AI can help organize the records and relationships used in an affiliated service group (ASG) or controlled-group analysis, but it cannot make the legal determination on its own. Under Internal Revenue Code section 414, the result depends on verified ownership, attribution, service, management, entity and plan facts, applied to current statutes and regulations. Treat an AI system as a structured fact-gathering and issue-spotting aid; have a qualified benefits or tax professional review the facts, assumptions and legal conclusion.
Why these determinations matter
Sections 414(b), 414(c) and 414(m) can require several legally separate businesses to be treated as one employer for specified employee-benefit rules. That aggregation can affect who must be counted for retirement-plan coverage and nondiscrimination testing, how eligibility is determined, and whether employees of another entity must be included in an employer’s analysis. The exact consequence depends on the requirement at issue and on statutory exceptions.
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The analysis is not simply an ownership lookup. A conventional controlled-group review focuses on corporate or trade-or-business control, while an ASG review can reach service and management relationships even when the entities do not satisfy the ownership or control needed for a controlled group. A reliable process therefore examines both paths instead of assuming that a clean ownership chart ends the inquiry.
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Controlled groups under sections 414(b) and 414(c)
Section 414(b) generally treats employees of corporations in a controlled group as employed by one employer for the employee-benefit provisions listed in the statute. It uses the controlled-group meaning in section 1563, with statutory modifications. Section 414(c) applies similar single-employer treatment to trades or businesses under common control, whether incorporated or unincorporated.
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IRS Employee Plans training materials describe three familiar controlled-group patterns:
- Parent-subsidiary: one corporation has the required level of ownership in another corporation.
- Brother-sister: the same ownership group holds the required interests in two or more businesses.
- Combined: parent-subsidiary and brother-sister relationships operate together.
Those labels are only the starting point. The applicable statutes and regulations contain detailed ownership thresholds, attribution rules, options and other interest rules, and exceptions. A percentage shown on an organizational chart should never be treated as the answer without testing direct and indirect ownership and the relevant attribution provisions.
Affiliated service groups under section 414(m)
Section 414(m) addresses specified affiliated-service relationships. The IRS explains that Congress added these rules to aggregate certain entities that did not have sufficient ownership or control to form a section 414(b) or 414(c) controlled group. Consequently, common ownership alone is not the whole ASG inquiry.
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The statute has two service-organization routes and a separate management route:
| Route | Core statutory elements | Key caution |
|---|---|---|
| A-organization relationship | A service organization is a shareholder or partner in the first service organization and regularly performs services for it, or is regularly associated with it in providing services to third persons. | The shareholder-or-partner, service and regular-association elements must be examined together. |
| B-organization relationship | Another organization has a significant portion of its business consisting of services for the first organization or qualifying A organizations; the services are of a kind historically performed by employees in that service field; and 10% or more of its interests are held by highly compensated employees of the first organization or an A organization. | The 10% figure is the statutory condition for this B-organization route, not a universal ASG ownership threshold. |
| Management-function group | An organization whose principal business is performing management functions, on a regular and continuing basis, for an organization or that organization and related organizations, together with the recipient organization or organizations described in the statute. | This route does not state the same ownership prerequisites as the A- and B-organization routes. |
The A- and B-organization requirements are conjunctive as stated in section 414(m). The service facts, the type of work and the specified ownership by highly compensated employees all matter for a B organization. The management route requires a close look at what functions are performed, how regularly and continuously they are performed, the provider’s principal business, and the recipient organizations covered by the statute.
Do ASGs have to be commonly owned?
No. An ASG may exist because of qualifying service or management relationships even when the businesses do not share the ownership needed for a controlled group. Some ASG pathways do contain their own ownership conditions—for example, the B-organization route’s requirement that at least 10% of interests be held by specified highly compensated employees—but that condition should not be generalized to every ASG analysis.
Conversely, a shared owner does not automatically create an ASG. The reviewer must identify the relevant service organization, determine whether the A- or B-organization elements are met, or determine whether the management-function provision applies. Controlled-group and ASG tests are distinct and can both be relevant to the same facts.
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What an AI-assisted workflow can and cannot do
No statutory or IRS material establishes the accuracy, cost savings or outcomes of any AI tool for these determinations. An AI workflow should therefore be presented as an organizational recommendation rather than a validated legal technology. Its useful role is to make a large record set easier to inventory, cross-check and review.
1. Build a dated entity and ownership chart
Give the system structured records, not only a narrative description. For each entity, capture its legal form, formation date, ownership dates, direct interests, indirect interests, options or other relevant interests, and the identity of each owner. Preserve the effective date of every change. A chart that reflects only the current cap table can miss a controlled-group relationship that existed during an earlier plan year.
2. Run a common-control screen
Ask the system to map corporate relationships and trades-or-business relationships, then flag where section 1563, section 414(b) or section 414(c) analysis is needed. The output should identify the facts supporting a parent-subsidiary, brother-sister or combined pattern and list attribution questions for human review. It should not convert a raw ownership percentage into a legal conclusion without applying the governing regulations and exceptions.
3. Run a service-relationship screen
Separate service facts from ownership facts. Record the principal business of the first organization; identify shareholders or partners who perform services; describe services provided to the first organization or to third persons; and map service flows between entities. For a possible B organization, capture whether a significant portion of its business consists of services for the first organization or qualifying A organizations, whether the services are of a kind historically performed by employees in that service field, and whether 10% or more of its interests are held by highly compensated employees of the first organization or an A organization.
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Describe the actual functions rather than labeling an entity a “management company.” Record which organization receives each function, whether the work is performed on a regular and continuing basis, whether management functions are the provider’s principal business, and which related organizations receive the services. Contracts, invoices, board materials, payroll records and time records may be needed to substantiate the description.
