Management group

[R. Butler]

Facts are as follows--

• Person A owns 100% of Management Co.
• Managment Co. derives 45% of gross receipts from Co. Z. Co. Z is owned 40% by Person A, 30% by A's brother (Person B) & 30% by somone unrelated.
• Person A & Person B also own 5 other businesses 50/50.
• Managament Co. derives about 20% of its revenue from the 5 businesses ownerd 50/50 by the brothers.

The goal is for Management Co. to adopt a plan without having to include any of the other business. My concern is whether Co. Z needs to be aggregated with the other 5 businesses when determining from where Management Co. derives its revenue. It is my understanding that under 267 the brothers are related persons. I'm unclear though about whether there needs to be a certain degree of common ownership between between Co. Z and the other 5 before all businesses are considered related. Under 1563, Co. Z wouldn't be part of a controlled group with the other 5 because there isn't 80% common ownership. Does that same 80% threshold apply when using 267©? Am I analyzing everything else correctly?

Thanks in advance for any guidance

[J Simmons]

More than 50% common ownership is the threshold. 267(b)(3) and (f)(1)(A).

Since A and B, siblings (related for 267 purposes) own 70% of Z and 100% of the other 5 companies, they are lumped together, and per your facts, Mgtmt Co derives 65% of its gross from them (45% from Z and 20% from the other 5 companies). I think Mgtmt Co is snagged into a 414(m)(5) affiliated service group.

[Kevin C]

From your description, it looks like Z and the other 5 companies are "related organizations" under 414(m)(5). With 65% of Management Co's income coming from that related group, to me, it looks like all 7 are a controlled group under 414(m)(5).