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Answers are provided by S. Derrin Watson
(Posted July 14, 1999)
Question 28: If a parent corporation has 4 wholly-owned subsidiaries, and together the 4 subs each own 25% of a new sub, are the employees of the new sub considered to be employees of the parent corporation?
Answer: Yes. The parent and all 5 subs are a single parent-subsidiary controlled group.
The formal definition of a parent-subsidiary group in IRC 1563(a)(1) says that 80% of each sub in the group must be owned by "one or more of the other corporations" in the group. Because 100% of the new sub is owned by other subsidiaries, it is part of the controlled group, even though the parent doesn't own a single share directly.
As part of the controlled group, all employees of all 6 corporations are deemed to be employed by a single employer.
For more on parent-subsidiary groups, see chapter 6 of my book Who's the Employer?
Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice
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