Controlled Group Question

[MarZDoates]

Two entities with ownership as follows:

Entity 1: Dad owns 100%

Entity 2: Dad owns 40% and Son owns 60%

Would Son be deemed to have 100% ownership in Entity 1 and Dad deemed to have 100% ownership in Entity 2 due to attribution? Thank you.

[Belgarath]

First, is the son under age 21? Second, are we discussing only controlled groups, or are you also looking at an affiliated service group?

The 1563 controlled group attribution between parents and children is different than the ASG attribution under 318. Under 318, age is irrelevant.

Assuming we are looking only at a CG, and the son is 21, then IMHO I would say there is no attribution to Dad, but there is attribution to Son from Dad, because Son owns more than 50%. So Dad would own 100% of Entity 1 and 40% of Entity 2. Son would own 100% of both 1 & 2. I'm also assuming nothing fancy, like stock options, trusts, etc.

If I seem overly cautious, it's because I always refer these questions to ERISA counsel - the possible permutations become horrifying!

[Blinky the 3-eyed Fish]

Belgarth, why would the son own any of 1 if he's over 21? The way I see it he has no ownership in that business and therefore is attributed nothing.

[Belgarath]

Blinky - you're absolutely right! Wasn't thinking clearly, trying to do too many things at once - my apologies to all. See why I refer these to ERISA counsel?

[Lame Duck]

Is this an adult or minor child? If a minor child, regulation 1.414©-4(b)(6)(i) requires that the ownership of father and son be attributed to the other, thereby creating a controlled group. 1.414©-4(b)(6)(ii) provides that an individual who is in effective control (more than 50% ownership) is considered to own an interest in such business owned directly or indirectly by or for the individual's parents, grandparents and children who have attained age 21.

Assuming son is an adult, I read the regs as saying dad would be considered as owning 100% of Entity 1 and son 100% of Entity B. I don't believe there is any provision in the code or regs that provide any reverse attribution in Entity 2 to dad or entity B to son that would result in a controlled group. Does anyone else read this differently? I've always found controlled group analysis to be one of the most difficult areas of pension law and usually rely on the determination of the client's tax advisor as to whether the situation is a controlled group or not.

[Lame Duck]

I guess I think too slowly. Seems like blinky and Belgarath beat me to the draw.

[E as in ERISA]

Isn't son attributed father's share of 2 even if he is over 21 -- because he owns more than 50%?

But he still doesn't own any of 1....

[MarZDoates]

Thanks for the responses. Son is over age 21. I have the same question as Katherine.

[Blinky the 3-eyed Fish]

Yes, Belgarath's analysis of 2 was correct.

[Mike Preston]

Yes, the son is attributed the stock owned by the Dad in Entity 2. And, as pointed out, since son owns nothing of 1 directly and is not attributed the stock of the Dad in Entity 1, the entities are not controlled.

[Guest rwest]

I agree with MPreston