AdKu Posted December 4, 2015 Posted December 4, 2015 Did I get it right, provided the following ownership chart? Companies X Y Z A B C D Shareholder 1 100.00% 100.00% 75.02% 2.00% 2.00% 51.00% 51.00% Shareholder 2 0.00% 0.00% 24.98% 0.00% 0.00% 0.00% 0.00% Shareholder 3 0.00% 0.00% 0.00% 0.00% 0.00% 49.00% 49.00% Shareholder 4 0.00% 0.00% 0.00% 32.67% 49.00% 0.00% 0.00% Shareholder 5 0.00% 0.00% 0.00% 32.67% 49.00% 0.00% 0.00% Shareholder 6 0.00% 0.00% 0.00% 32.66% 0.00% 0.00% 0.00% TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% TOTAL EMPLOYEES 18 9 15 2 15 1 12 Based on my current level of understanding of the controlled group rules, I came up the following two different controlled groups. I'm open to learn, any insight is appreciated. Controlled Group #1 Companies X Y Z C D Identical Ownership Shareholder 1 100.00% 100.00% 75.00% 51.00% 51.00% 51.00% Shareholder 2 0.00% 0.00% 24.98% 0.00% 0.00% 0.00% Shareholder 3 0.00% 0.00% 0.00% 49.00% 49.00% 00% > 80% Control 100.00% 100.00% 100.00% 100.00% 100.00% 51.00% Controlled Group #2 Companies A B Identical Ownership Shareholder 1 2.00% 2.00% 2.00% Shareholder 4 32.67% 49.00% 32.67% Shareholder 5 32.67% 49.00% 32.67% Shareholder 6 32.66% 0.00% 0.00% > 80% Control 100.00% 100.00% 67.34%
mphs77 Posted December 4, 2015 Posted December 4, 2015 Are there any family relationships between the Shareholders?
LANDO Posted December 4, 2015 Posted December 4, 2015 I'm not exactly sure what your saying here, but in your Controlled group #1 X & Y are one CG, and C & D are another CG. Z would be unrelated to either (unless some attribution applies with respect to Shareholder 2). For the common control part of the CG test (the 80% test), the same five or fewer owners still have to have an interest in each company to be counted. In other words, the owners must be "common" to each entity to be counted in the test. So for example, the interests of shareholders 2 & 3 would not be counted for purposes of determining a CG for X & Y because they are not common owners of each entity. For the same reason A & B are not part of a CG with each other.
LANDO Posted December 4, 2015 Posted December 4, 2015 Of course my answer above assumes no attribution under IRC 1563.
AdKu Posted December 4, 2015 Author Posted December 4, 2015 Yes, there is no family relationships; therefore, no attribution rule applies to this particular case. LANDO, do you mean every one of the five owners needs to have some percentage of the share to form the CG? If Yes, I don't think I agree with that.
LANDO Posted December 4, 2015 Posted December 4, 2015 Well, then you should probably take a look at IRC 414(b) and 1563.
Calavera Posted December 4, 2015 Posted December 4, 2015 Agree with LANDO. There are 2 separate CGs: X & Y, and C & D.
AdKu Posted December 4, 2015 Author Posted December 4, 2015 Thank you LANDO & Calavera, I was wrong about the 80% test.
Mike Preston Posted December 4, 2015 Posted December 4, 2015 It has been my experience that the excluded stock rules can have a dramatic impact on any controlled group analysis and that frequently there are one-way rights of first refusal hidden in by-laws or other documents that create excluded stock. And that getting access to those documents is sometimes like pulling teeth. Beware! david rigby 1
LANDO Posted December 4, 2015 Posted December 4, 2015 No sweat. Controlled Groups can be real tricky. If you find yourself in deep water, better to refer the sponsor to their ERISA counsel. As Mike points out, there are often things the sponsor doesn't share that can impact the determination.
AdKu Posted December 4, 2015 Author Posted December 4, 2015 LANDO & Calavera, Provided the below ownership chart and assuming no family relationships, do the three companies X, Y, & Z form a controlled group. Companies X Y Z Shareholder 1 49.00% 51.00% 75.00% Shareholder 2 1.00% 48.00% 24.50% Shareholder 3 50.00% 1.00% 0.50% > 80% Control 100.00% 100.00% 100.00% Another scenario would be if Shareholder 1 has the same 51% ownership in X, Y & Z and the rest of the ownership somehow divided between Shareholder 2 and Shareholder 3, is there going to be controlled group. Finally, is there any Controlled group rule that dictates to determine the Identical Ownership that we should be checking first that no shareholder should have over 50% in each company that will form controlled group.
LANDO Posted December 4, 2015 Posted December 4, 2015 Yup...XY&Z are controlled in your numerical example and per your modificiation...assuming all three shareholders still own an interest in each entity. For the effective controll part (identical ownership > 50%) you have to worry about the attribution rules under 1563, which are different than the 318 attribution rules.
Mike Preston Posted December 4, 2015 Posted December 4, 2015 I sense that these are all variations on the same theme: you are looking for help in understanding the controlled group rules to help you pass the ERPA exams. That's fine and dandy. However, if you are looking for theoretical help I implore you to be succinct, grammatically correct and self-limit your questions so that it doesn't look like an adequate response requires a lot of time to provide you with the help you seek. This isn't meant to dissuade you from asking your questions in any way. Just as some friendly advice to help you get the most helpful responses.
AdKu Posted December 4, 2015 Author Posted December 4, 2015 Thank you Mike for your friendly advice and I'll try my best applying it. Thank you LANDO, too.
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now