is this a controlled group?

[Earl]

LLC. A LLC. B

Bob

100% 75%

Sue

0% 25%

Is this a controlled group?

It seems that if Sue is in the tests then it is a controlled group, but if Sue is not in the tests because she owns 0% of A, it seems that it does not meet the effective control test.

Thanks for any input.

[Guest Pensions in Paradise]

Are Bob and Sue related? If not, then no controlled group.

You should also determine if it may be an affiliated service group.

[Earl]

Thanks -

No relation. Should have said Bob and Fred for clarity.

Is it because the effective control test needs two people?

Thank you for any insight.

[Belgarath]

It is because under 1563(a)(2) - and by the way, read the (f)(5) modifications to (a)(2) for RETIREMENT PLAN purposes or you will really get in trouble - when calculating the ownership percentages, you only take into account the stock ownership "of each such person only to the extent such stock ownership is identical with respect to each such corporation." In english, this means you only count the lesser percentage of stock owned. For example, if you own 10% of corp A and 60% of corp B, then your "identical" ownership is 10%. You then apply these percentages to the CG tests.

I'd highly recommend Derrin Watson's "Who's the Employer", or Sal Tripodi's "Erisa Outline Book" for further reference. It is a dauntingly complex subject, or can be, and we ALWAYS recommend they consult their ERISA attorney to make the determination - by the time you get through attribution from family, stock options, etc., etc., even a seemingly simple situation often isn't!

(I had to edit - I misspelled Derrin's book title)

[Earl]

Thanks for your help on this.

1563 is exactly the source of my hesitation.

Identical ownership is:

Bob: 75%

Sue: 0%

So the total is 75% which is > 50%

But if that applies, then the Parent / Sub 80% test would seem to be irrelevant if one person with over 50% could cause controlled group status.

But I don't see 1563 saying "5 or fewer but at least 2". Is that just implicit?

1563(a)(2) BROTHER-SISTER CONTROLLED GROUP. --Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.

[Guest Gompers]

Bury Your Controlled Group Problems in Vogel Fertilizer

http://benefitslink.com/modperl/qa.cgi?db=...oyer&id=224

[Belgarath]

Thanks Gompers. Mr. Watson states it far better than I ever could!

Earl - just one little point - the 1563 cite/wording you give is the "new" 1563(a)(2) that eliminates the 80% test. However, this change is only for determining whether the group is subject to tax limitations under 1561. The same law (American Jobs Creation Act of 2004) added 1563(f)(5) to continue to apply the "old law" rules for all other purposes under the tax code.

[Earl]

Fabulous.

Thank you guys.

Earl