Controlled Group Question

[Guest John Kleeman]

I apologize if this specific question has been handled previously. I have a situation in which a Company A is owned equally by 3 siblings. Each of the siblings has children in the following amounts.

Sibling 1 has 5 kids.

Sibling 2 has 2 kids

Sibling 3 has 3 kids.

The children of the siblings own companies B and C.

The 5 kids of Sibling 1 own one-third of Companies B and C.

The 2 kids of Sibling 2 own one-third of Companies B and C.

The 3 kids of Sibling 3 own one-third of Companies B and C.

The ideal situation is that Companies A, B and C are part of one controlled group, so that all 3 companies may adopt 1 plan and be tested together.

These 3 companies are each a manufacturing plant and do not perform any services for each other.

Can it be determined with the above information that this is a controlled group?

[Jim Chad]

Sibling 1 is deemed to own one third of B and C

Sibling 2 is deemed to own one third of B and C

Sibling 3 is deemed to own one third of B and C

Since these 3 siblings own all of A, it means that A, B and C are in one controlled group.

Anyone see anything I am missing?

[Guest John Kleeman]

Sibling 1 is deemed to own one third of B and C

Sibling 2 is deemed to own one third of B and C

Sibling 3 is deemed to own one third of B and C

Since these 3 siblings own all of A, it means that A, B and C are in one controlled group.

Anyone see anything I am missing?

I was reading in the 401(k) Answer book that parents can only be deemed owners when their children are under the age of 21. In this case, all children are over age 21. It seems that Companies B and C are part of a controlled group as the ownership of each companies is owned by the same people in exactly the same proportions. It seems that Company A is not part of the controlled group.

[Jim Chad]

I think you are right. If all the kids are over 21, section 1563 would not attribute stock up to the parents. And I cannot see where 5 or fewer of the kids would be attributed more than 66 2/3% of A. This is less than 80% so no controlled group there.

[Lame Duck]

I think the same rationale applies to B and C. We do not have 5 or fewer people owning at least 80% of B and C. It appears that the maximum ownership would olny be 66 2/3%.

[Jim Chad]

Lame Duck brought up a good point and raises an important question. Does each sibling in, a group owning 1/3, own the same percentage?

[Guest John Kleeman]

Lame Duck brought up a good point and raises an important question. Does each sibling in, a group owning 1/3, own the same percentage?

In company A each sibling owns one-third.

In companies B and C:

The 5 kids of Sibling 1 own in aggergate one-third of companies B and C. So each child of sibling 1 owns 6.67 % of Companies B and C.

The 2 kids of Sibling 2 own in aggregate one-third of companies B and C. So each child of sibling 2 owns 16.67% of companies B and C.

The 3 kids of Sibling 3 own in aggregate one-third of companies B and C. So each child of sibling 3 owns 11.11%

For me this is a tough one.

[Jim Chad]

Next question :

Does anyone own any options in the other companies?

To quote a famous American, "Attribution rules are always a sword; never a shield".

(Does anyone know who the famous American is?

[Guest John Kleeman]

Next question :

Does anyone own any options in the other companies?

To quote a famous American, "Attribution rules are always a sword; never a shield".

(Does anyone know who the famous American is?

Nobody owns option in other companies. My guess for the famous American is: Bruce Springsteen

[Jim Chad]

I think we have covered all of the bases and there are no controlled groups.

Bruc can never be a bad guess. But I was thinking of Derrin Watson in his book "Who's the Employer"