Ownership attribution - children to parents

[maverick]

Situation:

- son owns 100% of construction company

- parents used to own company, actual ownership now is 0%, but they still work there

In researching whether the parents own >5% via ownership attribution rules I found 2 different answers. There are some posts on this board indicating that attribution goes from kids to parents and vice versa, but I also found one that says ownership only attributes from kids to parents if the kids are under 21.

I have a page from an old Journal of Pension Benefits article which reads as follows:

- Description: children

- Actual owner: 1) child under age 21

- Constructive owner: each parent

- Description: children

- Actual owner: 1) child over age 21

- Constructive owner: a parent who owns (before application of thia paragraph) more than 50% (in value or voting power) of the corporate stock

It would be great to get the parents out of the HCE category on the ADP test (both made 11k and deferred 15%).

Sorry for the long post, I wanted to get all the facts out there.

Can someone enlighten me please?

Thanks. Maverick

[Mike Preston]

You are stuck. He is an HCE.

You are confusing 318 with 1563 attribution.

The determination of who is an HCE in 414(q) references 416(i) which in turn references 318. Under 318 stock is attributed to parents. Under 1563 you only have attribution to parents of stock owned by their children in two circumstances:

1) the kids are under 21

2) the parents own more than 50% before attribution.

1563 attribution is used in the determination of controlled groups.

For more on this subject, see the book Who's The Employer, published by Derrin Watson. He writes the column "Who's The Employer" on this web site, too, so you can check out the Q&A column. {Full disclosure: I have no interest in his sales of the book, although I am a partner with him in the Pension Information eXchange [PIX] BBS.]

[Belgarath]

I'll second the recommendation for Derrin Watson's book. I once did just the opposite - confused 318 attribution with 1563 attribution, and spent about 4 hours convincing myself that there was attribution from children over 21 for controlled group purposes. Some kind soul pointed me toward "Who's the Employer" and it got me straightened out in about 5 minutes.

Having said that, of course, I should still mention that these situations can be desperately difficult, and I always recommend they consult their attorney...

[Mike Preston]

Or call Derrin, of course.

[Disclaimer previously posted.]

[maverick]

For Mike Preston:

I've heard of the Pension Information Exchange BBS, but don't know how to go there. Is it a Q&A site like available to the general public (me) like benefitslink.com?

Thanks. Maverick

[Mike Preston]

maverick,

It is a bit different in that it requires a subscription. It is meant to operate off of private software (although it can be accessed via email) called WOD, which is fully compliant with all WIN9x or later operating systems.

Here's a link. I'm pretty sure it is current. Send a message to Derrin to confirm.

http://www.benefitslink.com/articles/pix.html