Key and HCE status

[Earl]

Guy owns 100% of a business. Marries an employee, so employee becomes KEY and HCE.

EE-new spouse has a daughter who is also an employee. He does not adopt her.

Does daughter become Key and/or HCE?

Thanks

[Guest Sieve]

Family attribution cannot be re-attributed--i.e., the family member to whom the stock ownership is attributed does not cause the ownership to be attributed to another family member. Also, stock is not attribtued to a non-blood related child who is not adopted. So, wife's daughter is not an owner through either wife (since wife's ownership is atttributed to wife from husband, wife does not attribute it to her daughter) or through husband (since there is no blood or adoptive relationship between husband and daughter).

[Earl]

Thanks

[John Feldt ERPA CPC QPA]

Unless perhaps the spouse is considered a direct owner of 50% of the owner's stock, in a community property state? Then that ownership can be attributed to the child. Some argue the state law attributes it to the spouse first, so it can't be attributed a second time. Others say both spouses are direct owners in a community property state.