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LIBERTYKID

Controlled Group Attribution

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Unrelated person 1 owns 70 percent of company 1.  Dad owns 9 percent, and has three minor children.  It is my understanding that for controlled group purposes, you first test unrelated person 1 and dad with their ownership in a second company, then unrelated person with child 1, separately with child 2 and separately with child 3.  In other words, all individuals are not tested at the same time and you never have at the same time ownership of more than 100 percent when you do a test.  Derrin Watson does say this in an old 2001 Q and A, but I can't seem to find any authority. Can anyone find a cite to formal or informal IRS guidance that so states?

Is this also true with a grantor trust, where the grantor is always attributed the trust shares, and for example two beneficiaries have an actuarial interest in the trust shares?

 

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LIBERTYKID, you don't provide enough facts, but if I am correct in inferring that the minor children have some ownership in one of the companies and the question is whether dad is treated as owning all of their stock, there is no child-by-child sequential rule such as that which you are sort of describing. Because they are minors, dad would be treated as owning all of their stock, in a single step. See IRC sec. 1563(e)(6). The kids might also be attributed their dad's stock if necessary to form a controlled group, which is in the same section. It gets tricky if they are not minors, because then the stock is attributed to dad only if dad otherwise (i.e., without attribution from kids) owns more than 50%. Also have to deal with multiple classes of ownership, etc. If you want to post the Derrin Watson Q&A that you think has a bearing here, I'll try to parse it.

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