of the proposed regulations. 

IV. B Organizations 

Line a. In order to be a B Organization, a significant portion of the organization’s business must be the performance of services for an 
FSO, for one or more A-Orgs. determined with respect to the FSO, or for both. The services must be of a type historically performed by 
employees in the service field of the FSO or the A-Orgs. Note that an organization may be a B-Org. even though it does not qualify as a 
service organization within the meaning of section 414(m)(3) of the Code. See section 1.414(m)-2(c) of the proposed regulations. 

Line b. In addition to satisfying Part IV.a. of the worksheet, 10 percent or more of the interests in the potential B-Org. must be held by 
persons who are highly compensated employees (within the meaning of section 414(q)) of a potential FSO or A-Org. 

Line c. The test for services that are of the type “historically performed” by employees in that service field is found in section 1.414(m)-
2(c)(3) of the proposed regulations. It is, essentially, a facts and circumstances question stating that a service is deemed historically 
performed if, as of December 13, 1980, it was not unusual for employees to perform such functions. 

Line d. The services performed by the B-Org. must be “significant.” A service receipts safe harbor test in the proposed regulations pro-
vides that if less than five percent of all receipts derived from an organization’s performance of services originates with the potential FSO 
or A-Orgs. of the potential FSO, then such amounts are not considered a “significant portion” of the business of the potential B-Org. within 
the meaning of section 414(m)(2)(B)(i) of the Code. See section 1.414(m)- 2(c)(2)(ii) of the proposed regulations. 

Line e. If 10 percent or more of a potential B-Org.’s total receipts from all sources are derived from the potential FSO, or A-Orgs. of the 
potential FSO, that percentage of gross receipts is deemed significant under section 414(m)(2)(B)(i) of the Code. See section 1.414(m)-
2(c)(2)(iii) of the proposed regulations. 

Page 3                                CYCLE A Submission Period – 02/01/2016 – 01/31/2017

Line f. If more than five percent of service receipts but less than 10 percent of gross receipts of a potential B-Org. are derived from a 
potential FSO and its A-Orgs., then the determination of whether the amount is a significant portion of the potential B-Org.’s business is 
based on the relevant facts and circumstances. See section 1.414(m)-2(c)(2)(i) of the proposed regulations. 

V. Qualification Requirements

If the answer was “yes” in Part II.b., Part III.d., or Part  IV.e. or f., the organizations to which the “yes” answers apply comprise one or 
more affiliated service groups. The questions in Part V of the worksheet pertain to the qualified status of the plans of organizations that 
are affiliated service group members. 

                                                                              CYCLE A Submission Period – 02/01/2016 – 01/31/2017
                                              Employee Benefit Plan 

                                    Affiliated Service Groups 
                             (Worksheet Number 10 – Determination of Qualification)
Instructions – All items must be completed. Completed unless otherwise indicated. In the absence of further instructions, a “Yes” 
answer generally indicates a favorable conclusion is warranted while a “No: answer indicates a problem exists. Please use the space 
on the worksheet to explain any “no” answer. (Numbers in brackets refer to EDS paragraph numbers.) See Publication 7005, 
Explanation 10, for guidance in completing this form.
The technical principles in this worksheet may be changed by future regulations or guidelines
Name of plan

