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BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson

Parent Child Attribution and family aggregation

(Posted February 26, 1999)

Question 3: Under IRS Notice 97-45, with the aggregation rules repealed by the SBJPA, the IRC 318 attribution rules still are used in determining who is highly compensated with respect to family members. Does IRC 318 apply to all lineal descendants? (My question arises from your Code reference in the question regarding husband and wife with 100% ownership of separate corporations and the issue of controlled groups.)

Answer: The constructive ownership rules of IRC 318 apply both for determining who is a 5% owner (and therefore and HCE) and for determining ownership of potential affiliated service group members. Under IRC 318(a)(1), there is absolute attribution between:


There is also attribution from grandchild to grandparent, but not from grandparent to grandchild.

It does not extend further than grandparent-grandchild. There is no attribution between great-grandchild and great-grandparent, for example, or between brother and sister.

"But wait, couldn't stock ownership be attributed from grandchild to grandparent and then from that grandparent to his or her parent?" No. IRC 318(a)(5)(B) prohibits double family attribution. You can attribute a given share of stock only once under the family rules.

"So how come you came to your conclusion in Q1 about husband wife attribution in controlled groups?" Two points:

1. That is attribution under IRC 1563, a totally different set of rules.

2. There was no double attribution in that example. Husband's stock was attributed once -- to minor child. Wife's stock was attributed once -- to minor child. At that point, minor child owns both companies and a controlled group is created, without any prohibited double attribution.

Family attribution under IRC 318 is explained, with a detailed example, at Q 14:7 of my new 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
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