controlled group

[pmacduff]

My head is quite fuzzy right now trying to be sure that the determination of controlled group status is properly applied. I do have the determination the Accountants have made but want to double check.

Here are the facts:

10 different owners. 6 are immediate family. all over age 18.

I'll number the owners 1 through 11 and code the family relationships with letters (F = father, M = mother, D = daughter and S = son). Employees 7, 8, 9 & 10 have no family relationship.

There are 5 different companies; A - E.

Company A: 1(F) = 40% 2(D) = 15% 3(S) = 15% 4(S) = 15% 5(S) = 15%

Company B: 2(D) = 15% 3(S) = 15% 4(S) = 15% 5(S) = 15% 6(M) = 39% 7 = 1%

Company C: 1(F) = 20% 2(D) = 12% 3(S) = 24% 4(S) = 12% 5(S) = 12% 6(M) = 20%

Company D: 2(D) = 21.25% 3(S) = 21.25% 4(S) = 21.25% 5(S) = 21.25% 8 = 15%

Company E: 1(F) = 24% 6(M) = 24% 9 = 26% 10 = 26%

thanks in advance!

[pmacduff]

bump...everyone too busy or question too basic??

[ETA Consulting LLC]

Not really. A controlled group analysis is pretty simple once you determine the percentages of ownership and the attribution rules. I have trouble following your chart.

We know that A and C is a controlled group since 100% of each company is owned by the same individuals. Since Father & Mother have ownership, they are attributed each others (as the spousal exeption to ownership attribution does not apply). This is mostly based on the pure numbers.

When it comes to attribution between parents and children, The age 21 (not 18) is used when determining who's a minor.

Good Luck!

[pmacduff]

Sorry about that, I did know it was age 21...all children are way over age 21 anyway.

You said you had trouble following my chart...is the attached Excel file clearer?

Generic_ownership.xls

[QNPG]

Sorry about that, I did know it was age 21...all children are way over age 21 anyway.

You said you had trouble following my chart...is the attached Excel file clearer?

I'm no expert on controlled group determinations, but this one intrigued me...so here is my answer. Let me know if you agree

A+B are controlled

A+C are controlled

A+B+C are a controlled

A+D are NOT controlled

A+E are NOT controlled

B+C are controlled

B+D are NOT controlled

B+E are NOT controlled

C+D are NOT controlled

C+E are NOT controlled

D+E are NOT controlled

CG_analysis.pdf

[Calavera]

A, B, and C is a controlled group.

[MoShawn]

I'll take a stab...

Owners 7-10 mean nothing as none of them have ownership in more than one of the entities.

Father and Mother are attributed each other's ownership in each entity.

A+B+C is one controlled group

A+C+E is an overlapping controlled group

Poor D gets left out in the cold

[QNPG]

I'll take a stab...

Owners 7-10 mean nothing as none of them have ownership in more than one of the entities.

Father and Mother are attributed each other's ownership in each entity.

A+B+C is one controlled group

A+C+E is an overlapping controlled group

Poor D gets left out in the cold

How is E included in the CG?

[MoShawn]

From spousal attribution. Father and Mother are each deemed to own 40%, 40% and 48% of A, C and E, respectively.

[pmacduff]

Father and Mother together have only 48% of Company E; none of the children own any part, so I think all agree that Company E is not part of any CG.

In the recesses of my brain I was thinking of something I remembered along the lines of "if the same 5 or fewer people own 80% or more..." or something like that.

The four siblings own 85% of Company D, but does that have any impact since Mom and Dad have no ownership in Co. D?

[pmacduff]

SMM & I were posting at the same time. I don't know...is Co. E included?

on Monday - just to further muddle the waters - I'll post what the Accountants have determined as far as CG status of these Companies.

[QNPG]

Father and Mother together have only 48% of Company E; none of the children own any part, so I think all agree that Company E is not part of any CG.

In the recesses of my brain I was thinking of something I remembered along the lines of "if the same 5 or fewer people own 80% or more..." or something like that.

The four siblings own 85% of Company D, but does that have any impact since Mom and Dad have no ownership in Co. D?

Since the four siblings own less than 80% of A, B, C and E, then D does not meet the requirement to be a Bro/Sis CG. Effective control (more than 50%) is met but not common control (at least 80%).

[ETA Consulting LLC]

A, B, and C is a controlled group.

Pushing the "like" button.

A & C are a controlled group and C & B are a controlled group (C & B is for the same reason A & C; spousal attribution). So, A, B, and C are a controlled group. Don't forget your affiliated service group analysis. Also, don't forget the additional attribution rules on any Rights of First Refusal favoring any owner during the sale of another owner's shares.

Good Luck!

[pmacduff]

ok - as promised (a day late!)... the Accountants determined A,B,C & D to be a controlled group and not E. Plan is a multiple employer plan to include the Company E employees. So basically Company D is the only "wild card". I think everyone posting (except SMMoran) agrees that that Co.s D & E should NOT be part of the controlled group. Thanks to all who responded!!!

[Guest Sieve]

I would simply add that you do not have automatic attribution of Mom's 39% of B to Dad (see IRC Section 1563(e)(5) for spousal attribution rules). So, if there is, in fact, no such attribution, then B is NOT a member of the A + C controlled group.

Remember, too, that a controlled group for consolidated return purposes (50+%) is different from a controlled group for pension purposes (80+%), so the CPAs might be right for a different purpose/reason. (Compare IRC Section 1563(a)(2) with 1563(f)(5).)

[pmacduff]

Under 1563(e)(5)(B) - Mom IS an employee and officer which does create the attribution, B is part of the CG.