MEP with 7 companies participating. 3 control groups exist within the 7 companies and one of the 7 provide management services to all.

1. Would it be correct to first test the groups individually?
2. Then test the 3 controlled groups?
3. Is there any additional testing based on the affiliated service group rule for the 1 entity providing service to all?

1. Yes.

2. There is no need to aggregate the three controlled groups for testing.

3. Not unless the three controlled groups would be considered related under 144(a)(3), below. The rule you are referring to provides that there is an affiliated service group if the management company provides the management for a single company or controlled group. In this case, there are three separate controlled groups, so there is no ASG.

414(m)(5) Certain organizations performing management functions. - For purposes of this subsection, the term "affiliated service group" also includes a group consisting of -

414(m)(5)(A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and

414(m)(5)(B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A).

For purposes of this paragraph, the term "related organizations" has the same meaning as the term "related persons" when used in section 144(a)(3).

144(a)(3) Related persons. - For purposes of this subsection, a person is a related person to another person if -

144(a)(3)(A) the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or

144(a)(3)(B) such persons are members of the same controlled group of corporations (as defined in section 1563(a), except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein).