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Triple Attribution In Controlled Group
(Posted April 2, 2001)
Question 92: Corporation X owns 100% of Corporation Y. Corporation X is owned in equal proportions by two partnerships, Partnership 1 and Partnership 2. Partnership 1 is owned by Mike (2%) and Mrs. Mike (98%). Partnership 2 is owned by Dave (2%) and Mrs. Dave (98%). Each partnership also owns 50% of Corporation Z. The question is, do Corporation Y and Corporation Z constitute a brother-sister controlled group?
Answer: Yes, they do.
Let's simplify the facts just a bit. Dave and Mrs. Dave are each deemed to own 100% of Partnership 2, because there clearly would be attribution between husband and wife in this situation. Ditto Mike and Mrs. Mike for Partnership 1. So, to make it simple, I'm going to ignore the men and focus focus on the economic powerhouses in this question, the wives. I don't have to, but it makes life easier. Note, however, that I could just as easily focus on the husbands.
Mrs. Dave is deemed to own 100% of everything Partnership 2 owns. That means she is deemed to own 50% of X and 50% of Z. As half owner of X, she is deemed to own half of everything X owns, giving her 50% of Y as well. Similarly, Mrs. Mike is deemed to own 50% of all three corporations.
So we now have two individuals who each are deemed to own 50% of each of three corporations. That's as clear a brother-sister controlled group as you could wish.
Notice that this problem involves multiple layers of attribution. I attribute husband's stock to their wives. I attributed the partnership assets to the partners. I attributed X's assets to its deemed shareholders. The Y stock went through all three layers of attribution. That is perfectly permissible under the attribution rules of Internal Revenue Code section 1563.
For more information about controlled group attribution, see Chapter 7 of my book, Who's the Employer?.
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