RMD 5% owner under constructive ownership

[AnnCK]

Law firm that is a partnership.  Bill and Mary and married and both work for the firm. Bill owns 5% profits interest and Mary owns 5% profits interest.

When they reach RMD age, must they start the RMDs while they are still working?  Neither one  has more than 5% profits interest.

I am reading several articles that state that the reference in 416 to the constructive ownership rules of 318 will require Bill to be deemed to own Mary's interest, and vice versa.  Therefore they will each be deemed to have 10% profits interest and therefore must start the RMDs.

My question is, "what is the significance of 416(i)(1)(B)(iii)(I) which says  that “constructive ownership” only applies if a person owns more than 50% of the stock of a corporation, or (II) in the case of an employer that is not a corporation, principals similar to the principals of (I) apply.

To me, this seems to be saying that Bill would not be deemed to own Mary's profits interest unless Bill owned 50%, and vice versa.

 So while 318 requires constructive ownership, it seems like 416 is saying that for purposes of determining a 5% owner, the constructive ownership rules will only apply if a person owns at least 50%. 

Thanks!! 

 

[C. B. Zeller]

416(i)(1)(B)(iii)(I) says that sec. 318(a)(2)(C) is applied by substituting "5%" for "50%." In other words, take anywhere that "50%" appears in 318(a)(2)(C) and mentally replace it with "5%" when you're thinking about who is a 5% owner for sec. 416 purposes.

What 318(a)(2)(C) says, is that if you own at least 50% (but we're treating it as if it says 5%) of a corporation, then you are deemed to own a proportional share of any stock owned by that corporation. Based on the facts presented, I don't think this section applies to your situation.

Ordinary spousal attribution under sec. 318 applies, and so each  spouse would be considered to own 10% for 416, and consequently for 401(a)(9), purposes.

[AnnCK]

Thank you!  I had read the language in 416 incorrectly and was thinking it said to substitute 50% for 5%, not the other way around !