Top Heavy & HCE

[Guest jkrad]

I have a child of a more than 5% owner who is terminated, would they be considered a key ee for top heavy testing or would they be considered a former key ee? The father owns 70% of the voting stock.

Also, this company has a participant who is a 5% owner but does not make more than 150,000. Would this individual be considered key for top heavy purposes. Everything I have read indicates that you have to own "more than 5% or make 150,000 to be considered key.

[Blinky the 3-eyed Fish]

Get some new reading materials. A key is a more than 5% owner, a 1% owner who makes over $150K or an officer who makes more than $130K. Attribution under IRC 318 is considered. So to your last question first, you say the guy owns 5%, but is it actually more than 5%? If so, he's a key.

As for the child, when did he terminate? He isn't going to be considered a former key because he still is the child of a 5% owner, but he may be excluded from the test if he terminated more than 1-year from the determination date.

[austin3515]

Or is the question that the parent is terminated and a more than 5% owner, so does that make the child a former key, even though the child is still employed? The question could go either way...

The answer is that child is a key employee because through attribution, he owns more than 5% of the company. The employment status of the direct owner is irrelevant.

[Guest mrjones]

or an officer who makes more than $130K.

$130k as indexed. For 2005, an officer needs to make more than $135k to be key...in future years it will increase as necessary by $5,000 increments.

[Blinky the 3-eyed Fish]

True, but no one is doing a 2006 TH test right now.

[Guest mrjones]

Guess I need to study more...