Who's the Employer?

Answer: The attribution rules applicable to determining highly compensated employees are the same rules used to determine Affiliated Service Group status. They are contained in Internal Revenue Code section 318. Under those rules, there is always attribution between husband and wife and between parent and child.

However, as with the other sets of attribution rules, you cannot use family attribution twice. That means that while Wife can be deemed to own Husband's stock, Wife's Father cannot be deemed to own the stock Wife owns by attribution from Husband.

However, assuming this is a solid marriage (and that this is not a professional corporation, which limits who can actually own stock in the company), that can be solved. Let Husband give Wife an option to buy 6% of his stock. Then she will be deemed to own that 6%, not by family attribution, but rather by option attribution. Attributing that 6% to her parents by family attribution is then permitted, because the family rules were only used once.

For a detailed discussion of these attribution rules, see Chapter 14 of my book, Who's the Employer?.

• Other Q&A Columns