Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Display and Distribute
Your Job Openings
COVID-19 News
COVID-19 Webcasts

Featured Jobs

Legal Director

Pension Rights Center
(Telecommute / Washington DC)

Pension Rights Center logo

Plan Compliance Analyst (administrator)

(Telecommute / Falls Church VA)

RPA logo

Defined Contribution Plan Administrator

Pension Investors Corp of Orlando Inc
(Altamonte Springs FL)

Pension Investors Corp of Orlando Inc logo

Plan Consultant

Advanced Plan Designs, LLC
(Telecommute / Springfield MO)

Advanced Plan Designs, LLC logo

Retirement Plan Consultant

(Telecommute / Dallas TX / University Place WA / The Woodlands TX)

Definiti logo

Pension Plan Administrator

Quantech Pensions LLC
(Anaheim CA)

DB/DC Plan Consultant

Small NY Actuarial TPA Firm
(Telecommute / CT / NJ / NY)

Retirement Plan Administrator

Howard Simon & Associates
(Deerfield IL)

Howard Simon & Associates logo

Manager/Supervisor of Benefits and Payroll Compensation

Virginia Farm Bureau
(Richmond VA)

Virginia Farm Bureau logo

Administration Manager

Southern Pension Services
(Telecommute / Tampa FL)

Southern Pension Services logo

Retirement Plan Relationship Manager

Prosperity Advisors, LLC
(Akron OH)

Prosperity Advisors, LLC logo

Administration Assistant

Southern Pension Services
(Tampa FL)

Southern Pension Services logo

Retirement Plan Administrator

Carpenter Morse Group
(Telecommute / Longwood FL)

Carpenter Morse Group logo

Free Daily News and Jobs

“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

Attribution to Mother-in-Law?

(Posted July 24, 2000)

Question 54: I'm confused as to whether or not the mother-in-law of the owner of an S-corp is considered to be a key employee or a highly compensated employee by virtue of (double) family attribution. She is on the payroll and active in the business. She also earns considerably less than $80,000.

Answer: Although it doesn't fit directly in our focus on employee and employer aggregation, this question does rely on the attribution rules of Code section 318, the rules that govern affiliated service groups.

There is no attribution from someone to his or her mother-in-law. In fact, there is never double family attribution under any of the three sets of attribution rules applicable to qualified plans.

For example, IRC 318(a)(5)(B) says "Stock constructively owned by an individual by reason of the application of paragraph (1) [the family attribution rules] shall not be considered as owned by him for purposes of again applying paragraph (1) in order to make another the constructive owner of such stock."

This means that although there's attribution between husband and wife and between parent and child (regardless of the age of the child) for section 318 purposes, there cannot be attribution from the husband to the wife to the wife's mother.

However, suppose for a moment that the stock is community property, even though it's in the husband's name. The wife's one-half interest in the stock is owned directly by her and is deemed to be owned by her mother. Thus, mother could be a 5% owner.

Alternatively, suppose the stock is in the name of the Jones Revocable Family Trust, with the husband and wife as the grantors of the trust. Suppose that the trust provides that when husband dies, the wife or whomever she has designated gets his stock. The wife is deemed to own some of the stock, not because of the family attribution rules, but rather because she is a beneficiary of the trust. You would compute her interest via actuarial tables in the IRC regulations (20.2031-7). Under these regulations, if the husband is 43 and the current interest rate is 6%, the value of the remainder interest is 18.4%. So, the wife would be deemed to own 18.4% through trust attribution and 100% through spousal attribution. The 18.4% from trust attribution could be further attributed to the wife's mother, through parent-child attribution.

The section 318 attribution rules are discussed at length in Chapter 14 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.