Category: Corporations Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background BN's adult children own 100% of the stock of Corporations C and D. Corporation F is wholly owned by the adult child of BN's second wife (i.e., BN is not the father). Various limitations are placed upon the tax benefits available through multiple, commonly controlled corporations. These rules are found at IRC Sections 1561, 1563, and 179(d)(6). There may be other such rules elsewhere, but these are the ones you mentioned. The various limitations are applicable if two or more corporations are considered part of the same controlled group. Issues 2. Are Corporations A, B, and F part of the same controlled group for purposes of IRC Sections 1561, 1563, and 179? Answers 2. Corporations A, B, and F are not part of the same controlled group for purposes of IRC Sections 1561, 1563, and 179. Discussion 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing -- (A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation, and (B) 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 of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation. Generally, the stock ownership rules set forth above can be met either through direct ownership of stock or through application of the attribution rules. For purposes of Sections 1561, 1563, and 179, attribution is controlled by Section 1563(d). With respect to Issue 1 involving Corporations A, B, C, and D, the question is whether A) BN's stock ownership in Corporations A and B is attributed to BN's adult children; and B) the adult children's ownership in Corporations C and D is attributed to BN. The rule regarding attribution between parents
and adult children is set forth at 1563(e)(6)(B). Stock is attributed if
the parent owns (either directly or by attribution) Obviously, A and B are part of the same controlled group and C and D may be depending on how many parties are involved and how the ownership is distributed. With respect to Issue 2 involving Corporations A, B, and F, the question is whether A) BN's stock ownership in Corporations A and B is attributed to the adult child of BN's second wife; and B) the child's ownership in Corporation F is attributed to BN. There is no blood relationship between BN and the adult children of BN's wife, and there is no attribution as between step-parents and step-children. Accordingly, if any attribution is required among the parties, it must result from the indirect application of the family attribution rules with BN's wife. There is no attribution of the F stock to BN for two reasons. First, apply the same analysis set forth in Issue 1 to determine whether BN's wife constructively owns the stock of F. This analysis results in the conclusion that she does not constructively own such stock. Second, even if BN's wife did constructively own the stock of F, the family attribution rules are applied only one time. In other words, once the family attribution rules are applied to produce one constructive owner, the family attribution rules are not applied a second time for purposes of producing yet another constructive owner. IRC Section 1563(f)(2)(B). Absent attribution to the wife and to BN, Corporations A, B, and F do not constitute a controlled group under Section 1563.
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