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

Featured Jobs

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

DC or DB Administrator

Farmer & Betts, Inc.
(Telecommute / Tacoma WA / Tualatin OR / Littleton CO)

Farmer & Betts, Inc. logo

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Retirement Plan Administrator

Bates & Company
(Telecommute / Winter Park FL)

Bates & Company logo

Plan Document Specialist

Jocelyn Pension Consulting
(Telecommute / Boulder CO / San Rafael CA)

Jocelyn Pension Consulting logo

Product Support Consultant part of Wolters Kluwer Legal & Regulatory
(Telecommute) part of Wolters Kluwer Legal & Regulatory logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

Retirement Plan Administrator

RSW & Associates
(CT / NJ / NY)

RSW & Associates logo

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Retirement Plan Administrator (Account Manager)

Kushner & Company
(Telecommute / Portage MI)

Kushner & Company logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Employee Benefits/Health and Welfare Attorney

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

Miller Johnson logo

Retirement Plan Administrator

My Benefits, LLC
(Telecommute / Daphne AL / Atlantic Beach FL)

My Benefits, LLC logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group 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

Marital Attribution Strikes Again!

(Posted September 26, 2001)

Question 131: Corporation A is taxed as a "C" corporation. It's owned 50/50 by husband and wife. Now they want to start Corporation B as a management company, to be taxed as an "S" corporation. Are the two corporations a controlled group if Corporation B is also owned 50/50? What if Corporation B were owned 90/10?

Answer: For controlled group purposes, there is always attribution between husband and wife unless either (1) they are divorced (final or interlocutory) or separated; or (2) the noninvolvement exception applies. One of the conditions of the noninvolvement exception is that the one spouse doesn't own any of the stock directly, which isn't the case on the facts you cite.

Hence, regardless of the ratios, husband will be deemed to own wife's stock, and vice versa, in both corporations. Therefore, one person is deemed to own 100% of both corporations. That's a controlled group!

In fact, it will be a controlled group, assuming the parties are happily married, unless one spouse owns 100% of one business and the other owns 100% of the other business. (Even then, a controlled group may exist. See Q&A 111 for more details.)

But take attribution out of the picture just for a moment. Suppose this couple is living together without benefit of clergy, and they have no children. In that case, there would be no attribution. If each owns 50% of each business, then you have two owners owning identical interests in two corporations, a very clear controlled group. Shifting it to 90/10 doesn't help. Their effective control ownership would be 60%, which is more than the required "more than 50%" standard, and their controlling interest is still 100%.

If they want to break up the controlled group, they need to bring in an outside shareholder for one of the two businesses who would own more than 20% of the business. Even then, they need to beware of the attribution and exclusion rules.

These issues are discussed in more detail in Chapters 6 and 7 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, Inc.