Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

DB/DC Administrator

Primark Benefits
(Remote / San Mateo CA)

Primark Benefits logo

Retirement Plan Relationship Manager – DB or DC Focus

Trinity Pension Consultants
(Remote / Akron OH / AL / IN / KY / MO / TN)

Trinity Pension Consultants logo

Senior Defined Contribution Account Manager

Nova 401(k) Associates

Nova 401(k) Associates logo

Pension Administrator

(Remote / Phoenix AZ)

MGKS logo

Retirement Plan Administrator

Hessel & Associates, LLC
(Remote / IL)

Hessel & Associates, LLC logo

401(k) Retirement Plan Administrator

Midwest TPA with Remote Workforce
(Remote / Beachwood OH)

Retirement Plan Administrator

Hicks Pension Services

Hicks Pension Services logo

Manager - Defined Contribution Plans

M2B Retirement Consulting LLC
(Remote / Wexford PA)

M2B Retirement Consulting LLC logo

DC Administrator

United Benefit Pensions Inc.
(Remote / Melville NY)

United Benefit Pensions Inc. logo

Plan Administrator Consultant

Jocelyn Pension Consulting
(Remote / Boulder CO)

Jocelyn Pension Consulting logo

Retirement Plan Administrator

CMC Pension Professionals

CMC Pension Professionals logo

Chief Pension Actuary

Loren D. Stark Company

Loren D. Stark Company logo

Director of Pension Administration

Primark Benefits
(Remote / San Mateo CA)

Primark Benefits logo

Enrolled Actuary

Loren D. Stark Company

Loren D. Stark Company logo

Distribution \ Loan Clerk

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Compliance Specialist II



Plan Administrator

Aimpoint Pension
(Remote / Pompano Beach FL)

Aimpoint Pension logo

Site Manager / Senior Administrator

Nicholas Pension Consultants
(Remote / AZ / ID / NM / NV / UT)

Nicholas Pension Consultants logo

View More Employee Benefits Jobs

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

Common Control in Partnerships

(Posted September 6, 2002)

Question 230: In determining whether two partnerships are a brother-sister group of trades or businesses under common control, do you first consider each owner's profits interests and then consider each owner's capital interests (to see if the ownership threshholds are met) or alternatively, do you use the higher of each partner's capital or profits interest? (The attribution rules clearly state that an interest in an entity owned by a partnership is deemed to be owned by the partner in proportion to the greater of his capital or profits interests. However, I'm not sure how to apply the rules if no attribution rule is called for.)

Answer: Your uncertainty is understandable. The real question is, "What constitutes a controlling interest, or effective control, of a partnership?" As you point out, that is a very different question from "How are assets held by a partnership attributed to its partners?"

The regulations give a clear answer. A controlling interest in a partnership consists of "ownership of at least 80 percent of the profits interest or capital interest of such partnership." In other words, add all the profits interests of the partners under consideration. If that totals 80% or more, they have a controlling interest. If not, add all the capital interests of those partners. If that totals 80% or more, they have a controlling interest. If the partners in question have less than 80% of partnership profits and less than 80% of partnership capital, then they do not have a controlling interest. A similar rule applies for effective control (set at more than 50%.)

Let's take an example. George and Gracie each own 50% of George's Cigars. In addition they are partners in Gracie's Hats. George owns 40% of the capital and 30% of the profits in Gracie's Hats. Gracie owns 35% of the capital and 42% of the profits in Gracie's Hats. Their friend, Allen, owns the remaining interest in the partnership. Together George and Gracie own 75% of the capital and 72% of the profits. Because they do not own 80% of either, they do not have a controlling interest. Barring attribution or exclusion, Gracie's Hats and George's Cigars are not under common control.

Under the alternative you suggested, we would add George's 40% of capital to Gracie's 42% of profits to come to 82%. But that is not what the regulations provide. The regulations don't add numbers; they add profits interests and they separately add capital interests. They do not mix the two.

However, as you point out, attribution is based on the greater of capital or profits interest. So, suppose Gracie's Hats owned 100 shares of Acme Deviled Eggs. George would be deemed to own 40 shares of Acme, and Gracie would be deemed to own 42 shares of Acme.

Groups under common control are discussed in Chapter 12 of my book, Who's the Employer. (The 10% off presale of the upcoming third edition expires September 30.)

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)

© 2022, Inc.