• Skip to primary navigation
  • Skip to main content
  • 1-800-960-1371
  • Agent Login
  • Quoting Tools
    • Life
    • Senior
  • Free Marketing Guide
  • Blog

AgentLink

With AgentLink, you have easy access to the carriers you want and the tools and resources you need to offer the best to your clients.

  • Products
        • Life
          • Info
          • Products
          • AML Training
          • Quoting Tool
        • Senior
          • Info
          • Products
          • Certifications
          • Compliance
          • Quoting Tool
        • Group Benefits
          • Info
          • Products
          • Our Process
          • Group Enrollment Form
        • Individual Benefits
          • Info
          • Products
          • Our Process
          • Enrollment Tool
        • See our Concierge Services
  • Tools
  • Resources
    • Marketing Guide
    • Carrier Links
    • Group Compliance Resources
    • Sales Webinars
    • Training Webinars
    • Insurance Marketing Webinars
  • About
  • Contact Us
  •  1-800-960-1371
  • Life Quoting Tool
  • Senior Quoting Tool
  • Marketing Guide
  • Blog
Previous
Next

Attribution Rules for Determining Parent/Subsidy & Brother/Sister Controlled Groups

What are the rules for attribution for determining Parent/Subsidy & Brother/Sister Controlled Groups?

 Attribution is the concept of treating a person as owning an interest in a business that is not actually owned by that person. Attribution may result from family or business relationships. Internal Revenue Code (“Code’) Section 1563 attribution is used in determining a controlled group of businesses under Code Section 414(b) and (c).

 Note: Although the following attribution rules are written in terms of stock ownership, the same principles are applied for organizations that are not incorporated.

In the case of a:                                                Ownership relates to the:

Trust or estate                                                       Actual interest

Partnership                                                           Capital or profits

Sole proprietorship                                             Sole proprietorship

When calculating ownership interests, use the greater of:

 − Corporate ownership – voting stock or value of stock

− Partnership ownership – capital or profits

 

Code Section 1563 Attribution

Code Section 1563 contains the rules of attribution used to determine “control” for the following:

− Controlled groups of corporations (Code Section 414(b)); and

− Trades or businesses, whether or not incorporation, which are under common control (Code Section 414 (c)).

Also see Treas. Reg. § 1.414(c)-4.

 

General Rules for Family Attribution 

The following is a general description of how the family attribution rules are applied to controlled groups. 

 Note: The following family attribution rules only apply to a brother-sister controlled group and do not apply to a parent-subsidiary controlled group. 

– The ownership interests of a Spouse are attributed to the other Spouse.  

 EXCEPTION: No attribution between spouses if there is no:  

· direct ownership,

· participation in company, and

· no more than 50% of business gross income is passive investments. 

See 1.414(c)-4(b)(5)(ii).

-The ownership interests of  Minor Child  (under age 21) are attributed to the Parent.  

 -The ownership interests of a Parent are attributed to the the Minor Child (under age 21) .

-The ownership interests of a Parent are attributed to an Adult  Child (age 21 or Older) only if the Adult Child owns greater than 50% of that business.

-The ownership interests of a Adult Child (age 21 or Older) are attributed to a Parent only if the Parent owns greater than 50% of that business. 

 -The ownership interests of a Grandparent are attributed to an Adult or Minor Child (under age 21) only if the Minor or Adult Child owns greater than 50% of that business.

-The ownership interests of a Minor or Adult Child are attributed to an Grandparent only if the Grandparent owns greater than 50% of that business.

The ownership interests of  a Sibling  will not be attributed to no other Sibling. 

 

Examples :

Example 1

Ada and Barton are married. Barton is a doctor owning 100% of his medical practice. Ada is also a doctor and owns 50% of a separate medical practice (the other 50% is owned by an unrelated doctor).

Barton is not an employee or owner of a direct interest in Ada’s practice and less than 50% of the gross income in Ada’s practice is from passive investments. Barton, however, is in charge of significant management activities for his wife’s practice.

Ada does not directly own an interest or participate in Barton’s practice and less than 50% of the gross income from Barton’s practice is from passive investments.

−Barton is attributed the 50% interest that Ada owns in her practice (due to his participation in Ada’s practice).

−Ada is not attributed any ownership interest in Barton’s practice.
 

Example 2 

Clare, age 25 is the daughter of Dana. Dana owns 75% of XYZ Corporation and Clare own the remaining 25%. Since Dana owns more than 50% of XYZ, her ownership is attributed to Clare. Since Clare does not own more than 50% of XYZ, her ownership is not attributed to Dana.

 

General Rules for Organizational Attribution

The following is a general description of how the attribution rules for  organizations are applied to controlled groups:

-The ownership interest from a corporation to its shareholder are attributed to corporate ownership interests attributed, proportionately, to shareholders (owning at least 5% of corporate stock). 

–This is applicable to brother-sister controlled group only

-The ownership interest from a partnership to its partners are attributed to partnership ownership interests attributed, proportionately, to partners having at least 5% or more capital or profits interest. 

–This is applicable to brother-sister controlled group only. 

The ownership interest from a trust to its beneficiaries attributed to trust ownership interests attributed, proportionately  to beneficiaries having 5% or more actuarial interest.

Examples:

Example 1: Elliott owns 70% of the stock in the Fairfield Corporation. Grant owns 20% of the stock and four other individuals who each own less than 5% own the remaining 10%. The Fairfield Corporation has a 30% stock ownership in the Hale Corporation.

The Hale stock is attributed to Elliott and Grant in proportion to their ownership interests in the Fairfield Corporation as follows:

Elliott is treated as a 21% owner of Hale Corporation.

