Who's the Employer?

Answer: If you had money riding on this one, pay up!

One of the most confusing parts of the controlled group, ASG rules is that we have three different sets of attribution rules to work with. You must apply the proper set of attribution rules to a particular form of entity aggregation.

Traditional affiliated service groups are subject to the attribution rules of section 318. Under those rules, as you correctly note, there is absolute attribution between parent and child, regardless of the age of the child. The 318 rules also govern determination of whether someone is a 5% owner and a key employee.

Controlled groups, on the other hand (as well as groups of trades or businesses under common control) are governed by the attribution rules of IRC 1563. Under those rules:

A. There is absolute attribution between parent and child if the child is under age 21.

B. If the child is 21 or older, then:

1. The parent is deemed to own the child's shares only if the parent already owns (or is deemed to own) more than 50% of the company.

2. The child is deemed to own the parent's shares only if the child already owns (or is deemed to own) more than 50% of the company.

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