Question 302: A father and his adult son (over age 21) each own 50% of the company "Together."
The son also owns 100% of the company "Alone."
The son has no children or grandchildren. The companies don't do business together, but the son works and is paid wages from both companies (mostly from "Together").
If either the father or the son were to own more than 50%, then it would create a controlled group, but a precisely 50/50 split means there is no controlled group! How can that be? Am I missing something here?
Answer: Are you missing something here? Let's begin with the fact that you are misapplying an attribution rule.
Suppose Father owns 51% of Together and Son owns 49%. Would that make Together in a controlled group with Alone? No. While family attribution then would treat Father as owning 100% of Together, Father would not have any ownership in Alone. Parental attribution just attributes stock in the one corporation in which the parent (or adult child) owns more than 50%, and doesn't spread to other, businesses.
But you are quite correct that if Son owns 51% of Together, Son is deemed to own Father's 49%. That would give Son 100% of Together and 100% of Alone, making the two businesses part of a controlled group.
You don't like where Congress drew the line. You'd draw it somewhere else. OK, where? 40%+? Then at 40% you wouldn't have a group and 40.1% you would. 25%+? You have the same result. 5%+? Or what if the law were written to use the Code §318 attribution rules so as to cause absolute attribution between parent and child regardless of age and regardless of holdings?
I admit, I'd often draw the line somewhere differently than Congress has drawn it. That's true of a lot of lines. Would I set the controlled group line at 80%? Probably not.
But they're Congress, and you and I are just humble voters. The law says what it says. And the true beauty of the controlled group rules is that the law says what it says fairly clearly and unambiguously. We can argue about where we'd draw the line, but once you understand the law, you know where the line is and what side of the line you're on, with no fuzziness. And for a piece of legislation with corresponding regulation, that's really pretty good.