Control Group

[Guest ubpMR]

I have a situation. Here are the facts:

(A) owns 80% of company 1 and (B) owns 20% of company 1

(A) owns 51% of company 2 and © owns 49% of company 2.

By code, this is a control group because of the 80%/50% rule.

However, another TPA is arguing with me that this is not a control group because there is a rule that states that if an owner owns 0% of a company (like B & C do), they are not included, making this situation not a control group. I disagree and can find no such guidance for his position.

Any ideas? If so, citing from code/regs would be great. Thanks.

[Archimage]

I believe it is IRC 1563(a).

[R. Butler]

I agree with the other TPA. To get to the 80% you only count common owners.

[Archimage]

I misread the question. This is not a controlled group. The owners together must own at least 80% of the stock or voting power AND together own 50% to the extent their ownership is the same in regards to each company.

[R. Butler]

I didn't necessarily mean to imply there wasn't a controlled group; we really don't have enough facts here to determine that. I only intended to set forth the general rule to only consider common owners.

You need to look closely at Company 2. Are there any restrictions to C's ownership that substantially limit his/her right to dispose of the stock? If so, C's ownership may be excluded.