Question 67: Corporation Y is owned 100% by Shareholder A. Partnership/LLC X is owned 2% by Shareholder A and 98% by Shareholder A's parents. Shareholder A is 50 years old. Are X and Y under common control within the meaning of Internal Revenue Code section 414(c)?
Answer: No. Other than the application of 415(h), perhaps the most widely misunderstood provision of the controlled group rules are the parent-child attribution rules.

There is attribution of stock in a company from an adult child (older than age 20) to a parent if and only if the parent already owns, or is deemed to own, more than half of the company.
There is attribution from a parent to an adult child of stock in a company if and only if the child already owns, or is deemed to own, more than half of the company.

Shareholder A's parents are not deemed to own any of the Corporation Y stock, because they don't own more than half of that company. The fact that Shareholder A owns more than half of that company is irrelevant.

Shareholder A's parents are deemed to own Shareholder A's stock in LLC X, because the parents already own more than half of LLC X. That makes the parents 100% owners of X.

Shareholder A is not deemed to own any of the parents' stock in LLC X, because Shareholder A (their child) does not own more than half of LLC X.

Hence Shareholder A owns 100% of Corporation Y and 2% of LLC X. The parents don't own any of Corporation Y. There's no way you can construct common control out of that.
The attribution rules are discussed in more detail in Chapter 7 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.