Associate Attorney - Tax (Honolulu HI)
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|Question 217: A trust owns 97% of Company A. Company B is 100% owned by Company A. Company C is 67% owned by Company B and 28% owned by the trust that owns 98% of Company A. A son of the trust's grantor is a 5% owner of Company C. It is not known whether this son is a beneficiary in the trust that owns Company A. Assuming no, would the son who owns 5% of Company C earning $30,000 be considered a highly compensated employee?|
Answer: By saying that you don't know whether the son is a beneficiary, you are leaving out a key fact. (I sometimes have the impression people in the pension business don't like trusts!)
Here you have described in detail the ownership of every entity except the trust. Corporations have shareholders. Partnerships have partners. And trusts have beneficiaries. You won't be able to answer attribution and ownership questions without knowing who those beneficiaries are.
Incidentally, I'm sure you are aware that the three Companies are a controlled group (or under common control if one of them is not incorporated). If the son is an HCE of any one of them, he is an HCE of all of them.
For more on the attribution rules applicable to highly compensated employees, see Chapter 14 of my book, Who's the Employer.
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