Controlled and Controlling group rules

[SolutionsBySullivan]

Looking for simple rules on it. I heard that there is additional testing rules beyond the brother/sister and parent/child rules.

Especially when a LLC is taxed as a C-corp and its relation to regular LLCs or True C Corps.

Thanks

[OweLessTax]

The IRS now requires on the 1120 tax return that all owners of 10% or more be listed. This is, as stated by the IRS "To make complex transactions transparent".

"Control group" is any individual or group of individuals that own 50% of more of more than 1 corporation. "Controlled entities" are those corporations that are owned by common owners.

So if you and I each owned a corporation entirely, and you and I also were equal owners in an additional corporation, then the IRS can require that we file a single tax return for all entities, since YOU own 50% of two companies both of those are related for tax purposes, and I own 50% of 2 companies, both of those are related for tax purposes. And then since we have related all three they are again joined into a single taxable whole.

Just to complicate things a little further, the IRS applies "Rules of Attribution" which deems family members to be the same person when it comes to stock ownership. So, If you issue 20% to you and 20% to your spouse and 20% to each of your 3 kids, then YOU own 100 percent AND your wife owns 100% and EAch of your kids own 100%. So don't bather thinking that would solve it.

The reference on the first line was to point out that interownership of corporations, was practiced for time by some "Corporate Gurus" thinking they could obscure the truth. If there were 5 corporations and each corporation owned 20% of the other 4 and you owned the last 20% of each then you might be able to claim that you didn't own a significant interest in any of them, except for the "Indirect" ownership. You'll note the "Individual" reference in the control group rule. Corporate ownership was never a credible option.

While that never was a valid argument, some people did it any way and they didn't get caught, since 2008 the IRS has installed the rule at the top to catch these "tax evaders".

And for completeness lets' again point out that "Bearer Stock" isn't viable.

If I expand that answer for anyone please call me.

Richard Fritzler
Nevada Corporate Services
800 590-6612