Family Attribution Rules - Grandkids

We have a potential new client where:

Grandma owns 47%
Mom owns 47%
Third party owns the remaining 16%

If they were to hire one of the grandkids, technically they wouldn't be considered an HCE based on attribution correct?

My understanding was that ownership transfer from grandkid to grandparent, but not the other way.  And since mom only owns 47% there isn't an issue.

I just wanted to confirm I was correct.  Thanks!

Your numbers appear to be off - 47% + 47% + 16% = 110%.

Attribution under sec. 318, used for determining who is a 5% owner for HCE, Key employee, and RMD purposes, among other things, goes from grandchild to grandparent but not from grandparent to grandchild. In your example (notwithstanding the inconsistent total), both Grandma and Mom would be deemed 94% owners (since they are each attributed the other's ownership) and grandkid would be deemed 47% owner (attributed Mom's ownership only).

8 minutes ago, C. B. Zeller said:

Your numbers appear to be off - 47% + 47% + 16% = 110%.

Attribution under sec. 318, used for determining who is a 5% owner for HCE, Key employee, and RMD purposes, among other things, goes from grandchild to grandparent but not from grandparent to grandchild. In your example (notwithstanding the inconsistent total), both Grandma and Mom would be deemed 94% owners (since they are each attributed the other's ownership) and grandkid would be deemed 47% owner (attributed Mom's ownership only).

Sorry, that was a typo!

If the mom is an owner, but draws no salary it doesn't matter correct?  The child would still have to be considered an HCE based on mom's ownership, correct?

3 hours ago, metsfan026 said:

If the mom is an owner, but draws no salary it doesn't matter correct?  The child would still have to be considered an HCE based on mom's ownership, correct?

I agree that an individual does not have to be an employee in order to have ownership attributed to them or to have their ownership attributed to another person.

Interesting...I always thought attribution was lineal ascendents and descendents.  Since there's no double attribution, that would follow for the "not from grandparent to grandchild" but doesn't make sense for "grandchild to grandparent" causing attribution should the grandchild have ownership.  Anyone know the logic behind that?!?! 

55 minutes ago, pmacduff said:

Interesting...I always thought attribution was lineal ascendents and descendents.  Since there's no double attribution, that would follow for the "not from grandparent to grandchild" but doesn't make sense for "grandchild to grandparent" causing attribution should the grandchild have ownership.  Anyone know the logic behind that?!?! 

Logic? Nope.

But it is literally written into the law.

(1) Members of family

(A) In general An individual shall be considered as owning the stock owned, directly or indirectly, by or for—

(i)  his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and

(ii) his children, grandchildren, and parents.

https://www.law.cornell.edu/uscode/text/26/318

So you own your grandchildren's stock but going up the family tree it is only the parent's not the grandparent's stock.   In fact back when I trained more people I told people to try and remember this by remember this saying:  For attribution it is down 2 an up 1 on the family tree. 

Just a guess a lot of estate planning has old adults moving stock and other assets to their grandchildren if the generation being skipped can afford not to inherit the assets.  So they decided to make it so you can't estate plan and make the current oldest living generation suddenly not HCEs.  But that is a guess.  Congress doesn't really need logic.