Controlled Group Question

[John Feldt ERPA CPC QPA]

A father and his adult son (over age 21) each own 50% (profits and voting) of a small company with a score of employees.

The son owns 100% of another company with a handful of employees. The son has no children or grandchildren. The companies don't do business together, but the son works and is paid wages from both companies (mostly from the company he owns 100% of).

The attribution rules generally say: If the parent or the adult child owns more than 50% then the smaller stock ownership is attrributed to the other.

So, if one of them owned more than 50%, then it would be a controlled group. But an exact 50/50 split is not - is that correct?

[Guest Sieve]

You are right that there would be no attribution in your situation with a 50-50 split. If one owned 50.1%, however, there would be a controlled group only if the attribtuion ran the right way.

E.g., if father owned 50.1%, there would still be no controlled group even with the attribtuion (because the attribution would be from son to father). However, if son owned 50.1%, there would be attribution from father to son and, thus, a controlled group.

[ETA Consulting LLC]

You are correct by simple math. You should ensure there is no rights of first refusal if one wanted to sell their portion of the business (that would require them to sell it to the other). I "think" that would create some type of attribution. It always gets tricky when the fact pattern is exactly at the legal written limit (like a Key Employee owning exactly 60% of plan assets not being top heavy). I hate those situations