– 70% (interest in Fairfield) x 30% (Fairfield’s interest in Hale).

Grant is treated as a .06 % owner of Hale Corporation.

– 20% (interest in Fairfield) x 30% (Fairfield’s interest in Hale).
 

Since each of the four remaining shareholders of Fairfield Corporation own less than 5%, they are not treated as owning any interest in Hale Corporation.
 

Example 2: The Isanti Group is a partnership. Jay owns a 70% interest in Isanti, and Kendall owns a 30% interest. The Isanti Group owns 50% of the stock of Lake Investments Corporation.
 
The Lake stock is attributed to Jay and Kendall in proportion to their partnership interests in Isanti as follows:

Jay is treated as a 35% owner of Lake Corporation (70% x 50%).

Kendall is treated as a 15% owner of Lake Corporation (30% x 50%). 

 

Other Rules under Code Section 1563

After an individual is attributed the ownership of a family member, the interest does not get attributed from the individual to another family member.
 

However:

1. The ownership interests of an individual may be attributed to more
than one family member.

2. After an individual is attributed the ownership of a corporation,
partnership or trust, the interest may then be taken into account under
other attribution rules.

Options to acquire stock are, generally, treated as stock ownership under Code Section 1563. Refer to Rev. Rul. 68-601 and North American Industries, Inc. v. Commissioner, 33 TCM 1275 (1974) for further information.

Example:

Dad owns 40% interest in the XYZ Partnership. Son A (age 20 owns 30%.  Son B (age 30 owns 20%  An unrelated person owns the remaining interest in XYZ Partnership.

Dad Ownership:

Dad is considered to own a total of 90% of the profits interest in XYZ

Partnership as follows: 

-He directly owns 40% of XYZ Partnership, 

-He is considered as owning the 30% interest owned by minor Son A, and 

-He is also considered as owning the 20% interest of XYZ that is owned by his adult son. 

Note that generally, the stock ownership of family members who are 21 or older are not attributed to an individual. However, such attribution is required if the individual has effective control. Dad has more than a 50% ownership of XYZ. See 1.414(b)-4(b)(6). 
 
Son A: 

Son A is considered to own a total of 70% of the profits interest in XYZ: 

-He directly owns 30%, and 

-He is considered to own the 40% profits interest owned directly by Dad. 

Son A is not, however, considered to own the 20% owned directly by Son B (and attributed to Dad). 

 

Son B: 

-Son B is considered to own a total of 20% of the profits interest in XYZ:

-He directly owns 20%, and

-He is not considered to own the 40% interest of XYZ that is owned by his father. This is because Son B owns only 20% and he would have to own more than 50% in order for his father’s interest to be attributed to him. 

Filed Under: Employers, News and Updates

Previous Post: « Medicare trustees’ report finds ‘cautious optimism’
Next Post: $1 million in your HSA account? »

You might also enjoy...

Our companies health is importantWe Prioritize our Health and We Won an Award to Prove it!

Each year the Worksite Wellness Council of Louisville puts on a symposium, a partner of the Mayor’s healthy hometown movement. The 9th annual conference and awards presentation was held on May 18th at the Gheens Foundation Lodge. We got to be a part! At this event, […]

Read More
AgentLink – A brief overview of our Past, Present and Future.

AgentLink (originally called MedLink) was founded in 1991 by Randy McDevitt. Randy is still part of our executive team and serves as Chairman. His son Matt McDevitt is the CEO and Kathy Hamilton is our COO. AgentLink started as a Managing General Agent (MGA) for one […]

Read More

Don’t forget to browse the free tools and resources we offer our agents and prospects, including our popular online quoting tools

Download the Digital Marketing Guide

Go to Resources

Get Contracted Now

Contract with us, to get appointed with your desired carriers

Please enter your email address below  to stay up-to-date with changes in the industry.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2021 · Showcase Pro on Genesis Framework · WordPress · Log in

  • About
  • Contact
  • Careers
  • Life
  • Senior
  • Group Benefits
  • Concierge Services

Agent Login

Resources

Tools

Free Marketing Guide

1-800-960-1371

AgentLink Kentucky Office
2001 Lake Point Way, PO Box 23570
Louisville, KY 40223
Toll Free: 800.960.1371
Direct: 502.245.1371
Fax: 502.245.0978

AgentLink Indiana Office
3077 East 98th Street, Suite 135
Indianapolis, IN 46280
Toll Free: 866.462.9067
Direct: 317.569.8490
Fax: 317.569.8705

Copyright © 2020 AgentLink. All Rights Reserved.
Website Design and Digital Marketing by The Marketing Squad

  • Senior Products
  • Quoting Tool
  • Get Contracted
  • Brittney: 502-245-1371
  • Life Products
  • Quoting Tool
  • Get Contracted
  • Scott: (502) 245-1371
  • Products
    ▼
    • Life
      ▼
      • Info
      • Products
      • AML Training
      • Quoting Tool
    • Senior
      ▼
      • Info
      • Products
      • Certifications
      • Compliance
      • Quoting Tool
    • Group Benefits
      ▼
      • Info
      • Products
      • Our Process
      • Group Enrollment Form
    • Individual Benefits
      ▼
      • Info
      • Products
      • Our Process
      • Enrollment Tool
    • See our Concierge Services
  • Tools
  • Resources
    ▼
    • Marketing Guide
    • Carrier Links
    • Group Compliance Resources
    • Sales Webinars
    • Training Webinars
    • Insurance Marketing Webinars
  • About
  • Contact Us
  •  1-800-960-1371
  • Life Quoting Tool
  • Senior Quoting Tool
  • Marketing Guide
  • Blog