Controlled Group?

[dmb]

Two companies, one owned 100% by a husband and one onwed 100% by his wife. Both companies have employees. The companies are not related (other than the husband/wife ownership). Is this considered a controlled group??

[RTK]

Yes or no. Answer determined by constructive ownership of stock rules. Take a look at IRC 1563(e)(5) for corporations (as incorporated by 414(b)) and IRS Reg 1.414©-4(b)(5) for other trades or business.

[Belgarath]

Also watch out if it is a community property state. According to some experts (including my personal favorite, S. Derrin Watson) in a community property state, there is direct ownership and the "spousal noninvolvement" clause cannot apply.

[Lame Duck]

This issue has been discussed here before, but you should also be aware of

1563(e)(6) which provides that the ownership of a parent is attributable to a minor child. Your post doesn't say whether the clients have any minor children, but, if they do, there may be a controlled group through attribution of the mother's ownership and father's ownership to the child.

[WDIK]

Prior "spritited debate" addressing similar issues.