Stock Attribution

[Guest Giovanni]

In a 401(k) plan, I have the following situation:

Mother owns 4% (works at the company).

Father owns 4% (does not work at the company).

Son works for the company.

Is the son considered a 5% owner due to the stock attribution of both his parents (4% + 4%)?

[stephen]

The son and mother are both 5% owners by attribution. The dad is as well but since he is not employed it does not affect the plan.

[Belgarath]

I don't think it is quite that simple. (anyone who has read any of my previous posts on Controlled or Affiliated Service Groups will know that I'm the first to admit that I'm no expert, and I recommend legal counsel make the determination!)

Nevertheless, is the son under age 21? And are you talking about controlled group attribution under IRC 1563, or ASG attribution under IRC 318? It can make a difference.

In general, and not considering some of the possible screwball situations such as different stock classes, options, etc., and assuming for the moment that we are talking about a controlled group attribution question, and that the son is 21, then I would say there is no attribution to or from son. If the son is under age 21, then you have attribution. If you are talking about ASG attribution, then the son's age is irrelevant, and there is attribution.

If the above seems rather wishy-washy, it's because it is! I've found more ways to be wrong on these questions than you can imagine, and I ALWAYS recommend the client seek legal counsel.

[Blinky the 3-eyed Fish]

I am betting that since the 5% figure was questioned, that Giovanni is trying to determine if the son is an HCE, which leads us back to Stephen's answer on that topic.

[Belgarath]

Yes, if that was the purpose I aqree completely.

[Guest Giovanni]

Yes, that's true, I was trying to determine if the son was HC. Thank you all. I assumed he was HC (as well as the mother), yet I wanted to be sure.