Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA News
ARPA Webcasts

Featured Jobs

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Manager, 5500 Team

401K Generation
(Altamonte Springs FL)

401K Generation logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

DC Administrator

MGKS
(Telecommute / Phoenix AZ)

MGKS logo

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Retirement Plan Administrator

Premier Plan Consultants
(Telecommute / San Diego CA)

Premier Plan Consultants logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Product Support Consultant

ftwilliam.com part of Wolters Kluwer Legal & Regulatory
(Telecommute)

ftwilliam.com part of Wolters Kluwer Legal & Regulatory logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

Defined Benefit Retirement Plan Administrator

Benefit Associates, Inc.
(Telecommute / Huntington Beach CA)

Benefit Associates, Inc. logo

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Can Options Break Up Controlled Groups?

(Posted March 19, 1999)

Question 18: Can I use options to break up a controlled group? Suppose, for example, John owns all 100 shares of Corp. A and 85 of the 100 shares of Corp. B, a classic brother-sister controlled group. (The remaining 15 shares of Corp B is owned by an unrelated party, Xavier.) Corp. B grants Charlie (an unrelated party) an option to buy 10 shares. Now John owns 85/110s (77%) of Corp B, because Charlie is deemed to own the 10 shares, and there isn't a controlled group.

Answer: No. Neither attribution through options nor any of the other attribution rules can have the effect of dividing a controlled group. They do not change the ownership prior to the attribution, they merely create an alternative stock ownership. A controlled group exists if the ownership tests are met either under the actual ownership or under an alternative ownership through the attribution rules.

In the example above, John now owns 85% of Corp. B, and the attribution rules do not change that fact. That being the case, the two corporations are in a controlled group, regardless of what changes may happen to ownership percentages after attribution.

The attribution rules never break up a group, but they can create groups that otherwise would not exist. Suppose, for example, that there was a Corp C in which Charlie and John each owned 50%. Before attribution, Corp. B and Corp C are not in a controlled group (because B owns less than 80% of Corp. C and Charlie doesn't own any Corp. B stock and hence is ignored under Vogel Fertilizer.) After attribution because of the option, Charlie does own Corp. B stock and John and Charlie together have both effective control (more than 50%) and a controlling interest (at least 80%) in both corporations and a controlled group exists between Corp. B and Corp. C.

Incidentally, this means that Corp. B is in two different controlled groups, (A and B) and (B and C). For ordinary income tax purposes, this means that B can choose which group it is in. However, for corporate plan purposes, it is a part of both groups. My position is that since all employees of Corp. A and Corp. B are deemed to be employed by a single employer, and all employees of Corp. B and Corp. C are deemed to be employed by a single employer, then there is one employer of the employees of all three corporations and they are tested together.

The option attribution rules give rise to several interesting questions that are discussed, with examples, at Q 7:4 - 7:8 of my book Who's the Employer?


Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.


Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021 BenefitsLink.com, Inc.