Parent - Adult Child Attribution

Hi folks! 

Scenario:

• Parent owns 100% of Company A. 
• Parent/Adult Child are 50/50 partners in Company B. 
• Unrelated entities. 

Am I correct in that there is no controlled group here? It is my understanding that ownership is only attributed from/to Parent/Adult Child if they own over 50%, not 50% exactly. 

Or am I not reading the rules correctly?

Thank you!

Donnie

how old is the child? 

there used to be Q & A on this website that addressed that issue. Not sure i'm allowed to repost one in full, if not I understand if this comment gets deleted. but here is one from Derrin Watson: 

"Parent child attribution rules
(Posted March 11, 1999)
Question 15: If a father owis 100% of one corporation and the son owis 100% of another corporation, are they considered a controlled
group? I think the ans11er is yes from /RC 318, but someone else thought that because the son is over 21 that the ans11er is no.
Answer: If you had money riding on this one, pay up!
One of the most confusing parts of the controlled group, ASG rules is that we ha1.e three different sets of attribution rules to work with.
You must apply the proper set of attribution rules to a particular form of entity aggregation.
Traditional affiliated service groups are subject to the attribution rules of section 318. Under those rules, as you correctly note, there
is absolute attribution between parent and child, regardless of the age of the child. The 318 rules also go1.em determination of whether
someone is a 5% owner and a key employee.
Controlled groups, on the other hand (as well as groups of trades or businesses under common control) are go1.emed by the attribution
rules of IRC 1563. Under those rules:
A. There is absolute attribution between parent and child if the child is under age 21.
B. If the child is 21 or older, then:
1. The parent is deemed to own the child's shares only if the parent already owns (or is deemed to own) more than 50% of
the company.
2. The child is deemed to own the parent's shares only if the child already owns (or is deemed to own) more than 50% of
the company.
So, suppose I own 75% of company A and my adult son owns the remaining 25%. I am deemed to own my son's stock for controlled
group purposes (because I already ha1.e more than 50% ), but he is not deemed to own my stock (because he does not already ha1.e a
majority of the company). For affiliated sen.ice group purposes, we are both deemed to own 100% of the other's business.
Going to the facts of your case, since neither owns any interest in the other's business, neither is deemed to own the other's stock. So
there are no shareholders in common between the two businesses and a controlled group does not exist.
Just to make things a little more confusing, there is a third set of attribution rules that are used in dealing with leased employees under
414(n) and management function groups under 414(m)(5). These are the related party rules under IRC 267. Incidentally, those handle
parent child attribution in the same manner as IRC 318.
Because these rules are so important, I discuss each set in a separate chapter of my book Who's the Employer?
Controlled group attribution: Chapter 7
Affiliated sen.ice group attribution: Chapter 14
Related party rules: Chapter 17
Q 14:16 of the book has a table contrasting controlled group attribution and ASG attribution."

Isn't the age 21 issue gone under SECURE effective 2024?

I agree, no controlled group. No attribution because neither the parent nor the child owns more than 50%.

IRC 1563(e)(6)(B)

Quote

An individual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years.

Jak, the issue you're thinking of has to do with controlled groups that are formed between spouses (or unmarried parents, for that matter) who are both owners of their own businesses when they have a young child together. The 1563(e) rules automatically attribute ownership from a parent to a minor child, so a controlled group would always exist because the child would be attributed all of the parents' ownership and therefore the child would be deemed to own 100% of both companies. SECURE 2 didn't change 1563, but it changed 414(b), (c), and (m) to say that a controlled group or affiliated service group will not be considered to exist merely because of the existence of a minor child, or because the spouses live in a community property state.

Thank you to all who took the time to respond. I really appreciate your input. I should have noted that the Adult Child is, in fact, over 21. The client will be happy with this news.