I. Required Information                                                                      Plan Reference                    Yes No N/A
a. Has the employer submitted all the information indicated in section 5.01 of Rev. 
Proc. 85-43 that is needed for a determination as to the effect of section 401(m) 
upon the plan’s qualified status? (If the answer is “No,” do not complete the 
remainder of this worksheet.) [1002]
II. Management Organizations                                                                 Plan Reference                    Yes No N/A
a. Is the principal business of one of the organizations involved in this request the 
performance of management functions on a regular and continuing basis for 
another organization? (“Another organization” includes one or more organizations 
related within the meaning of section 144(a)(3) of the Code.) (If the answer is “No,” 
proceed to Part III.) [1011] 
b. Is the management function being performed in this case the type historically 
performed by employees of organizations in the same line of business as the 
managed entity? (If the answer is “Yes,” the organization and any organizations 
receiving the services are members of an affiliated service group, and Part V of this 
worksheet must be completed. If the answer is “No,” there is no affiliated service 
group formed by reason of section 414(m)(5) of the Code; proceed to Part III.) 
[1012]
III. A Organizations                                                                         Plan Reference                    Yes No N/A
a. Are at least two members of the potential affiliated service group service 
organizations? (If the answer is “No,” proceed to Part IV.) [1021]
b. Is at least one member of the potential affiliated service group a partnership or 
professional service corporation that is a service organization (potential First 
Service Organization, or FSO)? (If the answer is “No,” proceed to Part IV.) [1022]
c. Is at least one of the service organizations that are members of the potential 
affiliated service group a shareholder or partner in the potential FSO? (If the answer 
is “No,” proceed to Part IV.) [1023]
d. Does the service organization referred to in III.c that is a shareholder or partner in the potential FSO either: 
(i) Regularly perform services for the potential FSO, or
(ii) Regularly associate with the potential FSO in providing services to third parties? 
     [1024]
(If the answer to either (i) or (ii) is “Yes,” an affiliated service group is formed and Part V of this worksheet must be completed. The partnership or 
professional service corporation referred to in III.b is an FSO and the service organization referred to in III.d is an A Org.)
IV. B Organizations                                                                          Plan Reference                    Yes No N/A
This form is provided as an example only and should not be 
a. Is one or more of the service organizations (potential FSOs and/or A-Orgs.) 
receiving services from another organization that is also a potential member of the 
     completed or returned to the Internal Revenue Service.
affiliated service group and not an FSO or A-Org? (If the answer is “No,” proceed to 
Part V.) [1031]
b. Do highly compensated employees of the potential FSO or A-Org. own, actually or 
constructively, in the aggregate, 10 percent or more of one or more organizations 
from which the potential FSO or A-Org. receives services? (If the answer is “No,” do 
not complete the remainder of Part IV.) [1044]
Form 8388 (Rev. 4-2016) Catalog Number 62580V           publish.no.irs.gov            Department of the Treasury - Internal Revenue Service

Page 2                                                                    CYCLE A Submission Period – 02/01/2016 – 01/31/2017
IV. B Organizations - Continued                                                            Plan Reference      Yes No N/A
c. Are the services performed for the potential FSO, or any A-Org. of that organization, 
the type of services historically performed by employees in the service field of the 
FSO and/or A-Org.? (If the answer is “No” for any potential B-Org., do not complete 
the remainder of Part IV for that organization.) [1033]
d. Is the potential B-Org’s Service Receipts Percentage at least 5 percent? (Do not 
complete the remainder of Part IV for any potential B-Org for which the answer is 
“No.”) [1034]
e. Is the potential B-Org’s Total Receipts Percentage 10 percent or more? (If the 
answer is “Yes,” the organization is a B-Org and Part V of this worksheet must be 
completed. If the answer is “No” for any organization being considered, complete 
question f.) [1035]
f.  If the receipts from services provided to the potential FSO or its A-Orgs are equal to 
or greater than 5 percent of the potential B-Org’s total receipts from services, but 
less than 10 percent of total receipts, then, based on facts and circumstances, is 
that portion of the services rendered to the potential FSO a significant portion of 
total services rendered by the potential B-Org? [1036]
V. Qualification Requirements                                                              Plan Reference      Yes No N/A
(If the answer is “Yes” in Part II.b., Part II.d., or Part IV.e. or f., the organizations to which the “Yes” answers apply comprise one or more affiliated 
service groups and the questions in this part must also be answered.)
a. Does the plan’s definition of “employer” include all employers that are members of 
the affiliated service group or groups of which the employer is a member? [1041]
b. Considering all employees of all organizations that are members of an affiliated service group with the applicant (pursuant to Parts 
II, III, or IV.e. and f. above) as employed by the employer, does the plan of each applicant organization meet the requirements of 
sections: [1043]
(i) 401(a)(3)
(ii) 401(a)(5)
(iii) 401(a)(7)
(iv) 401(a)(16)
(v) 401(a)(17)
(vi) 401(a)(26)
(vii) 410
(viii) 411
(ix) 415
(x) 416
(xi) 408(k)

This form is provided as an example only and should not be 

       completed or returned to the Internal Revenue Service.