5. Connect the result to the benefit-plan question
Identify the specific requirement being tested and the entities and employees that could have to be included. The output should show the rule element, the source document supporting the fact, the date of that fact, any assumption, and the unresolved question. A professional reviewer can then evaluate the legal characterization and determine whether an exception or special rule changes the result.
This five-lane sequence is an organizational aid, not a legally prescribed order of operations. It is useful because ownership, service, management and plan consequences are kept distinct while still being linked to the same dated fact file.
Evidence and controls for using AI with sensitive records
Ownership, compensation and retirement-plan data can be confidential. Before uploading anything, establish a data-governance policy covering access, retention, encryption, vendor use, deletion and audit logs. Do not place personally identifiable information or compensation records into a system that your organization has not approved for that purpose.
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Require every extracted fact to point back to a document, page or data-field location. Keep the original record alongside the AI-generated extraction so a reviewer can correct an OCR or parsing error. Record assumptions explicitly—for example, whether an ownership percentage is measured on a voting or value basis, or whether an option is treated as an outstanding interest for the rule being applied.
Use role-based access and separate working files for preliminary analysis from the final workpaper. A final memo should identify who reviewed the facts, which authority was applied, the relevant measurement dates and the unresolved issues. If the system cannot preserve that trail, it is not suitable for a determination that may be audited or challenged.
How to evaluate an AI system for this use
If you are comparing systems or service approaches, evaluate capabilities rather than marketing claims. The following questions are practical screening criteria:
| Evaluation area | Questions to ask |
|---|---|
| Ownership and attribution data | Can the system represent indirect ownership, attribution, options and ownership changes by date? |
| Service and management relationships | Can it capture who performs which services, for whom, how often and under what management arrangement, rather than displaying only an ownership chart? |
| Authority and traceability | Does each conclusion link to the underlying document and identify the statutory or regulatory element it addresses? |
| Privacy and retention | What access controls, retention periods, deletion procedures and segregation options apply to compensation and plan data? |
| Human correction | Can a reviewer edit an extracted fact, explain the correction and preserve an audit history without losing the original record? |
These are proposed evaluation axes, not evidence that any named product performs accurately. A system that produces a polished diagram but cannot show the source for an ownership or service fact creates more risk than a simpler system with strong workpaper controls.
Common failure modes and how to correct them
Looking only at ownership
Problem: The reviewer stops after finding no conventional controlled group.
Correction: Perform the service and management screens required by section 414(m). An ASG analysis can be material precisely because ownership or control is insufficient for sections 414(b) or 414(c).
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Applying the 10% figure to every ASG
Problem: A worksheet treats 10% as a universal ASG threshold.
Correction: Keep the 10% condition attached to the B-organization pathway, where interests are held by specified highly compensated employees. Analyze A-organization and management-function routes under their own elements.
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Problem: Any intercompany service is counted as a B-organization service.
Correction: Describe the service field and assess whether the work is of a kind historically performed by employees in that field. Preserve the factual basis for that characterization for professional review.
Using undated facts
Problem: Current ownership or service arrangements are applied to an earlier plan year.
Correction: Tie every ownership, service, management and plan fact to an effective date and analyze each relevant period separately.
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Problem: A generated “controlled group” or “ASG” label is copied into a plan file without checking the underlying facts.
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Correction: Require a human reviewer to verify every element, inspect the cited documents, apply attribution and exception rules, and sign off on the conclusion. Where the facts or legal characterization are uncertain, obtain advice from an employee-benefits tax attorney, actuary or retirement-plan consultant.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What aggregation can change for a benefit plan
When the applicable rule treats members as one employer, employees of all members may need to be considered together for the specified employee-benefit requirement. Section 414(m)(1) states: “all employees of the members of an affiliated service group shall be treated as employed by a single employer.” That sentence describes the aggregation principle; the particular requirements, qualifications and exceptions still have to be applied to the plan and the relevant period.
Before changing a plan document or testing file, identify the exact provision at issue, the entities that are members, the employees who must be included and the effective date. A professional should review the resulting coverage, nondiscrimination or other compliance calculation rather than relying on an AI-generated list.
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Rulemaking and keeping the analysis current
The Spring 2025 Unified Agenda listed a Treasury and IRS project to revise section 414(m) regulations and anticipated an advance notice of proposed rulemaking in December 2026. That date was a planned timetable, not confirmation that a notice had been issued. Because the current date is October 2026, check the Federal Register and current IRS materials before relying on any future rulemaking status.
Use the 2024 edition of the United States Code for the statutory text cited here and verify later amendments, regulations and IRS guidance when completing a live determination. Historical IRS training material is useful for orientation, but it should not substitute for current authority.
A practical review checklist
- List every entity, legal form and relevant plan or testing period.
- Capture direct, indirect and attributed interests, options and ownership changes by date.
- Screen for parent-subsidiary, brother-sister and combined controlled-group patterns.
- Identify the first service organization and test A-organization relationships.
- For each possible B organization, document service volume, the historically employee-performed-services issue and the specified 10% interest condition.
- Document management functions, regularity, continuity, principal business and recipient organizations.
- Link each fact and assumption to a source document.
- Map the proposed group to the exact employee-benefit requirement at issue.
- Have a qualified professional review attribution, exceptions, legal characterization and plan consequences.
- Store the final conclusion, reviewer, authority and effective dates in an auditable workpaper.
Used this way, AI can reduce clerical effort and expose missing facts without pretending to replace legal judgment. The controlling discipline is traceability: a reviewer must be able to move from the conclusion to the rule element, from the rule element to the verified fact, and from that fact to the dated source document.
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