Controlled Group Question

[flosfur]

Aspen's DB Answer Book 4th Edition Q6:43, part 2a, talks about 80% or more ownership by the same 5 or fewer persons for Brother-Sister controlled group test.

But, IRC section 1563(a)(2) says more than 50% ownership by the same 5 or fewer persons.

Is the 80% number a typo in the DB answer book or has the law changed since the book was published? I looked through the 2008 & 2009 supplement but don't see Q6:43 covered in either of the supplements.

[J Simmons]

Probably not a typo. Look at both parts of IRC § 1563(a)(2)--part (A) requires 80% and part (B) requires 50%. It's a two part test. Both parts must be satisfied for there to be a controlled group. What differs is that for the 50% test, you 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".

[flosfur]

Probably not a typo. Look at both parts of IRC § 1563(a)(2)--part (A) requires 80% and part (B) requires 50%. It's a two part test. Both parts must be satisfied for there to be a controlled group. What differs is that for the 50% test, you 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".

No. The 80% rule is for Parent-Subsidiary controlled group and not for Brother-sister controlled group. Take a look at the cose.

[PensionPro]

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--

1563(a)(2)(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation, and

1563(a)(2)(B) 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.

[KJohnson]

Actually 1563(a)(2) was amended as flosfur says to now only require one test

(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

However, this was only for income tax purposes. You now have to track down to 1563(f)(5) and come to the following which then modifies (a)(2) for "provisions other than this part" and gets you back to what Pension Pro and J Simmons note is the test for applying brother/sister for most benefit plan purposes.

(5) Brother-sister controlled group definition for provisions other than this part

(A) In general

Except as specifically provided in an applicable provision, subsection (a)(2) shall be applied to an applicable provision as if it read as follows:

(2) dq](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—

“(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or at least 80 percent of the total value of shares of all classes of stock, of each corporation, and

“(B) 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.”

(B) Applicable provision

For purposes of this paragraph, an applicable provision is any provision of law (other than this part) which incorporates the definition of controlled group of corporations under subsection (a).

[tymesup]

If I remember correctly, Derrin Watson used to refer to Vogel Fertilizer. Don't know whether it still applies.

[J Simmons]

I would think Vogel Fertilizer is yet pertinent for the proposition that you do not count the ownership interests of a person held (actually or constructively) in one entity but not the other entity that are part of the controlled group analysis. That is, you only count the ownership interests of those that hold such in both entities.

[Guest Sieve]

And the result of Vogel Fertilizer is now incorporated in the regs.