Controlled Group
Rev. 03/11/10; E-mail Alert 2010-4

Company A has two owners and each owns 50%. Company B has four owners — the two owners of Company A plus two others. All four of Company B’s owners are siblings. Is this a brother-sister controlled group?

Since all four owners are siblings (two brothers and two sisters), there is no family attribution. Note that the rules for a brother-sister control group have nothing to do with actual siblings. This case just coincidentally involved two brothers and two sisters.

Brother-Sister Controlled Group Rules
Two or more organizations are within a brother-sister group if:

• the same five or fewer shareholders, who are individuals, estates or trusts, own at least an 80% controlling interest in each company, and
  
• the same five or fewer shareholders have an identical ownership among all companies which, in the aggregate, is more than 50%.

Analysis
It would appear at first glance that our example has satisfied both the more than 80% ownership by the same five or fewer owners and the identical ownership rule of at least 50%.

Note that to apply the 80% common ownership rule, only owners who have ownership in both companies are considered common owners. Therefore, owners 3 and 4 drop out of the common ownership calculation. Dropping owners 3 and 4 means that the common ownership of company B is only 52% and we do not pass the 80% common ownership part of the brother-sister definition. So, this is not a controlled group.

So, our controlled group analysis actually looks like this:

For more information on controlled group rules, click here for information or to register for our Controlled Group eSeminar.