Question 44: Question No. 82 of the ASPA 1999 IRS Q&As references 1563(e)(6), and it indicates that a child under age 18 will cause his parents to have a controlled group even if the parents' separate businesses are not affiliated. But when I look at Code section 1563(e)(6), age 21 is used, not age 18. What am I missing?
Answer: Nothing at all. Well done. Sometimes, as a short hand, we will talk about attribution to a minor child, but we a really talking about attribution to or from a child under age 21, regardless of the age of majority in the state involved.
Section 1563(e)(6) says there is absolute attribution for controlled group purposes between parent and child if the child is under age 21. There is attribution from a child over 20 to a parent only if the parent already owns, or is deemed to own, more than 50% of the stock (and vice versa).
By contrast, there is absolute attribution between parent and child for purpose of Section 318 (and hence, for affiliated service groups and highly compensated employees) regardless of the age of the child.
Because of this attribution, if husband and wife each own 100% of a business, and they have a child under age 21, then that child will be deemed to own both businesses so a controlled group will exist, even if there is no attribution between the parents. This is discussed in more detail in Chapter 7 of my book, Who's the Employer?.
Of course, the answer shown in the ASPA outline is correct. If the question were whether a child less than 5 would cause a controlled group, the answer would be correct. It just doesn't go far enough. Incidentally, the person who asked the question, one of my partners at the PIX BBS, received three virtual swats for the foul-up .