Category: Corporations Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background BN's adult child owns 100% of the stock of Corporation C. 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. Issue Answer 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). Ultimately, the question is whether A) BN's stock ownership in Corporations A and B is attributed to BN's adult child; and B) the adult child's ownership in Corporation C 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) more than 50% of the voting power and value
of stock of the corporation owned by the adult child. BN does not directly
own any shares of C. The only source of indirect ownership is application
of the 50% rule of Section 1563(e)(6)(B) itself. Since there is no indirect
ownership but for application of the rule itself, BN has no indirect ownership
in C. The same logical process produces the result that the adult child
does not constructively own BN's stock in A and B. Accordingly, there is
no common ownership as between BN's companies and the company owned by his
adult child. In the absence of such common ownership, Corporations A, B,
and C are not part of the same controlled group for purposes of Sections
1561, 1563, and 179. |
