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

Featured Jobs

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Product Support Consultant

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

ftwilliam.com part of Wolters Kluwer Legal & Regulatory logo

DC Administrator

MGKS
(Telecommute / Phoenix AZ)

MGKS logo

Manager, 5500 Team

401K Generation
(Altamonte Springs FL)

401K Generation logo

Retirement Plan Administrator

Premier Plan Consultants
(Telecommute / San Diego CA)

Premier Plan Consultants logo

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Defined Benefit Retirement Plan Administrator

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

Benefit Associates, Inc. logo

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

Employee Benefits/Health and Welfare Attorney

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

Miller Johnson 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

Stepchildren Under Attribution Rules

(Posted March 8, 2001)

Question 83: For purposes of attribution under IRC 318 (which determines the ownership of stock for purposes of the definitions of highly compensated employee and affiliated service group), is there attribution between a stepchild and a stepparent? What if the stepchild is adopted?

Answer: IRC 318 says "An individual shall be considered as owning the stock owned, directly or indirectly, by or for ... his children, grandchildren, and parents." It adds that "a legally adopted child of an individual shall be treated as a child of such individual by blood."

There is no attribution between a stepparent and a stepchild (or, for that matter, a foster parent and a foster child) under this provision unless the stepparent adopts the child. There is always attribution between an adoptive parent and adopted child. Without the adoption, there is no relationship between the two recognized under IRC 318.

Of course, there would be attribution from child to natural parent, but there would not be a second level of attribution from the natural parent to the stepparent, because that would violate section 318's prohibition on double family attribution.

The same analysis would apply to controlled group attribution under IRC 1563, with the modification that attribution is limited between a child over age 20 and a parent. However, there is no attribution under that section between stepchild and stepparent. Moreover, adopted children are treated the same as natural children.

The same answer is found in IRC 267, which applies to determine related parties for purposes of management function groups, leased employees, and the prohibited transaction rules. IRC 267 is the only Code section that allows attribution between siblings, and it expressly includes attribution between half-siblings.

Let's put this all in a family context with an example. John and Mary are happily married. They have a daughter, Debbie. John has a son from a prior marriage named Steve. Mary has a son from a prior marriage named Adam. John has adopted Adam, but Mary has not adopted Steve (Steve's mother would not consent). All three children are under age 21 and each owns 2% of the SAD company.

For purposes of all three sets of attribution rules, John will be considered to own 4% of SAD. He is deemed to own Debbie's and Steve's 2% because they are his natural children. He is deemed to own Adam's 2% because Adam is his adopted child. Hence John is a "5%-owner" of SAD as that term is used in the Code's definition of highly compensated employee.

Mary is deemed to own only 4% of SAD. She is not deemed to own Steve's stock because she has not adopted Steve and he is not her natural child. Thus, John is a 5%-owner for purposes of the HCE rules and Mary is not.

Under IRC 267, each of the three children is deemed to own 6% of SAD, because there is attribution between siblings and half-siblings under that section.

The attribution rules under IRC sections 1563, 318, and 267 are discussed in more detail in Chapters 7, 13, and 17 (respectively) of my book, Who's the Employer? The latest edition of the book includes a table comparing the three sets of attribution rules.


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.