Controlled Group Question

[Becky Schwing]

Owner                        Company 1         Company 2

1 Husband                 50%                     100%

2 Wife                         50%                     0%

Company 1 has a 401k plan - although plan allows form employer match all they do is allow for 401k deferrals - no match has been made to plan over the years.

Husband recently acquired company 2 - only has 5 employees and he is only HCE.  Wife has no part of company 2

Husband and Wife have one child under age 21

Am I correct that because they have a child under age 21 there is a controlled group situation here?  If they did not have a child under 21 than there would not be a controlled group? 

 

[C. B. Zeller]

Yes, there is a controlled group due to the minor child.

There would be a controlled group regardless, since they both have ownership in company 1 the spousal attribution exemption does not apply. Husband is deemed to own 100% of company 1.

[FORMER ESQ.]

Wife's 50% interest in Company 1 is attributed to Husband, so that Husband is deemed to own 100% of Company 1. The exception to spousal attribution would not apply here because Husband is a shareholder in Company 1.  This is a classic brother-sister controlled group. The presence or absence of the minor child does not make a difference.