Form 8388 (Rev. 4-2016) Catalog Number 62580V          publish.no.irs.gov         Department of the Treasury - Internal Revenue Service

                                                                            CYCLE A Submission Period – 02/01/2016 – 01/31/2017
                              Employee Plan Deficiency Checksheet
                                     Attachment Number 10
                                            Affiliated Service Groups
For IRS Use                   Please furnish the amendment(s) requested in the section(s) checked below.
     1002   Your application contains information indicating that your organization may be a member of an affiliated service 
     I.a.   group within the meaning of section 414(m) of the Internal Revenue Code. To obtain a full determination on this 
            issue, send all information indicated in section 5.01 of Rev. Proc. 85-43, 1985-2 C.B. 501. Specifically, the 
            information requested in section                     is needed. 
     1011   Send information showing, on the basis of all relevant facts and circumstances, whether or not the principal 
     II.a.  business of any of the organizations is the performance of management services, on a regular and continuing 
            basis, for another organization (or organization related to the other organization). IRC section 414(m)(5)(A).
     1012   Show whether or not the management functions performed by the management organization for the managed 
     II.b.  entity are the type that, in the business field of the managed entity, have historically been performed by 
            employees, including partners and sole proprietors. See Conference Committee Report on the Tax Equity and 
            Fiscal Responsibility Act of 1982.
     1021   Show whether or not one or more of the organizations in the potential affiliated service group is a service 
     III.a. organization. (Also discussed in section 1.414(m)-2(f) of the proposed regulations.)
     1022   Show whether or not one or more members of the potential affiliated service group is a partnership or 
     III.b. professional service corporation that is a service organization. IRC section 414(m)(2)(A).
     1023   Show whether or not a partnership or professional service corporation that is a service organization and a 
     III.c. member of the potential affiliated service group is owned, in whole or in part, by one or more other members of 
            the potential affiliated service group that is also a service organization. IRC section 414(m)(2)(A).
     1024   Show whether any of the shareholders or partners that are service organizations either: (i) regularly perform 
     III.d. services for another organization in which they own an interest, or (ii) regularly associate with that organization 
            in providing services to third parties. IRC section 414(m)(2)(A).
     1031   Please show whether one or more of the service organizations (a potential First Service Organization or a 
     IV.a.  potential A Organization) in the potential affiliated service group receives service from another organization that 
            is also a potential member of the affiliated service group and not an A Organization. IRC section 414(m)(2)(B). 
            (Also discussed in section 1.414(m)-2(b) and (c) of the proposed regulations.)
     1044   Show whether or not highly compensated employees of a potential First Service Organization own, actually or 
     IV.b.  constructively, in the aggregate, 10 percent or more of one or more organizations from which the potential First 
            Service Organization receives services. IRC sections 414(m)(2)(B) and 318(a). (Also discussed in section 1.414
            (m)-2(c) of the proposed regulations.)
     1033   Show whether or not, as of December 13, 1980, it was or was not unusual for employees of organizations in the 
     IV.c.  service field of the potential First Service Organization, and any A Organization associated with that potential 
            First Service Organization, to perform the services now received by the organization from another entity. 
            (Discussed in section 1.414(m)-2(c)(3) of the proposed regulations.)
     1034   Show whether at least 5 percent of all receipts of the potential B Organization derived from performing service 
     IV.d.  for others are earned performing service for the potential First Service Organization (FSO) and any A 
            Organization of the potential FSO. (Discussed in section 1.414(m)-2(c)(2)(ii) of the proposed regulations.)
     1035   Show whether or not 10 percent or more of the potential B Organization's gross receipts are derived from 
     IV.e.  performing service for the potential First Service Organization or its A Organizations. (Discussed in section 
            1.414(m)-2(c)(2)(iii) of the proposed regulations.)
     1036   Based on all relevant facts and circumstances, demonstrate whether or not the portion of the services rendered 
     IV.f.  to the potential First Service Organization and/or its A Organization is a significant portion of the total services 
            rendered by the potential B Organization. Proposed Regs. section 1.414(m)-2(c)(2)(i).
This form is provided as an example only and should not be 
     1041   Section            of the plan, defining employer, should be amended to include all employers that are members 
     completedV.a. of the affiliated serviceorgroupreturnedor groups of which the employertoisthea member.InternalIRC section 414(m)(1). Revenue Service.
     1043   Show that the plan of each applicant organization meets the requirements of Internal Revenue Code sections 
     V.b.   401(a)(3), (4), (7), (16), (17) and (26) and sections 408(k), 408(p), 410, 411, 415 and 416, considering all 
            employees of all organizations that are members of an affiliated service group with the applicant as employed 
            by the same employer. IRC section 414(m)(4).

Form 8400 (Rev. 4-2016) Catalog Number 63080A         publish.no.irs.gov          Department of the Treasury - Internal Revenue Service