Controlled Group - Husband & Wife

[MGOAdmin]

I have a potential Client that has a possible controlled group issue.

Facts:

2 business with the ownership as follows

Co. A Co. B

Husband 55% 55%

Wife 35% 0%

Unrelated Partner 10% 45%

Are Co. A & Co. B part of a controlled group given the wife owns 0% of Co. B?

It seems like the same 5 or fewer do not own 80% since the wife owns 0% of Co. B but I didn't know if the husband and wife are considered to be a single entitiy.

Thanks

[Lou S.]

By attribution I'm pretty sure you have a CG since wife is deemed to own shares of husband and vis-a-versa. However you may meet the exceptions in 1563(e)(5) so you may want to give those a look.

[MGOAdmin]

(5) Spouse

An individual shall be considered as owning stock in a corporation owned, directly or indirectly, by or for his spouse (other than a spouse who is legally separated from the individual under a decree of divorce whether interlocutory or final, or a decree of separate maintenance), except in the case of a corporation with respect to which each of the following conditions is satisfied for its taxable year—

(A) The individual does not, at any time during such taxable year, own directly any stock in such corporation;

[MGOAdmin]

The above section makes me think they are not related since the wife owns 0%,

[Lou S.]

Don't forget you also need to satisfy all of B, C, D

(B) The individual is not a director or employee and does not participate in the management of such corporation at any time during such taxable year;

© Not more than 50 percent of such corporation’s gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and

(D) Such stock in such corporation is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse’s right to dispose of such stock and which run in favor of the individual or his children who have not attained the age of 21 years.

And if they live in a community property state she may be deemed to own husbands shares anyway. But I am not a lawyer.

[Calavera]

I think it is a controlled group. Because of the attribution, husband is deemed to own 90% of A. So the totals for common owners (Husband and Unrelated Partner) will be 100% for both companies (>80%) and the identical ownership will be 65% (55%+10% > 50%)

[Lou S.]

I think it is a controlled group. Because of the attribution, husband is deemed to own 90% of A. So the totals for common owners (Husband and Unrelated Partner) will be 100% for both companies (>80%) and the identical ownership will be 65% (55%+10% > 50%)

Excellent point. I, like the OP, was focusing on the wife and forgot all about the husband's clear attribution in A!

[MGOAdmin]

I agree, I think that it is a CG.

Thanks for all your input!