I'm not sure how to interpret IRS Sec. 318 as it pertains to Sec. 416 regarding the treatment of family members. A plan covers a 10% owner, his wife and her mother. No question the wife is considered having the same ownership as the 10% owner and is, therefore, deemed to be a key employee. Is the mother-in-law also considered to be a key employee? All help is greatly appreciated.

Ownership cannot be attributed twice -- the wife gets her husbands share, getting it to her mother would require a second attribution.