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Question 14: John owns 75% of each of 5 incorporated car dealerships. The remaining 25% is owned by an unrelated person, a different one for each dealership. (So, corporation A is owned by John and A, corp B by John and B, etc.) Finally, John owns 100% of another corporation, a body shop. If the body shop wants to establish a plan, do I have to cover the employees of the dealerships?
Answer: No. None of them are in a controlled group.
In order to have a controlled group, the same 5 or fewer individuals must own at least 80% of each corporation. This is called a controlling interest.
Thanks to a supreme court decision (U.S. v Vogel Fertilizer), we only have to count those shareholders who own (or are deemed to own) stock in both corporations. In other words, if you own stock in corp A but not corp B, then you are ignored for purposes of determining whether a controlling interest exists. John is the only person who owns stock in more than one corporation here, and he owns less than 80% in all the dealerships, so they cannot be part of a controlled group with each other or with the body shop.
Of course, this assumes that none of the attribution or exclusion rules apply. For example, if John has an option to buy the stock of one of the shareholders, or the right to vote their stock, then he is treated as owning the stock, and you would have a controlled group.
This is a good example of the power of the Vogel Fertilizer decision, one of the most important decisions in this arena. For more on Vogel, see Chapter 6 of my new book, Who's the Employer?
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